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Goods used indirectly can get tax benefit: SC
January, 27th 2007

The Supreme Court has held that goods used indirectly in the manufacture of finished products will be considered as raw material and can get sales tax concession given on direct inputs.

The ruling came while deciding whether diesel used for generating electricity in the manufacture of a final product can be considered as raw material for availing tax benefits.
"Diesel is being used for running a generator set for the production of the ultimate product, which is also required for the purpose of manufacturing the end product. Diesel can only be termed as raw material and not otherwise," a Bench of Justice A R Lakshmanan and Justice Altamas Kabir held.

The case pertained to a polyester yarn manufacturing unit which used diesel to generate electricity through DG sets.

Rajasthan Taxchem Ltd had purchased diesel and availed tax benefit under Section 10 (1) of Rajasthan Sales Tax Act, 1994 claiming diesel was a raw material used to manufacture the final product - polyester yarn.

As per the Act, purchase of raw material for manufacture of final product is entitled to a concessional tax rate of three per cent instead of the usual four per cent sales tax.

However, the state government opposed the benefit given to the manufacturer on the ground that diesel is being used to manufacture an intermediate product - electricity.

It was, therefore, not entitled to benefits, the state government had said.

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