State of Jharkhand Vs. Linde India Ltd.

Facts of the case

M/s Linde India Limited (“Respondent”) is engaged in the business of manufacturing pure oxygen and has supplied oxygen to M/s Tata Steel Limited (“TATA Steel”) for the production of steel. Tata Steel was of the view that oxygen should be considered as a raw material.

The State Government of Bihar issued a Notification dated April 12, 1982 under Section 13(1)(b) of the Bihar Finance Act, 1981 (“the Bihar Finance Act”) adding a different tax rate of @1% on the “raw material inputs” and for other than raw material inputs added a rate of  3%. Further, a certificate in Form VI-B was issued to Tata Steel under Section 8 of Bihar Finance Act, which mentioned among other things that “Oxygen Gas”  tax of 3% was payable. Subsequently, the State Government of Bihar issued another new notification dated September 09, 1983 under the Bihar Finance Act, prescribing the amount of tax payable on ‘inputs’ of manufacture or a 2% sales tax is applied.

According to the respondents, the oxygen consumed by Tata Steel is considered as a raw material for steel making and therefore subject to tax at the rate of 2%. However, the Assessing Authority was of the view that oxygen cannot be used as a raw material and hence the tax rate of 2% cannot be applied by the respondent and Tata Steel.

ISSUE

• Whether oxygen supplied by the Respondent was to be considered as raw material for manufacturing Steel?

ARGUMENTS 

1. Petitioner’s Argument: The State of Jharkhand(petitioner) contended that (respondent) Linde India Limited failed to pay proper sales tax. The petitioner stated that Linde India Ltd. Engages in sale of goods in the State of Jharkhand and is therefore liable to sales tax under the Jharkhand Value Added Tax Act, 2005. The petitioner further contends that the transactions in question fell within the definition of “sale” a under the Act. The petitioner also asserts that Linde India Ltd. didn’t follow the statutory requirement of filing declarations and documents as prescribed by the Act to prove exemption from payment of taxes. The non-filing of these declarations and documents was cited as evidence of non-compliance with statutory provisions, resulting in a tax liability.
2. Respondent’s Argument: The respondent Linde India Limited contended that the demand of the State of Jharkhand for payment of customs duty was unconstitutional and violative of the principles of free trade and commerce within India. The company said import duties in the country were discriminatory and unduly burdensome on interstate trade Linde India Ltd. Said. Asserted that the tax impeded free trade and violated liberal Article 301 of the Constitution of India relating to trade and commerce throughout India. The Linde India Ltd controversy focused on the inconsistency of the internal taxation of the State of Jharkhand, citing constitutional provisions protecting trade and free trade and discriminatory practices in the states overall concerns and the issue of unequal tax rates in taxation. 

JUDGMENT 

The Supreme Court held that oxygen is not an ingredient in metallurgy and would not qualify for the sales tax deduction.

The Supreme Court in Thomas Stephen & Co. Oxygen is used only as a cleaning agent and according to the report of the five-member committee, the function of oxygen is only to reduce the carbon content and not to produce the product itself hence the 2% reduction will not benefit.

The order of the High Court was quashed and orders of the Assessing Officer and other officers were restored.

REFERENCES 

• https://www.a2ztaxcorp.com/oxygen-not-a-raw-material-for-manufacture-of-steel-not-eligible-for-concessional-sales-tax-rate/
• https://thelawtree.akmllp.com/apex-rulings/state-of-jharkhand-and-ors-vs-linde-india-ltd-and-anr/
• https://taxguru.in/corporate-law/oxygen-gas-raw-material-manufacture-steel-sc.html#:~:text=Download%20Judgment%2FOrder-,State%20of%20Jharkhand%20Vs%20Linde%20India%20Limited%20(Supreme%20Court%20of,under%20the%20Bihar%20Finance%20Act

This Article is written by Apoorva Anand of Lloyd Law College, Intern at Legal Vidhiya.

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