M/S Shree Bhawani Paper Mills ... vs State Of U.P. And Another

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Judgment Reserved on  21.08.2015
 
     Judgment Delivered on  10.09.2015
 

 
Civil Misc. Writ Petition  ( Tax)  No.  255 of 2012
 
M/s Shree Bhawani Paper Mills Ltd.
 
Vs.
 
State Of U.P. and Another
 
Connected with:-
 
Civil Misc. Writ Petition  ( Tax)  No.  279 of 2012
 
M/s Rama Shyama Papers Ltd.
 
Vs.
 
State Of U.P. and Another
 
And
 
Civil Misc. Writ Petition  ( Tax)  No.  289 of 2012
 
M/s Goels Coir Foam (India) Pvt. Ltd.
 
Vs.
 
State Of U.P. and another
 
And
 
Civil Misc. Writ Petition  ( Tax)  No.  254 of 2012
 
M/s Camphor and Allied Products
 
Vs.
 
State Of U.P. and another
 
And
 
Civil Misc. Writ Petition  ( Tax)  No.  342 of 2012
 
M/s N.P. Agro (India) Industries Ltd.
 
Vs.
 
State Of U.P. and another
 
And
 
Civil Misc. Writ Petition  ( Tax)  No. 399 of 2012
 
M/s Bholenath Industries Ltd.
 
Vs.
 
State Of U.P. and Another
 

 
Hon'ble Tarun Agarwala,J.

Hon'ble Surya Prakash Kesarwani,J.

(Per: Surya Prakash Kesarwani,J.)

1. Heard Sri S.D. Singh, learned Senior Counsel assisted by Sri Piyush Agarwal, learned counsel for the petitioners and Sri C.B. Tripathi, learned Special Counsel for the respondents.

2. In this bunch of writ petitions the interpretation of the provision of Section 4-B(2) of the U.P. Trade Tax Act, 1948 (hereinafter referred to as 'the Act') is involved. There is no factual dispute. Under the circumstance, all the writ petitions have been heard together. For the sake of convenience, the facts of the Writ Tax No.255 of 2012 is taken into consideration.

3. The petitioners are manufacturers and have applied for a Recognition Certificate under Section 4-B(2) of the Act for concessional rate of tax on purchase of goods for use in the manufacture of their final product which is a notified goods. The Recognition Certificate under Section 4-B(2) of the Act was granted by the Assessing Authority in which the goods 'diesel' was also mentioned under the category 'fuel'.' The petitioners were using diesel in their generator sets, which produced electricity, which was used to run the plant and machinery to manufacture the notified goods. Subsequently, the Commissioner of Trade Tax, U.P., Lucknow, issued a circular dated 20.7.2000 to all the subordinate officers directing that the benefit of form III-B for concessional rate of tax under Section 4-B of the Act shall not be given on purchase of diesel oil for use in generator sets in the factory. Consequently, notices were issued on 29.06.2000 by the Assessing Authority to the petitioners for deleting the goods 'diesel oil' from their Recognition Certificate under Section 4-B(2) of the Act. Aggrieved with this, large number of dealers including the petitioners filed writ petition before this Court. The petitioner filed Writ Petition No.686 of 2000, which was allowed in terms of the judgment dated 25.3.2003, in leading Writ Petition No.628 of 2000, M/s. Vam Organic Chemicals Ltd. Vs. State of U.P. and others, 2003 U.P.T.C. 467, and the Circular dated 20.6.2000 and the notice dated 29.6.2000 were quashed. The Court held:

"14. In our opinion the stand taken by the respondent, is overtechnical. In our opinion the diesel oil used by the petitioner is used for the manufacture of notified goods as mentioned in Section 4-B(2) of the U.P. Trade Tax Act. It may be noted that Section 4-b(2) does not mention that the goods referred to in sub-section (1) should be used directly for the manufacture of the notified goods. It is a settled principle of interpretation that ordinarily its words should not be added or deleted in a statute and instead the statute should be read as it is. This is the literal or grammatical principle of interpretation, which is applied with greater force in taxing statutes than in other statutes.

31. If the stand of the respondent is accepted then we will be adding the word 'directly' in Section 4-B(20 before the words 'for use in the manufacture'. This would be against the settled principle of interpretation referred to above. In our opinion, diesel oil is certainly fuel which is essential for operating the machinery in a continuous process industry like that of the petitioner. Hence in our opinion, diesel is clearly covered by Clause (a) of the Explanation to Section 4-B(2) of the U.P. Trade Tax Act. In the event of breakdown of power supply to the generating sets of the petitioner the production in the factory will come to a halt as there will be no electricity for use by the factory and there will be damage to the machinery. Hence diesel oil is certainly goods used by the petitioner for the manufacture in his factory.

42 In our opinion, the word 'fuel' will include all kinds of fuel whether in gaseous, liquid or solid form and hence it will include diesel oil fuel, RFO, natural gas, naphtha, etc."

4. Against the aforesaid Division Bench judgment of this Court, the respondents filed Civil appeal no.1929 of 2004 before the Hon'ble Supreme Court which was allowed by judgment dated 26.2.2010, State of U.P. and others Vs. Van Organic Chemicals Ltd., 2010, U.P.T.C., 413 and the matter was remanded to the Assessing Authority for de novo adjudication on the show cause notices. While allowing the Civil Appeals of respondents, Hon'ble Supreme Court observed that under the scheme of Section 4-B(2) of the Act, the Assessing Authority was vested with statutory power to issue Recognition Certificate in respect of items enumerated therein which was required by the dealer for use in the manufacture of any notified goods but the question whether the department is precluded to rectify mistake in issuing Recognition Certificate by including HSD Oil, was not answered by the High Court and, therefore, each case was required be examined by the Assessing Authority. The Supreme Court held that the show cause notices issued would constitute as a show cause notices for amending the Recognition Certificate. Hon'ble Supreme Court further directed that Assessing Authority would decide each case on its own merit uninfluenced by the decision of the High Power Committee dated 12.6.2000 and the circular issued by the Additional Commissioner dated 20.6.2000. It was further clarified that in case where the Assessing Authority had already passed an adjudication order in terms of the circular issued by the Commissioner, the Assessing Authority shall decide the cases de novo on the basis of the show cause notices and also uninfluenced by the observation made in the earlier adjudication order and pass a reasoned order.

5. As a consequence of the above judgment of Hon'ble Supreme Court, the petitioners participated in the proceedings before the concerned Assessing Authorities. The petitioners of Writ Petition No.255 of 2012, Writ Petition No.399 of 2012, Writ Petition No.279 of 2012 and Writ Petition No.289 of 2012, took the stand that they do not have any power connection from U.P. State Electricity Board/U.P. Power Corporation and that the entire plant and machineries are operated by the diesel generator sets installed in the factory premises which is the only source of energy to operate the plant and machineries and, in the absence of which, the manufacture of their final product was not possible. They also stated that diesel is a fuel and is a necessary goods required in the manufacture of the ultimate product.

6. The petitioners of Writ Petition No.254 of 2012 and Writ Petition No. 342 of 2012 took the stand that diesel generator sets have been installed in the factory for generating electricity to run plant and machinery in the event of power breakdown and rostering. Their Industry is a continuous process industry and, therefore, to run plant and machinery continuously, diesel generator sets is a necessity for the purpose of producing the final product. The diesel purchased has been used to run the plant and machinery in the factory which is covered by the word 'fuel' under clause (a) of the explanation to Section 4 B(2) of the Act.

7. However, the Assessing Authority passed the order under Section 4 B-(4) of the Act and deleted HSD Oil from the Recognition Certificate of the petitioners on the ground, namely, (i) HSD Oil is not a raw material but is used in generator sets for producing electricity, (ii) Electricity itself is a notified goods and, therefore, diesel may be a raw material to produce Electricity but is not a raw material for use in the manufacture of the final product of the petitioners and (iii) the diesel oil has not been directly used in the manufacture of the final product by the petitioners.

8. Aggrieved with the aforesaid orders, passed by the concerned Assessing Authorities, amending the Recognition Certificate by deleting the goods 'diesel oil', the petitioners have filed the present writ petition.

