Supreme Court Upholds Reimbursement of Sales Tax on Coal Used to Make Coke for Inter-State Sale

Date of the Judgment: May 10, 2019
Citation: 2019 INSC 458
Judges: Ranjan Gogoi, CJI, Sanjay Kishan Kaul, J., K.M. Joseph, J.
Can a state deny a refund of sales tax on raw materials when those materials are transformed into a different product for inter-state sale? The Supreme Court of India addressed this question in a case concerning the reimbursement of sales tax on coal used to produce coke. The Court held that the state was liable to reimburse the sales tax paid on coal, even though the coal was converted into coke before being sold in inter-state trade. This judgment was delivered by a three-judge bench comprising Chief Justice Ranjan Gogoi, Justice Sanjay Kishan Kaul, and Justice K.M. Joseph, with the opinion authored by Justice K.M. Joseph.

Case Background

M/s. Akash Coke Industries Pvt. Ltd., the respondent, purchased coal within the state of Jharkhand and paid sales tax amounting to Rs. 17,89,412. This coal was then converted into coke, which was subsequently sold in inter-state trade. On this inter-state sale, the respondent paid Central Sales Tax of Rs. 63,80,573. Following this, the respondent sought a refund of the state sales tax paid on the coal, citing Section 15(b) of the Central Sales Tax Act, 1956. The state denied the refund, leading to the respondent filing a writ petition in the High Court.

Timeline:

Course of Proceedings

The High Court ruled in favor of the respondent, directing the state to reimburse the sales tax with statutory interest. The High Court rejected the state’s argument that the refund application was not accompanied by an excess demand notice as per the Bihar Sales Tax Rules, 1983. The High Court noted that the sales tax was paid on the intra-state purchase of coal, the coal was converted into coke, and the coke was sold in inter-state trade, attracting Central Sales Tax. The High Court held that under Section 15(b) of the Central Sales Tax Act, the state sales tax should be reimbursed when the end product is sold in inter-state trade and Central Sales Tax is paid.

Legal Framework

The judgment refers to the following key legal provisions:

• Article 286 of the Constitution of India: This article, at the relevant time, imposed restrictions on state laws regarding taxes on the sale or purchase of goods of special importance in inter-state trade.
  • “Any law of a State shall, in so far as it imposes, or authorises the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub clause (b), sub clause (c) or sub clause (d) of clause 29 A of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.”
• Section 14(ia) of the Central Sales Tax Act, 1956: This section declares certain goods, including coal and coke, to be of special importance in inter-state trade or commerce.
  • “It is hereby declared that the following goods are of special importance in inter-State trade or commerce:—(ia) coal, including coke in all its forms, but excluding charcoal”
• Section 15(b) of the Central Sales Tax Act, 1956: This section provides for the reimbursement of state sales tax when declared goods are sold in inter-state trade, and Central Sales Tax is paid.
  • “where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State;”

Arguments

Appellant’s Arguments:

• The appellant argued that the respondent purchased coal through intra-state sales but sold coke in inter-state sales. Therefore, the goods sold in inter-state trade were not the same as the goods purchased intra-state.
• The appellant contended that since the goods were different, the respondent was not entitled to reimbursement of the sales tax paid on coal under Section 15(b) of the Central Sales Tax Act, 1956.

Respondent’s Arguments:

• The respondent contended that the issue of whether coal and coke are different goods was not raised before the High Court.
• The respondent argued that the High Court was correct in directing the reimbursement of the sales tax under Section 15(b) of the Central Sales Tax Act, 1956, as the end product (coke) was sold in inter-state trade after paying Central Sales Tax.
• The respondent argued that the refund was sought as per the determination of the refund under Section 15(b) of the Act.

Issues Framed by the Supreme Court

The Supreme Court did not frame any explicit issues. However, the core issue before the court was:

• Whether the appellant could raise the contention that coal and coke are different goods, thus disentitling the respondent from reimbursement under Section 15(b) of the Central Sales Tax Act, 1956, when this issue was not raised before the High Court.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Tvl. K.A.K. Anwar and Co. v. State of Tamil Nadu [(1998) 1 SCC 437]: The Court acknowledged that the appellant referred to this case but did not discuss it further.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the appellant had not raised the issue of coal and coke being different goods before the High Court. The Court emphasized that the writ petition was based on the determination of the refund under Section 15(b) of the Act. The Court’s reasoning focused on procedural fairness and the need for parties to raise all relevant issues in the initial proceedings. The Court did not delve into the merits of whether coal and coke are different goods for the purpose of Section 15(b) of the Central Sales Tax Act, 1956, as that issue was not properly before it.

