Furnace Oil And Light Diesel Oil Are Distinct, Cannot Be Taxed Alike: Madhya Pradesh High Court

The Madhya Pradesh High Court on 8 September held that Furnace Oil (FO) and Light Diesel Oil (LDO) are distinct commodities and cannot be taxed at the same rate merely because both are used as fuel.

A Division Bench of Acting Chief Justice Vivek Rusia and Justice Pradeep Mittal allowed petitions filed by Indian Oil Corporation Limited (IOCL), setting aside orders that had treated FO as LDO for taxation purposes. The judges observed:

“In view of the above, uncontroverted material tax liability cannot be imposed on FO at par with LDO under an omnibus concept of 'fuel', where the legislature provides a specific, distinct tariff heading for LDO, an identical rate cannot be extended to FO in the absence of a shared, uniform entry.”

The dispute arose after tax authorities treated FO sold by IOCL as LDO on the ground that both products had certain similar characteristics and were used as fuel. For the assessment year 2007-08, the classification resulted in an additional demand of about Rs. 3.50 crore, including tax and interest.

IOCL submitted that the two products differ in density, viscosity, distillation range, composition, sediment, water and sulphur content. It relied on Bureau of Indian Standards specifications and technical certificates to establish that they are separately recognised products.

The Court noted that FO is a heavier residual fuel, while LDO is a lighter product obtained at a different stage of crude oil distillation. Their viscosity and combustion characteristics also differ substantially, and FO cannot simply be substituted for LDO in engines designed for lighter fuels.

It also observed that IOCL had placed detailed material establishing these differences, but the State had “conveniently avoided” controverting them. The authorities had also failed to satisfactorily explain how the two products could be placed in the same category for taxation merely on the basis that both are fuels.

Accordingly, the High Court quashed the impugned orders. In the connected VAT appeal, the Bench directed the Assessing Officer to pass a fresh order treating Furnace Oil and Light Diesel Oil as different commodities.

For Petitioner: Shri Sumit Nema - Senior Advocate with Shri Ayush Gupta

For Respondent: Shri Rajvardhan Dutt Padraha - Govt. Advocate