Submission of the Petitioners

9. Learned counsel for the petitioners submitted as under ;

(i)The petitioners of Writ Petition no.255 of 2012, Writ Petition No.399 of 2012, Writ Petition No.279 of 2012 and Writ Petition No.289 of 2012 have no electricity connection from the U.P. Electricity Board/U.P. Power Corporation. They run their plant and machinery by diesel generator sets only.

(ii) The industry of petitioners of Writ Petition No.254 of 2012, and Writ Petition No. 342 of 2012 are continuous process industry and, therefore, the plant and machinery are necessarily required to be run continuously to manufacture final products. Diesel generator sets have been installed in the factory premises to run plant and machineries in the event of power cut/brake down and in which diesel oil is used.

(iii) There is no dispute that petitioners purchased diesel oil to run diesel generator sets to obtain electricity merely to run plant and machineries in the factory to manufacture their final product.

(iv) Section 4-B(2) read with explanation clearly indicates that fuel may be used in the manufacture of notified goods under the Recognition Certificate granted for concessional rate of tax on purchase of fuel. Undisputedly, diesel is fuel.

(v) The Assessing Authority merely used the term 'raw material', whereas, the explanation to Section 4-B(2) of the Act provides for goods required for use in the manufacture to mean raw materials, processing materials, machinery, plant, equipment, consumable stores, spare parts, accessories, components, sub-assemblies, fuels or lubricants.

(vi) The phrase "for use in the manufacture" shall include fuel (diesel oil) used in generator sets to run the plant and machinery to manufacture the notified goods.

(vii) Since there is no factual dispute and the only question involved is interpretation of the provisions of Section 4-B(2) of the Act and, therefore, alternative remedy is not a bar and writ petitions are entertainable.

10. In support of his submissions learned counsel for the petitioners has relied on the following judgments ;-

(i.) (Commercial Taxation Officer, Udaipur Vs. Rajasthan Taxchem Ltd. 2007(3) SCC 124, (paras 2,3,5,6 and 17)

(ii) Dr. Bal Krishna Agarwal Vs. State of U.P. and others 1995 (1) SCC 614

(iii) Durga Enterprises (P) Ltd. And another Vs. Principal Secretry, Govt. of U.P. and others 2004(13) SCC 665

(iv) Babubhai Muljibhai Patel Vs. Nandlal Khodidas Barot and others 1974(2) SCC 706

(v) State of U.P. & Others Vs. AmbrishTandon and another2012(5) SCC 566

(vi) State of Madhya Pradesh and others Vs. Sanjay Nagayach and others 2013(7) SCC 25 (paras 34,38,39) Submissions on behalf of Respondents

11. Learned Special Counsel for the respondents submit as under:

(i) Undisputedly, electricity is a notified goods which has been produced by use of diesel in the generator sets. Recognition Certificate of the petitioners does not authorise the petitioners to use diesel to manufacture electricity and, therefore, benefit of concessional rate of tax could not be extended on purchase of diesel for use in generator sets to produce electricity so as to use the same in the manufacture of their final product.

(ii)Section 4-B(2) of the Act uses the phrase "for use in the manufacture of notified goods', since electricity is a notified goods and diesel oil is consumed as such use of diesel can not be said to be for use in the manufacture of final products of the petitioners.

(iii) Use of diesel by the petitioners in diesel generator sets to produce electricity and in turn to use the same to run their plant and machinery would amount to disposal of electricity otherwise than by way of sale and thus, would attract the provisions of Section 4B(5)/(6) of the Act.

(iv) Hon'ble Supreme Court has directed the Assessing Authorities for de novo adjudication and adjudication orders have been passed which are impugned in the present writ petitions. Against the impugned orders, the petitioners have a statutory remedy of first appeal under Section 9 and, thereafter IInd appeal before the Tribunal under Section 10 and thereafter revisions under Section 11 of the Act before the High Court and, therefore the present writ petitions under Article 226 of the Constitution of India are liable to be dismissed on the ground of alternative remedy.

12. In support of his submissions learned Special Counsel has relied upon the judgment of Hon'ble Supreme Court in the case of Union of India and others Vs. Major General Shri Kant Sharma, 2015 (6) SCC 773 (Paras 27 to 33); Division Bench Judgement dated 13.8.2012 in Writ Tax 1314 of 2011, Shree Bageshwari Papers Limited Vs. State of U.P. and others, Division Bench Judgement dated 13.8.2012 in Writ Tax No.1614 of 2011, M/s. Ganga Paper Mills Ltd. Vs. State of U.P. and another; Division Bench Judgement dated 13.8.2012, Writ Tax No.1614 of 2011 M/s. Ganga Paper Mills Ltd. Vs. State of U.P. and another; Division Bench Judgement dated 13.8.2012 in Writ Tax 1640 of 2011, M/s. Flex Industries Limited Vs. State of U.P. and others. He also placed some notifications in support of submission that electricity is a notified goods.

13. We have carefully considered the submissions of learned counsel for the parties and perused the record.

Discussion and findings:

14. Having considered the submissions of the learned counsel for the parties, we find that the following questions arises for adjudication :

(i) Whether writ petitions are liable to be dismissed on the ground of alternative remedy?

(ii)Whether use of diesel oil in generator sets to run plant and machinery to manufacture the final products as mentioned in the Recognition Certificate would qualify the essential requirement "for use in the manufacture of notified goods" under Section 4-B(2) of the Act ?

Question no.1

15. Article 226 of the Constitution of India confers very vide powers on High Courts to issue writs but this power is discretionary and the High Court may refuse to exercise the discretion if it is satisfied that the aggrieved person has adequate or suitable remedy elsewhere. It is a rule of discretion and not rule of compulsion or the rule of law. Even though there may be an alternative remedy, yet the High Court may entertain a writ petition depending upon the facts of each case. It is neither possible nor desirable to lay down inflexible rule to be applied rigidly for entertaining a writ petition. Some exceptions to the rule of alternative remedy as settled by Hon'ble Supreme Court are as under:-

(i) Where there is complete lack of jurisdiction in the officer or authority to take the action or to pass the order impugned.

(ii) Where vires of an Act, Rules, Notification or any of its provisions has been challenged.

(iii) Where an order prejudicial to the writ petitioner has been passed in violation of principles of natural justice.

(iv) Where enforcement of any fundamental right is sought by the petitioner.

(v) Where procedure required for decision has not been adopted.

(vi) Where Tax is levied without authority of law.

(vii) Where decision is an abuse of process of law.

(viii) Where palpable injustice shall be caused to the petitioner, if he is forced to adopt remedies under the statute for enforcement of any fundamental rights guaranteed under the Constitution of India.

(ix) Where a decision or policy decision has already been taken by the Government rendering the remedy of appeal to be an empty formality or futile attempt.

(x) Where there is no factual dispute but merely a pure question of law or interpretation is involved.

16. The above principles are supported by law laid down by Hon'ble Supreme Court in the case of Himmatlal Harilal Mehta v. State of Madhya Pradesh, AIR 1954 SC 403, Collector of Customs v. Ramchand Sobhraj Wadhwani, AIR 1961 SC 1506, Collector Of Customs & Excise ,Cochin & Ors. vs A. S. Bava, AIR 1968 SC 13, Dr. Smt. Kuntesh Gupta vs Management Of Hindu Kanya Mahavidyalaya, L.K. Verma v. HMT Ltd. and anr., (2006) 2 SCC 269, Paras 13 and 20, M.P. State Agro Industries Development Corpn. Ltd. & Anr. vs. Jahan Khan (2007) 10 SCC 88 para 12, Dhampur Sugar Mills Ltd. v. State of U.P. and others (2007) 8 SCC 338, BCPP Mazdoor Sangh Vs. NTPC (2007) 14 SCC 234 (para 19), Rajasthan State Electricity Board v. Union of India, (2008) 5 SCC 632 (para 3), Mumtaz Post Graduate Degree College Vs. University of Lucknow,(2009) 2 SCC 630 (para 22 and 23), Godrej Sara Lee Limited v. Assistant Commissioner (AA), (2009) 14 SCC 338. 14, Union of India v. Mangal Textile Mills (I) (P) Ltd., (2010) 14 SCC 553 (paras 6,7,10 and 12), Union of India v. Tantia Construction (P) Ltd., (2011) 5 SCC 697, Southern Electricity Supply Co. of Orissa Ltd. v. Sri Seetaram Rice Mill, (2012) 2 SCC 108 (paras 79,80,81,82,86,87 and 88), State of M.P. Vs. Sanjay Nagaich (2013) 7 SCC 25 (para 34,35,38,39), State of H.P. vs. Gujarat Ambuja Cement Ltd., (2005) 6 SCC 499 (para 11 to 19), Star Paper Mills Ltd. Vs. State of U.P. and others, JT (2006) 12 SC 92, State of Tripura vs. Manoranjan Chakraborty, (2001) 10 SCC 740 para 4; Paradip Port Trust vs Sales Tax Officer and Ors. (1998) 4 SCC 90, Feldohf Auto & Gas Industries Ltd. Vs. Union of India (1998) 9 SCC 710; Isha Beebi Vs. Tax Recovery Officer (1976) 1 SCC 70 (para 5); Whirlpool Corporation Vs. Registrar of Trademarks (1998) 8 SCC 1; Guruvayur Devasworn Managing Committee Vs C.K. Rajan (2003) 7 SCC 546 (para 67,68) .