Logical Reasoning:

The Supreme Court did not consider alternative interpretations, as the core issue was the procedural aspect of whether the appellant could raise a new issue that was not raised before the High Court. The Court’s decision was based on the principle that parties should raise all relevant issues in the initial proceedings.

The Court’s decision is based on the following reasons:

• The issue of whether coal and coke are different goods was not raised by the appellant in the counter affidavit or additional affidavit before the High Court.
• The writ petition was based on the determination of the refund under Section 15(b) of the Act.
• The Supreme Court found no reason to grant relief to the appellant since the issue was not raised before the High Court.

“In our view, the question which has been raised by the Appellant-State, was never raised and the writ petition filed by the respondent, was on the basis of the determination of the Refund under Section 15(b) of the Act.”

“There was absolutely no whisper in the counter affidavit or additional affidavit filed by the appellants seeking to project the dispute that Coal purchased by the respondents was not the same good as Coke manufactured out of Coal and, therefore, on sale of Coke in an inter-state Sale, the respondent is not entitled to get refund of the tax paid on the intra-state purchase of Coal.”

“In such circumstances, we are of the view that no relief can be granted to the appellant.”

There were no majority or minority opinions in this case, as the decision was unanimous.

The Court’s decision implies that parties must raise all relevant issues in the initial proceedings before the lower courts. The Court did not delve into the merits of whether coal and coke are different goods for the purpose of Section 15(b) of the Central Sales Tax Act, 1956, as that issue was not properly before it.

Key Takeaways

• Parties must raise all relevant issues in the initial proceedings before the lower courts.
• The Supreme Court will not entertain new issues that were not raised before the High Court.
• Section 15(b) of the Central Sales Tax Act, 1956, provides for the reimbursement of state sales tax when declared goods are sold in inter-state trade, and Central Sales Tax is paid.
• The judgment does not definitively settle the question of whether coal and coke are the same goods for the purpose of Section 15(b) of the Central Sales Tax Act, 1956.

Directions

No specific directions were given by the Supreme Court. The Court simply dismissed the appeals.

Development of Law

The ratio decidendi of this case is that the Supreme Court will not entertain new issues that were not raised before the High Court. This case does not change the previous position of law, but reinforces the importance of raising all relevant issues in the initial proceedings before the lower courts.

Conclusion

The Supreme Court dismissed the appeals filed by the State of Jharkhand, upholding the High Court’s decision to direct the reimbursement of sales tax on coal used to produce coke for inter-state sales. The Court emphasized that the state had not raised the issue of coal and coke being different goods before the High Court, and therefore, it could not raise it before the Supreme Court. The judgment underscores the importance of raising all relevant issues in the initial proceedings before the lower courts.

Category

Parent Category: Central Sales Tax Act, 1956
Child Categories: Section 15(b), Central Sales Tax Act, 1956; Inter-State Trade; Declared Goods; Reimbursement of Sales Tax

FAQ

Q: What was the main issue in this case?
A: The main issue was whether the State of Jharkhand could deny a refund of sales tax on coal when the coal was converted into coke and sold in inter-state trade, and whether the state could raise the issue of coal and coke being different goods when it was not raised before the High Court.

Q: What did the Supreme Court decide?
A: The Supreme Court dismissed the appeals filed by the State of Jharkhand, upholding the High Court’s decision to direct the reimbursement of sales tax. The Court held that the state could not raise the issue of coal and coke being different goods before the Supreme Court, as it had not raised this issue before the High Court.

Q: What is Section 15(b) of the Central Sales Tax Act, 1956?
A: Section 15(b) of the Central Sales Tax Act, 1956, provides for the reimbursement of state sales tax when declared goods are sold in inter-state trade, and Central Sales Tax is paid.

Q: What is the key takeaway from this judgment?
A: The key takeaway is that parties must raise all relevant issues in the initial proceedings before the lower courts. The Supreme Court will not entertain new issues that were not raised before the High Court.