Oxygen acts as a refining agent in the manufacture of steel by reducing the carbon content; therefore, it cannot be considered a raw material, and therefore, it cannot avail concession on the rate of sales tax as was held by the Supreme Court on 2nd December 2022. The Division Bench of the Supreme Court set aside the order passed by the Jharkhand High Court and restored the orders passed by the assessing officers to the Joint Commissioner (Revisional Authority).

The factual background of the matter was that a notification dated 9th September 1983 under the Bihar Finance Act, 1981 was passed by the State Government of Bihar, which directed that the rate of tax payable would be 2% on “raw material” used in the manufacture or processing of goods for sale. In the opinion of the respondent (Linde India Limited), the oxygen consumed by it is considered a raw material in the production of steel, and therefore, a tax of 2% should be levied. Aggrieved by the order of the assessing authority, the respondent filed a writ petition before the Jharkhand High Court which was then dismissed by the Jharkhand High Court stating that the respondent could not file a writ petition where the tax was payable by TATA Steel.

A six-member committee was constituted by the High Court to assess whether the oxygen sold to TATA Steel can be considered “raw material” in the manufacturing of steel. As per the finding of the committee, oxygen is used for reducing the quantity of carbon in iron and therefore, cannot be considered a raw material; it is only a “refining agent”. The respondent then filed a second Writ Petition before the High Court against the orders passed by the lower authorities.

The Jharkhand High Court held that oxygen is necessary to manufacture steel. Therefore, oxygen can be considered a raw material, and a tax of 2% would be leviable rather than 3% as contended by the lower authorities. The Jharkhand High Court, therefore, allowed the Writ Petition and set aside the orders passed by the lower authorities.

The Supreme Court held that when the findings of the committee of six expert members are recorded in the detailed inspection report, and when it is discovered that the oxygen gas is used as a "refining agent" and its main function is to reduce the carbon content as required. The Supreme Court, thus, observed, “the oxygen gas cannot be considered a "raw material" used in the manufacture of the end product - steel”.

In conclusion, it was held by the Supreme Court that the respondents are not entitled to the concessional rate of tax at the rate of 2% treating the same as "raw material" in the manufacture of the end product, and are liable to pay tax at the rate of 3% on the sale thereof. It was further held that the Jharkhand High Court has seriously erred in holding contrary and in interfering with the concurrent findings recorded by all three authorities and therefore the order passed by the High Court is unsustainable.

By - C. George Thomas