17. In the case of Paradip Port Trust vs Sales Tax Officer and Ors. (1998) 4 SCC 90, Hon'ble Supreme Court held that the Writ Petitions raising the questions involving interpretation of the words "transfer of the right to use any goods" in sub-clause (d) of clause (29-A) of Article 366 of the Constitution of India was entertainable and consequently set aside the judgment of High Court observing as under:

"2. These appeals are directed against the judgment of the Orissa High Court dated 19-2-1998 in writ petitions filed by the appellant Port Trust against the orders of assessment passed by the Sales Tax Officer, Cuttack, in respect of Assessment Years 1990-91 to 1994-95. In the said writ petitions the case of the appellant was that the assessment for sales tax has been made in respect of matters which do not fall within the legislative power of the State to impose sales tax. The writ petitioners raise questions involving interpretation of the words "transfer of the right to use any goods" in Sub-clause (d) of Clause (29-A) of Article 366 of the Constitution. By the impugned judgment, the High Court has dismissed the writ petitions filed by the appellant on the view that the alternative remedy of an appeal against order of assessment is available under the sales tax law and since the said remedy is available the writ petitions could not be entertained. Having regard to the question that was involved in the writ petitions relating to interpretation of sub-clause (d) of Clause (29-A) of Article 366 of the Constitution and the taxability of the transactions in respect of which sales tax has been assessed by the Sales Tax Officer, we are of the view that the High Court should have entertained the writ petitions and should have considered the said question instead of requiring the appellant to avail the remedy of appeal under the Sales Tax Act, The appeals are, therefore, allowed, the impugned judgment of the High Court is set aside and the writ petitions filed by the appellant are remitted to the High Court for consideration on merits. No order as to costs.

(Emphasis supplied by us)

18. In the case of State of Tripura vs. Manoranjan Chakraborty, (2001) 10 SCC 740, Hon'ble Supreme Court held as under:

"4. For the reasons contained in the said decisions, we hold that the impugned provisions are valid. It is, of course, clear that if gross injustice is done and it can be shown that for good reason the court should interfere, then notwithstanding the alternative remedy which may be available by way of an appeal under Section 20 or revision under Section 21, a writ court can in an appropriate case exercise its jurisdiction to do substantive justice. Normally of course the provisions of the Act would have to be complied with, but the availability of the writ jurisdiction should dispel any doubt which a citizen has against a high-handed or palpable illegal order which may be passed by the assessing authority."

(Emphasis supplied by us)

19. In the case of L.K. Verma v. HMT Ltd. (supra) Supreme Court held as under:

"20. The High Court in exercise of its jurisdiction under Article 226 of the Constitution, in a given case although may not entertain a writ petition inter alia on the ground of availability of an alternative remedy, but the said rule cannot be said to be of universal application. Despite existence of an alternative remedy, a writ court may exercise its discretionary jurisdiction of judicial review inter alia in cases where the court or the tribunal lacks inherent jurisdiction or for enforcement of a fundamental right or if there has been a violation of a principle of natural justice or where vires of the Act is in question. In the aforementioned circumstances, the alternative remedy has been held not to operate as a bar. (See Whirlpool Corpn. v. Registrar of Trade Marks, 1998)8 SCC 1, Sanjana M. Wig v. Hindustan Petroleum Corpn. Ltd. 2005(8) SCC 242 and State of H.P. v. Gujarat Ambuja Cement Ltd. 2005(6) SCC 499.

21. In any event, once a writ petition has been entertained and determined on merit of the matter, the appellate court, except in rare cases, would not interfere therewith only on the ground of existence of alternative remedy. (See Kanak v. U.P. Avas Evam Vikas Parishad, 2003(7) SCC 693. We, therefore, do not see any justification to hold that the High Court wrongly entertained the writ petition filed by the Respondent."

(Emphasis supplied by us)

20. In the case of State of Union of India v. Tantia Construction (P) Ltd. (Supra) Hon'ble Supreme court held as under :

"21. In support of his aforesaid submissions Mr. Chakraborty firstly relied on and referred to the decision of this Court in Harbanslal Sahnia v. Indian Oil Corporation Ltd. (2003) 2 SCC 107, wherein this Court observed that the Rule of exclusion of writ jurisdiction by availability of an alternative remedy, was a rule of discretion and not one of compulsion and there could be contingencies in which the High Court exercised its jurisdiction inspite of availability of an alternative remedy.

33. Apart from the above, even on the question of maintainability of the writ petition on account of the Arbitration Clause included in the agreement between the parties, it is now well-established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr. Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution.

21. In the case of State of H.P. vs. Gujarat Ambuja Cement Ltd. (supra) Hon'ble Supreme court held as under :

"17. We shall first deal with the plea regarding alternative remedy as raised by the appellant State. Except for a period when Article 226 was amended by the Constitution (Forty -second Amendment) Act, 1976, the power relating to alternative remedy has been considered to be a rule of self-imposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. Despite the existence of an alternative remedy it is within the jurisdiction of discretion of the High Court to grant relief under Article 226 of the Constitution. At the same time, it cannot be lost sight of that though the matter relating to an alternative remedy has nothing to do with the jurisdiction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction.

18. The Constitution Benches of this Court in K.S. Rashid and Son v. Income Tax Investigation Commission,1954 SCR 738; Sangram Singh v. Election Tribunal, Kotah, 1955, 2SCR 1; Union of India v. T.R. Varma 1958 SCR 499, State of U.P. v. Mohammad Nooh, 1958 SCR 595; and K.S. Venkataraman and Co. (P) Ltd. v. State of Madras, 1966(2) 229, held that Article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted.

19. Another Constitution Bench of this Court in State of M.P.v. Bhai, AIR (1964) SC 1006, held that the remedy provided in a writ jurisdiction is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defence legitimately open in such actions. The power to give relief under Article 226 of the Constitution is a discretionary power. Similar view has been reiterated in N.T. Veluswami Thevar v. G. Raja Nainar, AIR (1959) SC 422; Municipal Council, Khurai v. Kamal Kumar, AIR (1965) SC 1321;Siliguri Muncipality v. Amalendu Das, AIR (1984) SC 653; S.T. Muthusami v. K. Natarajan, AIR 1988 SC 616; Rajasthan S.R.T.C. v. Krishna Kant, AIR (1995) SC 1715; Kerala State Electricity Board v. Kurien E. Kalathil, AIR (2000) SC 2573; A. Venkatasubbiah Naidu v. S. Chellappan, 2000(7) SCC 695; L.L. Sudhakar Reddy v. State of Andhra Pradesh,2001(6) SCC 634; Shri Sant Sadguru Janardan Swami (Moingiri Maharaj) Sahakari Dugdha Utpadak Sanstha v. State of Maharashtra, 2001, 8 SCC 509; Pratap Singh and Anr. v. State of Haryana, [2002] 7 SCC 484 and GKN Driveshafts (India) Ltd. v. ITO 2003 (1) SCC 72.

20. In Harbans Lal Sahnia v. Indian Oil Corporation Ltd., 2003(2) SCC 107, this Court held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion and not one of compulsion and the Court must consider the pros and cons of the case and then may interfere if it comes to the conclusion that the petitioner seeks enforcement of any of the fundamental rights; where there is failure of principles of natural justice or where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged.

22.If, as was noted in Ram and Shyam Co. v. State of Haryana, AIR 1985 SC 1147 the appeal is from "Caeser to Caeser's wife" the existence of alternative remedy would be a mirage and an exercise in futility. In the instant case the writ petitioners had indicated the reasons as to why they thought that the alternative remedy would not be efficacious. Though the High Court did not go into that plea relating to bias in detail, yet it felt that alternative remedy would not be a bar to entertain the writ petition. Since the High Court has elaborately dealt with the question as to why the statutory remedy available was not efficacious, it would not be proper for this Court to consider the question again. When the High Court had entertained a writ petition notwithstanding existence of an alternative remedy this Court while dealing with the matter in an appeal should not permit the question to be raised unless the High Court's reasoning for entertaining the writ petition is found to be palpably unsound and irrational. Similar view was expressed by this Court in First Income-Tax Officer, Salem v. M/s. Short Brotheers(P) Ltd., (1966) 3 SCR 84 and State of U.P. v. M/s. Indian Hume Pipe Co. Ltd, 1977(2) SCC 724. That being the position, we do not consider the High Court's judgment to be vulnerable on the ground that alternative remedy was not availed. There are two well-recognized exceptions to the doctrine of exhaustion of statutory remedies. First is when the proceedings are taken before the forum under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court for quashing the proceedings on the ground that they are incompetent without a party being obliged to wait until those proceedings run their full course. Secondly, the doctrine has no application when the impugned order has been made in violation of the principles of natural justice. We may add that where the proceedings itself are an abuse of process of law the High Court in an appropriate case can entertain a writ petition.

23. Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute. It was noted by this Court in L. Hirday Narain v. ITO, Bareilly, AIR 1971 SC 33 that if the High Court had entertained a petition despite availability of alternative remedy and heard the parties on merits it would be ordinarily unjustifiable for the High Court to dismiss the same on the ground of non exhaustion of statutory remedies; unless the High Court finds that factual disputes are involved and it would not be desirable to deal with them in a writ petition."

(Emphasis supplied by us)

22. In the case of Union of India and others Vs. Major General Shri Kant Sharma, (2015) 6 SCC 773, the respondent, Army personnel approached the Tribunal for adjudication for trial of disputes and complained with respect to service conditions. When the relief was denied to him by the Tribunal he assailed the order of the Tribunal before the High Court under Article 226 of the Constitution of India. On these facts, the question arose as to whether the right of appeal under Section 30 of the Armed Forces Tribunal Act, 2007, against an order of the Armed Forces Tribunal with the leave of the Tribunal under Section 31 of the Act or leave granted by the Supreme Court, or bar of leave to appeal before the Supreme Court under Article 136(2) of the Constitution of India bars the jurisdiction of the High Court under Article 226 regarding matters relating to the Armed Forces. A preliminary objection was raised on behalf of the Union of India regarding maintainability of the Writ Petition on the ground that against the impugned orders a remedy of appeal to the Supreme Court was provided under Section 30 of the Armed Forces Tribunal Act 2007. On these facts, Hon'ble Supreme Court considered the powers of High Court under Article 226 and 227 of the Constitution of India and applying the law laid down in L. Chandra Kumar v. Union of India (1997) 3 SCC 261, S.N. Mukherjee V. Union of India, (1990) 4 SCC 594, R.K. Jain Vs. Union of India (1993) 4 SCC 119 and S.P. Sampath Kumar v. Union of India, (1987) 1 SCC 124, held that power of judicial review vested in the High Court under Article 226 is one of the basic essential features of the Constitution of India and legislation including the Armed Forces Tribunal Act, 2007 could not override or curtail the jurisdiction of the High Court under Article 226. In the case of Major General Shri Kant Sharma, (supra), Hon'ble Supreme Court considered the basic principles of exercising power under Article 226 of the Constitution of India.

23. In the case of Major General Shri Kant Sharma, (supra) which has been heavily relied by the learned counsel for the respondent, Hon'ble Supreme Court referred its judgment in the case of Southern Electricity Supply Co. of Orissa Ltd. v. Sri Seetaram Rice Mill, (2012) 2 SCC 108 and observed in paras 31 to 33 as under:

"31. In Southern Electricity Supply Co. of Orissa Ltd. vs. Sri Seetaram Rice Mill, (2012) 2 SCC 108 a three-Judge Bench held: (SCC pp.139-40, paras 80-81) "80 It is a settled canon of law that the High Court would not normally interfere in exercise of its jurisdiction under Article 226 of the Constitution of India where statutory alternative remedy is available. It is equally settled that this canon of law is not free of exceptions. The courts, including this Court, have taken the view that the statutory remedy, if provided under a specific law, would impliedly oust the jurisdiction of the Civil Courts. The High Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India can entertain writ or appropriate proceedings despite availability of an alternative remedy. This jurisdiction, the High Court would exercise with some circumspection in exceptional cases, particularly, where the cases involve a pure question of law or vires of an Act are challenged. This class of cases we are mentioning by way of illustration and should not -be understood to be an exhaustive exposition of law which, in our opinion, is neither practical nor possible to state with precision. The availability of alternative statutory or other remedy by itself may not operate as an absolute bar for exercise of jurisdiction by the Courts. It will normally depend upon the facts and circumstances of a given case. The further question that would inevitably come up for consideration before the Court even in such cases would be as to what extent the jurisdiction has to be exercised.

81. Should the Courts determine on merits of the case or should they preferably answer the preliminary issue or jurisdictional issue arising in the facts of the case and remit the matter for consideration on merits by the competent authority? Again, it is somewhat difficult to state with absolute clarity any principle governing such exercise of jurisdiction. It always will depend upon the facts of a given case. We are of the considered view that interest of administration of justice shall be better subserved if the cases of the present kind are heard by the courts only where they involves primary questions of jurisdiction or the matters which -goes to the very root of jurisdiction and where the authorities have acted beyond the provisions of the Act. However, it should only be for the specialized Tribunal or the appellate authorities to examine the merits of assessment or even factual matrix of the case."

32. In Cicily Kallarackal vs. Vehicle Factory 2012(8) SCC 524, the Division Bench of this Court held: (SCC pp.525-26, paras 4 and 9) "4. Despite this, we cannot help but state in absolute terms that it is not appropriate for the High Courts to entertain writ petitions under Article 226 of the Constitution of India against the orders passed by the Commission, as a statutory appeal is provided and lies to this Court under the provisions of the Consumer Protection Act, 1986. Once the legislature has provided for a statutory appeal to a higher court, it cannot be proper exercise of jurisdiction to permit the parties to bypass the statutory appeal to such higher court and entertain petitions in exercise of its powers under Article 226 of the Constitution of India. Even in the present case, the High Court has not exercised its jurisdiction in accordance with law. The case is one of improper exercise of jurisdiction. It is not expected of us to deal with this issue at any greater length as we are dismissing this petition on other grounds.

* * * *

9. ........, we hereby make it clear that the orders of the Commission are incapable of being questioned under the writ jurisdiction of the High Court, as a statutory appeal in terms of Section 27-A(1)(c) lies to this Court. Therefore, we have no hesitation in issuing a direction of caution that it will not be a proper exercise of jurisdiction by the High Courts to entertain writ petitions against such orders of the Commission."

33. Another Division Bench of this Court in CIT vs. Chhabil Dass Agrawal, 2014(1) SCC 603 held: (SCC pp. 608-11, paras 11-13 and 15) "11. Before discussing the fact proposition, we would notice the principle of law as laid down by this Court. It is settled law that non-entertainment of petitions under writ jurisdiction by the High Court when an efficacious alternative remedy is available is a rule of self-imposed limitation. It is essentially a rule of policy, convenience and discretion rather than a rule of law. Undoubtedly, it is within the discretion of the High Court to grant relief under Article 226 despite the existence of an alternative remedy. However, the High Court must not interfere if there is an adequate efficacious alternative remedy available to the petitioner and he has approached the High Court without availing the same unless he has made out an exceptional case warranting such interference or there exist sufficient grounds to invoke the extraordinary jurisdiction under Article 226. (See State of U.P. v. Mohd. Nooh, Titaghur Paper Mills Co. Ltd. v. State of Orissa, 1983(2) SCC 107, Harbanslal Sahnia v. Indian Oil Corpn. Ltd. 2003(2) SCC 107 and State of H.P. v. Gujarat Ambuja Cement Ltd., 2005(6) SCC 499.

12. The Constitution Benches of this Court in K.S. Rashid and Son v. Income Tax Investigation Commission, AIR 1954 SC 207, Sangram Singh v. Election Tribunal, AIR 1955 SC 425, Union of India v. T.R. Varma, AIR 1957 SC 882, State of U.P. v. Mohd. Nooh AIR 1958 SC 86 and K.S. Venkataraman and Co. (P) Ltd. v. State of Madras, AIR 1966 SC 1089 have held that though Article 226 confers very wide powers in the matter of issuing writs on the High Court, the remedy of writ is absolutely discretionary in character. If the High Court is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere, it can refuse to exercise its jurisdiction. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of the principles of natural justice or the procedure required for decision has not been adopted. [See N.T. Veluswami Thevar v. G. Raja Nainar, AIR 1959 SC 422, Municipal Council, Khurai v. Kamal Kumar,AIR 1965 SC 1321, Siliguri Municipality v. Amalendu Das, 1984(2)SCC 436, S.T. Muthusami v. K. Natarajan, 1988(1) SCC 572, Rajasthan SRTC v. Krishna Kant,1995(5) SCC 75, Kerala SEB v. Kurien E. Kalathil, 2000(6) SCC 293, A. Venkatasubbiah Naidu v. S. Chellappan, 2000(7) SCC 695, L.L. Sudhakar Reddy v. State of A.P., 2001(6) SCC 634 Shri Sant Sadguru Janardan Swami (Moingiri Maharaj) Sahakari Dugdha Utpadak Sanstha v. State of Maharashtra, 2001(8) SCC 509, Pratap Singh v. State of Haryana 2002(7) SCC 484 and GKN Driveshafts (India) Ltd. v. ITO. 2003(1) SCC 72.

13. In Nivedita Sharma v. Cellular Operators Assn. of India, 2011(14) SCC 337 this Court has held that where hierarchy of appeals is provided by the statute, the party must exhaust the statutory remedies before resorting to writ jurisdiction for relief and observed as follows: (SCC pp. 343-45, paras 12-14) "12. In Thansingh Nathmal v. Supt. of Taxes, air 1964 SC 1419, this Court adverted to the rule of self-imposed restraint that the writ petition will not be entertained if an effective remedy is available to the aggrieved person and observed: (AIR p. 1423, para 7) "7. ... The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by assuming jurisdiction under Article 226 trench upon an alternative remedy provided by the statute for obtaining relief. Where it is open to the aggrieved petitioner to move another tribunal, or even itself in another jurisdiction for obtaining redress in the manner provided by a statute, the High Court normally will not permit by entertaining a petition under Article 226 of the Constitution the machinery created under the statute to be bypassed, and will leave the party applying to it to seek resort to the machinery so set up."

13. In Titaghur Paper Mills Co. Ltd. v. State of Orissa 1983(2) SCC 433 this Court observed: (SCC pp. 440-41, para 11) "11. ... It is now well recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Willes, J. in Wolverhampton New Waterworks Co. v. Hawkesford, 1859(6) CBNS 336 in the following passage: (ER p. 495) * * * *"

14. In Mafatlal Industries Ltd. v. Union of India B.P. Jeevan Reddy,J., 1997(5) SCC 536, (speaking for the majority of the larger Bench) observed: (SCC p. 607, para 77) "77. ... So far as the jurisdiction of the High Court under Article 226--or for that matter, the jurisdiction of this Court under Article 32--is concerned, it is obvious that the provisions of the Act cannot bar and curtail these remedies. It is, however, equally obvious that while exercising the power under Article 226/Article 32, the Court would certainly take note of the legislative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment." ' (See G. Veerappa Pillai v. Raman & Raman Ltd., AIR 1952 SC 192, CCE v. Dunlop India Ltd., 1985(1)SCC 260, Ramendra Kishore Biswas v. State of Tripura, 1999(1)SCC 472, Shivgonda Anna Patil v. State of Maharashtra, 1999(3)SCC 5, C.A. Abraham v. ITO, AIR 1961 SC 690, Titaghur Paper Mills Co. Ltd. v. State of Orissa,1983(2)SCC 433, Excise and Taxation Officer-cum-Assessing Authority v. Gopi Nath and Sons, 1992 Supp(2)SCC 312, Whirlpool Corpn. v. Registrar of Trade Marks, 1998(8) SCC 1 Tin Plate Co. of India Ltd. v. State of Bihar, 1998(8)SCC 272, Sheela Devi v. Jaspal Singh, 1999(1)SCC 209 and Punjab National Bank v. O.C. Krishnan, 2001(6) SCC 569)

15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal case, AIR 1964 SC 1419, Titaghur Paper Mills case, 1983(2) SCC 433 and other similar judgments that the High Court will not entertain a petition under Article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation."

(Emphasis supplied by us)

24. The aforenoted judgment In the case of Major General Shri Kant Sharma, (supra) relied by the respondents shows that Hon'ble Supreme Court has held in the case of Southern Electricity Supply Co. of Orissa Ltd.(supra) that it is a settled canon of law that the High Court should not normally interfere in exercise of its jurisdiction under Article 226 of the Constitution of India where statutory alternative remedy is available but it is equally settled that this canon of law is not free of exceptions. The Courts, including the Supreme Court, have taken the view that statutory remedy, if provided under a specific law, would impliedly oust the jurisdiction of the civil courts. The High Court in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India can entertain writ or appropriate proceedings despite availability of an alternative remedy. This jurisdiction, the high Court would exercise with some circumspection in exceptional cases, particularly, where the cases involve a pure question of law or vires of an Act are challenged. Hon'ble Supreme Court further clarified that this class of cases are being mentioned by way of illustration and should not be understood to be an exhaustive exposition of law which is neither practical nor possible to state with precision. The availability of alternative statutory or other remedy by itself may not operate as an absolute bar for exercise of jurisdiction by the courts. It will normally depend upon the facts and circumstances of a given case.

25. The large number of judgments, as we have noted above, also clearly state the law that availability of alternative statutory remedy is not an absolute bar to entertain a writ petition under Article 226 of the Constitution of India.

26. Having noticed the law laid down by Hon'ble Supreme Court with regard to the entertainibility of a writ petition under Article 226 despite availability of an alternative remedy, we find that a pure question of law for interpretation of the phrase "for use in the manufacture of notified goods" used in Section 4-B(2) of the Act is involved in the present writ petitions which were entertained in which counter and rejoinder affidavits have already been exchanged and as such we do not consider it appropriate to accept the preliminary objection of maintainability of writ petition raised by the learned Special Counsel for the respondent. Accordingly, the preliminary objection is rejected and we hold that the present writ petitions are entertainable.

Question no.2

27. It is undisputed that petitioners were granted a Recognition Certificate under Section 4-B of the Act read with Rule 25-A of the U.P. Trade Tax Rules 1948 (hereinafter referred to as the Rules) in which under the heading "fuel and lubricants" the commodity "high speed diesel oil" is mentioned. It is also undisputed that in the Recognition Certificate several goods including diesel oil has been mentioned as the goods required in the manufacture of the final product by the petitioners. It is also undisputed that some of the petitioners as mentioned above do not have any power connection and use diesel oil in their generator set installed in the factory premises to run their plant and machinery so as to manufacture their final product. The other petitioners who have power connection but their industry is a continuous process industry and, therefore, so as to ensure to run plant and machinery continuously even in the event of power cut or power breakdown, generators have been installed in the factory in which diesel oil has been used to run the plant and machinery.

28. Thus, there is no dispute that in order to run plant and machinery, the generators are essential, and for that purpose, diesel oil has been used in the generators. There is no denial of the fact that the entire process of manufacture carried on by the petitioners for converting raw material into finished goods essentially require generators in which diesel oil has been used. Thus the generation of power by generators by use of diesel oil so as to run plant and machinery is integrally connected with the manufacture of the notified goods i.e. the final product of the petitioners. Thus the manufacture of the notified goods itself is dependent upon the use of diesel oils in the generator sets directly.

29. Even if it is assumed that the use of diesel oil is indirectly connected with the manufacture of the notified goods yet there is no denial of the fact by the Assessing Authority that the use of diesel oil in generator sets was essential for manufacture of the notified goods of the petitioners and the manufacturing itself is dependent on such use of diesel oil.

30. The only ground taken by Assessing Authority in the impugned orders to delete the entry of "diesel oil" from the Recognition Certificate is that diesel oil is not a raw material for manufacture of the notified final products of the petitioners rather it is raw material to produce electricity. While doing so, the assessing authority completely lost sight of the Explanation (a) to Section 4-B(2) of the Act which defines the expression "goods required for use in the manufacture" to mean not only raw materials but also processing materials, machinery, plant, equipment, consumable stores, spare parts, accessories, components, sub-assemblies, fuels or lubricants. Thus the goods which qualify for concessional rate of tax on purchases under Section 4-B(2) of the Act are not only raw material but also other classes of goods including Fuels which includes diesel oil.

31. Before we proceed further, it would be appropriate to notice the provisions of Section 4-B of the Act which is reproduced below:

Section 4-B. Special relief to certain manufacturers.

(1) Notwithstanding anything contained in section 3,3-A, 3-AAAA and 3-D-

(a) Where any goods liable to tax under sub-section (1) of section 3-D are purchased by a dealer who is liable to tax on the turnover of first purchases under that sub-section, or where any goods are purchased by any dealer in circumstances in which such a dealer is liable to trade tax on purchase of such goods under section 3-AAAA and the dealer holds a recognition certificate issued under sub-section (2) in respect thereof, he shall be liable in respect of those goods to tax at such concessional rate, or be wholly or partly exempt from tax, whether unconditionally or subject to the conditions are restrictions specified in that behalf, as may be notified in the Gazette by the State Government in that behalf:

(a-1) Where any declared goods liable to tax under sub-section (1) of section 3-D are sold or supplied by a dealer, who is the first purchaser thereof, to another dealer, holding a valid recognition certificate under sub-section (2) in respect thereof, the State Government may, subject to such conditions and restrictions as may be specified by a notification in that behalf, grant the same relief as mentioned in clause (a) to such first purchaser:

Provided that any notification under this clause or clause (a) in respect of paddy may b e made effective from a date not earlier than the first day of May, 1977:

Provided further that the rules to carry out the objects of this clause or clause (a) may also be made effective from a date not earlier than the first day of May, 1977:

(b) Where any goods liable to tax under any other provision of this Act are sold by a dealer to another dealer and such other dealer furnishes to the selling dealer in prescribed form and manner a certificate to the effect that he holds a recognition certificate issue under sub-section (2) in respect thereof, the selling dealer shall be liable in respect of those goods to tax at such concessional rate or be wholly or partly exempt from tax, whether unconditionally or subject to the conditions and restrictions specified in that behalf as may be notified in the Gazette by the State Government in that behalf.

Explanation-

For the purpose of this sub-section the conditions and restrictions that may be specified for the grant of concession in respect of, or exemption from tax, may include the requirement that the notified goods referred to in sub-clause (2) shall be manufactured in a "new unit" as defined in section 4-A, which goes into production after such date, whether before or after the date of the notification under this sub-clause, and within such period as may be specified.

(2) Where a dealer requires any goods, referred to in sub-section (1) for use in the manufacture by him, in the State of any notified goods, or in the packing of such notified goods manufactured or processed by him, and such notified goods are intended to be sold by him in the State or in the course of inter State trade or commerce or in the course of export out of India, he may apply to the assessing authority in such form and manner and within such period as may be prescribed, for the grant of a recognition certificate in respect thereof, and if the applicant satisfies such requirements including requirement of depositing late fee and conditions as may be prescribed, the assessing authority shall grant to him in respect of such goods a recognition certificate in such form and subject to such conditions, as may be prescribed.

Explanation:

For the purpose of this sub-section-

(a) goods required for use in the manufacture shall mean raw materials, processing materials, machinery, plant, equipment, consumable stores, spare parts, accessories, components, sub-assemblies, fuels or lubricants; and

(b) 'notified goods' means such goods as may, from time to time, be notified by the State Government in that behalf.

(2-A) Where any recognition certificate issued under this section in respect of any notified goods is in force on the commencement of the Uttar Pradesh Trade Tax (Second Amendment) Act, 2000 and the notification by which such goods has been notified is made effective from a date prior to the date of such notification, the recognition certificate in respect of such goods shall be deemed to be valid with effect from the date of such notification has been made effective.

(3) Omitted by U.P. Act No.1/1973.

(4) (I) Where the assessing authority is satisfied that the dealer in whose favour the recognition certificate in respect of any goods was granted under sub-section (2)-

(a) has discontinued the manufacturing business for the purpose whereof the recognition certificate was granted; or

(b) has made a breach of any condition of the recognition certificate or (bb) has failed to pay any tax, penalty or other dues payable under this Act within a period of three months from the date such tax, penalty or other dues became payable; or

(c) has failed to furnish the security required under section 8-C; or

(d) is a firm, association or a joint Hindu family which, within the meaning of the explanation to sub-section (1) of section 18, is deemed to h ave discontinued its business, such authority may, either of its own motion or on the application of the dealer, cancel the recognition certificate with effect from such date as it may specify.

ii.The assessing authority may amend a recognition certificate granted under sub-section (2) either of its own motion or on the application of the dealer, where the dealer has changed the name or place of his business or has closed down any branch or opened a branch or for any other sufficient reason:

Provided that no registration certificate shall be cancelled or amended by assessing authority of its own motion except after reasonable opportunity of being heard has been given to the dealer.

iii.The Joint Commissioner may, on the application of the dealer, and after satisfying himself that the goods referred to in sub-section (1) were actually used in the manufacture of the notified goods, or in the packing of such notified goods manufactured or processed by the dealer in the State, amend, retrospectively but not from a date earlier than March 5, 2001, any recognition certificate granted under sub-section (2).

(5) Where a dealer in whose favour a recognition certificate has been granted under sub-section (2) has purchased the goods after payment of tax at concessional rate under this section or, as the case may be, without payment of tax and has used such goods for a purpose other than that for which the recognition certificate was granted or has otherwise disposed of the said goods, such dealer shall be liable to pay as penalty such amount as the Assessing Authority may fix which shall not be less than the difference between the amount of tax on the sale or purchase of such goods payable under this section and the amount of tax payable under any other provisions of this Act but not exceeding three times the amount of such difference.

(6) Where a dealer in whose favour a recognition certificate has been granted under sub-section (2) has purchased any goods after payment of tax at concessional rate under this section, or as the case may be, without payment of tax and the goods manufactured out of such raw materials or processing materials or manufactured goods after being packed with such packing material are sold or disposed of otherwise than by way of sale in the State or in the course of inter-State or in the course of inter-State trade or commerce or in the course of export out of the Territory of India, such dealer shall be liable to pay an amount equal to the difference between the amount of tax on the sale or purchase of such goods payable under this section and the amount of tax calculated at the rate of four percent, on the sale or purchase of such goods.

(7) For determining whether a sale or purchase is in the course of inter-State trade or commerce, within the State, or in the course of export out of India, the provisions of sections 3, 4 and 5 of the Central Sales Tax Act, 1956, shall respectively apply.

(8) No penalty under this section shall be imposed unless the dealer has been given a reasonable opportunity of being heard.

(9) No prosecution under section 14, shall be instituted, and no penalty under section 15-A shall be imposed in respect of the same facts on which a penalty has been imposed under this section.

32. Recognition Certificate has been granted to the petitioners under Section 4-B(2) of the Act for concessional rate of tax on purchase of goods required by the petitioners for use in the manufacture by them in the State of any notified goods. Thus the entire controversy is dependent upon the interpretion of the expression "for use in the manufacture of any notified goods"

33. In the case of M/s. J.K. Cotton Spinning and Weaving Mills, Co. Ltd. Vs. The Sales Tax Officer, Kanpur and another, AIR 1965 SC 1310, Hon'ble Supreme Court considered a similar expression, namely, "in the manufacture of goods" and while interpreting the provisions of Section 8 (3)(b) of the Sales Tax Act, held as under:

8. Section S. 8(3)(b) authorises the Sales Tax Officer to specify, subject to any rules made by the Central Government, goods intended for use by the dealer in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power. By Rule 13 the Central Government has prescribed the goods referred to in S. 8(3)(b) : such goods must be intended for use in the manufacture or processing of goods for sale or in mining or generation or distribution of power, and the intended use of the goods must be as specified in Rule 13. It is true that under Rule 13, read will S. 8(3)(b) mere intention to use the goods in the manufacture or processing of goods for sale, will not be a sufficient ground for specification : the intention must be to use the goods as raw materials as processing materials, as machinery, as plant, as equipment, as tools, as stores, as spare parts, as accessories, as fuel or as lubricants. A bare survey of the diverse uses to which the goods may be intended to be put in the manufacture or processing of goods, clearly shows that the restricted interpretation placed by the High Court is not warranted. The expression "in the manufacture of goods" would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods". For instance, in the case of a cotton textile manufacturing concern, raw cotton undergoes various processes before cloth is finally turned out. Cotton is cleaned, carded, spun into yarn, then cloth is woven, put on rolls, dyed, calendered and pressed. All these processes would be regarded as integrated processes and included "in the manufacture" of cloth. It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression "in the manufacture" of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under Rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgment, Rule 13 does not justify the importation of restrictions which are not clearly expressed nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts, or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under s.8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for "turning out or the creation of goods."

9. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment. This is not to say that every category of goods "in connection with" manufacture of or "in relation to" manufacture, or which facilitates the conduct of the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a Company (which mined ore and turned out copper in carrying on activities as a miner and as manufacturer) fell within Rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within Rule 13. See Indian Copper Corporation Ltd v. Commissioner of Commercial Taxes, Bihar and Ors.

10. The High Court has rightly pointed out that unless designs are prepared it would be "impossible for the workmen" to turn out goods for sale. If the process of designing is intimately connected with the process of manufacture of cloth, we see no reason to regard the process of designing as not being a part of the process of manufacture within the meaning of Rule 13 read with S. 8(3)(b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. The expression "in the manufacture" takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use as "equipment" in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use "in the manufacture of goods".

11. Building materials including lime and cement not required in the manufacture of tiles for sale cannot, however, be regarded within the meaning of Rule 13, as raw materials in the manufacture or processing of goods or even as "plant". It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a "plant" within the meaning of Rule 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under S. 8(3)(b) goods must be intended for use of the nature mentioned in Rule 13, in the manufacture of goods. Building materials used as raw materials for construction of "plant" cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under S. 8(3)(b) must be intended for use as raw materials or as plant, or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the Company in that behalf.

12. The expression "electricals" is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. We are not prepared to agree with the High Court that in order that "electrical equipment" should fall within the terms of Rule 13, it must be an ingredient of the finished goods to be prepared, or "it must be a commodity which is used in the creation of goods". If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression "electricals". This would of course not include electrical equipment not directly connected with the process of manufacture. Office equipment such as fans, coolers, air-conditioning units, would not be admissible to special rates under S.8(1).

(Emphasis supplied by us)

34. Thus the law laid down by Hon'ble Supreme Court in the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd.(supra) leaves no manner of doubt that the expression "in the manufacture of goods" should normally encompass the entire process carried on by the dealer of converting raw material into finished goods. The power supply through generators by use of diesel, is so integrally connected with the ultimate production of notified that without it manufacture of the notified goods would be commercially inexpedient. The use of diesel oil to operate generators so as to run plant and machinery by the petitioners is so integrally related to the manufacture of their final products that without that process or activity manufacture shall not be possible. Therefore, diesel oil required to run generators would necessarily fall within the expression "for use in the manufacture of notified goods"

35. In the case of Collector of Central Excise, New Delhi Vs. M/s. Ballarppur Industries Ltd. (1989) 4 SCC 566 Hon'ble Supreme Court considered the controversy "whether Sodium Sulphate could be said to be used as raw material in the manufacture of paper which was used in the chemical recovery cycle of Sodium Sulphate". The credit of duty was denied to the manufacturer by the Superintendent of Central Excise on the ground that Sodium Sulphate was burnt up in the process of manufacture and was not retained in the paper and, therefore, it could not be considered as raw material in the manufacture of paper. Following the law laid down in M/s. J.K. Cotton Spinning and Weaving Mills, Co. Ltd. (supra), Hon'ble Supreme Court held that Sodium Sulphate was used in the manufacture of paper as raw material.

36. In the case of Member Board of Revenue West Bengal Vs. Phelps and Co. (P) Ltd. (1972) 4 SCC 121, Hon'ble Supreme Court again considered the expression "for use by him in the manufacture of goods for sale" while interpreting the provisions of Section 5(2) of the Bengal Finance "Sales Tax" Act, 1941, so as to answer the question whether gloves used by workmen engaged in hot jobs in the course of manufacture of goods would be covered and held as under:

"6. We have now to find out what exactly is the meaning of the expression "for use by him in the manufacture of goods for sale." Identical words are used in Section 8(b) of the Central Sales Tax Act 1956. This court was called upon to find out the scope of that expression in M/s. J.K. Cotton Spinning and Weaving Mills, Co. Ltd. Vs. The Sales Tax Officer, Kanpur and another, AIR 1965 SC 1310 Dealing with that expression this Court observed:

The expression "in the manufacture of goods" would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression "in the manufacture of goods.

In the present case the assessee company has sold the goods in question to certain manufactures who were manufacturing iron steel materials. It is also clear from question No. (1) that those gloves were to be used by workmen who were engaged in hot jobs or in handling corrosive substances in the course of manufacture. That being so it cannot be denied that those gloves had to be used in the course of manufacture.

(Emphasis supplied by us)

37. In the case of Indian Farmers Fertilisers Cooperative Ltd. V. Collector of Central Excise, Ahmedabad (1996) 5 SCC 488, Hon'ble Supreme Court considered the expression "for use in the manufacture" of an exemption notification under the Central Excise Act on the question whether raw Naphtha purchased by the fertiliser manufacturing company and used by it in water treatment plant, steam generation plant, inert gas generation plant and effluent treatment plant, would be entitled to exemption. Hon'ble Supreme Court interpreted the provisions in favour of the appellant, IFFCO, and held that water treatment, steam generation and inert gas generation plant are part and parcel of the composite process that produces Urea which is a fertiliser. In the present set of facts, the same principle would be applicable with reference to generator sets which are part and parcel of the composite process of manufacture of notified goods by the petitioners as their end product. Hon'ble Supreme Court held in Indian Farmers Fertilisers Cooperative Ltd. (supra) as under:

"7. Emphasis was laid, and rightly, by learned counsel for the appellants on the phraseology used in the exemption notification. The exemption is made available to such raw naphtha as is used in the manufacture of ammonia provided such ammonia is used elsewhere in the manufacture of fertilisers. That the raw naphtha is used to make ammonia is unquestioned. The ammonia is used directly in the manufacture of fertilisers; the raw naphtha so used is, it is not disputed, eligible to the exemption. The question is whether the ammonia used in the off-site plants is also ammonia which is "used elsewhere in the manufacture of fertilisers". The water treatment, steam generation and inert gas generation plants are part and parcel of the composite process that produces as its end product urea, which is a fertilisers. These off-site plants are part of the process of the manufacture of urea. There is no good reason why the exemption should be limited to the raw naphtha used for producing ammonia that is utilised directly in the urea plant. The exemption notification does not require that the ammonia should be used directly in the manufacture of fertilisers. It requires only that the ammonia should be used in the manufacture of fertilisers. The exemption notification must be so construed as to give due weight to the liberal language it uses. The ammonia used in the water treatment, steam generation and inert gas generation plants, which are a necessary part of the process of manufacturing urea, must, therefore, be held to be used in the manufacture of ammonia and the raw naphtha used for the manufacture thereof is entitled to the duty exemption.

8. For our conclusion we draw support from the judgment of this court in CCE Vs. Eastend Paper Industries Ltd. : 1989(4) SCC 244, where it was held, (SCC pp.248-49, para 5) "Where any particular process ........... is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, articles required in that process, would fall within the expression in the manufacture of goods'". This was a reiteration of the view expressed in M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd., vs. STO, [1965]1SCR 900 . It was there held: "The expression 'in the manufacture" takes in within its compass, all processes which are directly related to the actual production". In CCE v. Ballarpur Industries Ltd. (1989)4 SCC 566, the respondent manufactured paper and paperboard, "in the processes relating to which "sodium sulphate" is used in the chemical recovery cycle of sodium sulphate which forms an essential constituent of sulphate cooking liquor used in the digestion operation". The Exemption Notification concerned provided exemption to goods which had used as raw material or component parts any goods (inputs) falling under Item 68 of the First Schedule to the Act from so much of the excise duty leviable thereon as was equivalent to the excise duty paid on the inputs. The Court quoted what had been said in Dy. CST vs. Thomas Stephen & Co. Ltd., (1988)2 SCC 264 namely, "Consumption must be in the manufacture as raw material or of other components which go into the making of the end product .........." and observed that, correctly apprehended, that statement did not lend itself to the understanding that for something to qualify itself as a raw material it had necessarily and in all cases to go into and be found in the end product. The Court also quoted with approval the case of Eastend Paper Industries Limited (1989)4 SCC 244 cited above.

9. That leaves us to consider whether the raw naphtha used to produce the ammonia which is used in the effluent treatment plant is eligible for the said exemption. It is too late in the day to take the view that the treatment of effluents from a plant is not an essential and integral part of the process of manufacture in the plant. The emphasis that has rightly been laid in recent years upon the environment and pollution control requires that all plants which emit effluents should be so equipped as to rid the effluents of dangerous properties. The apparatus used for such treatment of effluents in a plant manufacturing a particular end product is part and parcel of the manufacturing process of that end product. The ammonia used in the treatment of effluents from the urea plant of the appellants has, therefore, to be held to be used in the manufacture of urea and the raw naphtha used in the manufacture of such ammonia to be entitled to the said exemption."

(Emphasis supplied by us)

38. In the case of Steal Authority of India Ltd. Vs. Union of India and another (1997) 11 SCC 117, Hon'ble Supreme Court again considered an exemption notification under the Central Excise Act and held that Oxygen gas captively consumed by the manufacturer of iron and steel would amount to use in the manufacture of iron. In the case of Commercial Tax Officer Vs. Rajasthan Electricity (1997) 10 SCC 330. Hon'ble Supreme Court again followed the law laid down in the case of J.K. Cotton Spinning and Weaving Mills Co. Ltd. (Supra)

39. In the case of Collector of Central Excise and others Vs. Solaris Chemtech Ltd. and others (2007) 7 SCC 347, Hon'ble Supreme Court had considered a similar controversy as involved in the present writ petitions that Low Sulpher Heavy Stock (LSHS) and furnace oil used for generating electricity captively consumed to manufacture the final product such as caustic soda, cement etc. is qualified for MODVAT credit under Rule 57-A of the Central Excise Rules,1944 and held as under:

"15. In the present case, the LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression "used in relation to the manufacture" in Rule 57-A we are of the view that the assessees were entitled to MODVAT credit on LSHS. In our opinion, the present case falls in Clause (c), therefore, the assessees were entitled to MODVAT credit under Explanation Clause (c) even before 16.3.95. Inputs used for generation of electricity will qualify for MODVAT credit only if they are used in or in relation to the manufacture of the final product, such as cement, caustic soda etc. Therefore, it is not correct to state that inputs used as fuel for generation of electricity captively consumed will not be covered as inputs under Rule 57-A."

(Emphasis supplied by us)

40. Thus in the case of Solaris Chemtech Ltd. (supra) Hon'ble Supreme Court has held in no certain term that without continuous supply of electricity it is not possible to manufacture cement, caustic soda etc. We take judicial notice of it so as to support the undisputed facts of the present writ petitions that without power supply through generator sets by use of diesel, the manufacture of notified goods was not possible by the petitioners having no power connection. In the second set of petitioners of continuous process industry, the production would be commercially inexpedient without continuous power supply to run the plant and machinery and for that diesel oil has been used in generators.

41. In the case of State of Gujarat and another Vs. AMI Pigments Private Limited and others (2009) 11 SCC 240, Hon'ble Supreme Court considered the "test of essentiality" or the "test of dependency" in the matter of eligibility of sales tax exemption on the controversy whether fuel consumed for electricity generation which was used to manufacture the end products would qualify for exemption as raw material, processing material or consumable stores and observed as under:

"8. In our view, one of the important tests applied by this Court in J.K. Cotton, AIR 1965 SC 1310 and Ballarpur Industries, 1989(4) SCC 566 is the "test of essentiality" or the "test of dependency" in deciding the question as to whether the expression "raw materials" or processing materials" or "consumable stores" would cover various fuels like naphta, liquid diesel oil, natural gas, etc. We may reiterate for the sake of clarity that in this case, the fuels consumed are natural gas, furnace oil, diesel oil and naphtha. Broadly, these fuels are used by the industry for carrying on its manufacturing process. In most cases, these fuels are used to generate electricity which is then used in the manufacture of end products like caustic soda, industrial chemicals, etc."

(Emphasis supplied by us)

42. In the case of Collector of Central Excise, Jaipur Vs. Rajasthan State Chemical Works, Deedwana, Rajasthan 1991(4) SCC 473, Hon'ble Supreme Court explained that manufacturing process to bring out a complete transformation for the whole component so as to produce a commercially different article or a commodity may itself consist of several processes and held as under:

"20. A process is a manufacturing process when it brings out a complete transformation for the whole components so as to produce a commercially different article or a commodity. But, that process itself may consist of several processes which may or may not bring about any change at every intermediate stage. But the activities or the operations may be so integrally connected that the final result is the production of a commercially different article. Therefore, any activity or operation which is the essential requirement and is so related to the further operations for the end result would also be a process in or in relation to manufacture to attract the relevant clause in the exemption notification. In our view, the word 'process' in the context in which it appears in the aforesaid notification includes an operation or activity in relation to manufacture."

(Emphasis supplied by us)

43. In the case of Flex Engg. Ltd. v. CCE, (2012) 5 SCC 609 Hon'ble Supreme Court held in para 23 as under:

"23. It is trite to state that "manufacture" takes place when the raw materials undergo a series of changes and transformation that result in the formation of a commercially distinct commodity having a different name, character and use. It is equally well settled that physical presence of an input in the final finished excisable goods is not a prerequisite for claiming MODVAT credit under Rule 57-A of the Rules. It may very well be indirectly related to manufacture and still be necessary for the completion of the manufacture of the final product. It needs little emphasis that the process of manufacture is complete only when the product is rendered marketable. Thus, manufacture is intrinsically integrated with marketability."

(Emphasis supplied by us)

44. From the above discussion and the law laid down by Hon'ble Supreme Court in the decisions noted above, we find the expression "for use in the manufacture of notified goods" which finds mentioned in Section 4-B(2) of the Act, would take within its sweep the "diesel oil" used by the petitioners in the generators installed in the factory premises to produce electricity to run their plant and machinery so as to manufacture their final product i.e. notified goods.

45. In view of the above discussions, all the writ petition deserves to be allowed. Consequently, the impugned orders passed by the Assessing Authorities also deserve to be set aside.

46. In result all the writ petitions succeed and are hereby allowed. The impugned orders passed by the respective Assessing Authorities are hereby set aside. However, there is no order as to costs.

 
Order Date :-  10.9.2015
 
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(Surya Prakash Kesarwani,J.)                   (Tarun Agarwala,J.)