Foundry Vs. Union of India & Ors  INSC 369
(9 August 1995)
S.C. (J) Sen, S.C. (J) Jeevan Reddy, B.P. (J) Singh N.P. (J) Sen, J.
1995 AIR 2400 1995 SCC (5) 289 JT 1995 (6) 418 1995 SCALE (4)676
Civil Appeals Nos.2640-41/94) THE 9TH DAY OF AUGUST, 1995 Present:
Mr. Justice B.P.Jeevan Reddy Hon'ble Mr. Justice N.P.Singh Hon'ble Mr. Justice Suhas
C.Sen Mr.Soli J.Sorabjee, Mr.A.N.Haksar, Sr. Advs., Mrs. Indu Malhotra and Ms. Ayesha
Khatri, Advs. with them for the appellant Mr. A.K.Ganguli, Sr. Adv. Mr.A.Mariarputham,
Mrs.Aruna Mathur, Mr.A.Kapoor, Advs. for Arputham Aruna & Co., Advs. with
him for the Respondents.
following Judgment of the Court was delivered:
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEALS NOS.2638-39 OF 1994 Vasantham Foundry V. Union of India and others
(With Civil Appeals Nos. 2640-41 of 1994)
question that falls for determination in this case is whether the `cast iron'
in the list of declared goods in the Tamil Nadu General Sales Tax Act would
include `Cast Iron Castings'.
case of the appellant is that the basic raw materials for producing cast iron
are pig iron, steel scrap, iron scrap, cast iron scrap etc. After melting these
raw materials and adding requisite quantity of carbon, silica etc., the molten
metal in the cupola furnace is poured into the moulds of different
specifications to get the cast iron castings as required by the end user. The
foundry owners like the appellant, manufacture rough cast iron castings
according to the specifications of their customers, who in their turn
manufacture manhole covers, pipes, components for automobile industry,
agricultural implements, etc. For this the rough castings have to undergo
machining, grinding, polishing and various other process.
14 of the Central Sales Tax Act declared certain goods to be of special
importance in inter-State trade or commerce. In the list of goods, set out in
Section 14, `Iron and Steel' has been included in the following manner:-
"14(iv). Iron and Steel, that is to say,-
Pig iron and cast iron including ingot moulds, bottom plates, iron scrap, cast
iron scrap, runner scrap and iron skull scrap;
semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);
bars, tin bars, sheet bar, hoe-bars and sleeper bars;
steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and
ribbed or twisted, in coil form as well as straight lengths);
steel structurals (angles, joists, channels, tees, sheet piling sections, z
sections or any other rolled sections);
sheets, hoops, strips and skelp, both black and galvanised, hot and cold
rolled, plain and corrugated, in all qualities in straight lengths and in coil
form, as rolled and in rivetted conditions;
both plain and chequered in all qualities;
discs, rings, forgings and steel castings;
alloy and special steels of any of the above categories;
melting scrap in all forms including steel skull, turnings and borings;
tubes, both welded and seamless, of all diameters and lengths, including tube
both hot dipped and electrolytic and tinfree plates;
fish plate bars, bearing plate bars, crossing sleeper bars, fish plates,
bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy and
light crane rails;
tyres, axles and wheel sets;
rods and wires-rolled, drawn, galvanised aluminised, tinned or coated such as
rejects, cuttings or end pieces of any of the above categories;"
15 of the Act imposed restrictions and conditions in regard to sales tax on
sale or purchase of declared goods within a State. By Section 15(a) of the Act,
the sales tax payable under any State law in respect of any sale or purchase of
declared goods inside the State shall not exceed 4% of the sale or purchase
price thereof and such sales tax shall not be levied at more than one point.
4 of the Tamil Nadu General Sales Tax Act deals with tax in respect of declared
goods and reads as follows:- "Notwithstanding anything contained in
sub-section (2) to (8) of Section 3 or Section 3-A or Section 3-B but subject
to the provisions of sub-section (1) of Section 3, the tax under this Act shall
be payable by a dealer on the sale or the purchase inside the State of declared
goods at the rate and only at the point specified against each in the second
schedule on the turnover in such goods in each year." Entry 4 of the
Second Schedule to the Tamil Nadu General Sales Tax Act has reproduced clause (iv)
of Section 14 of the Central Sales Tax Act word for word. Clause (i) of Entry 4
of the Second Schedule to the Tamil Nadu General Sales Tax Act with effect from
1.4.1974 reads as follows:- "(i). Pig iron and cast iron including ingot
moulds, bottom plates, iron scrap, cast iron scrap, runner scrap and iron skull
is no dispute that sub-item (i) of Item II to the Third Schedule of Andhra
Pradesh General Sales Tax Act is also identically worded and provides for levy
of 4% tax on such goods.
case of the appellant is that before that judgment of this Court in the case of
Bengal Iron Corporation v. Commercial Tax Officer, (1994) Suppl. 1 S.C.C.310,
`cast iron castings'were treated as declared goods and tax was levied at 4% at
the first point of sale in the State of Tamil Nadu. This is evident from the Commissioner of Commercial Taxes proceedings
in R.Dist. AZ/3402/81 dated 24.6.1981. It was clarified in that proceeding that
the expression `cast iron' in the list of declared goods would cover `cast iron
castings'. Rough (unmachined) cast iron castings were to be treated as declared
goods under sub-item (i) of Item IV of the Second Schedule to the Tamil Nadu
General Sales Tax Act.
views were expressed by the Central Government twice in two clarificatory
letters dated February 28, 1977 and January 31, 1984, in which it was stated
that `cast iron' used in Section 14(iv) (i) of the Central Sales Tax Act would
cover `castings of cast iron'.
the judgment of this Court in the case of Bengal Iron Corporation, delivered on
27th April, 1993, a circular has been issued dated 14th September, 1993 by the
Special Commissioner and Commissioner of Commercial Taxes, Madras-V, in which
it has been stated that `cast iron castings' are liable to be taxed at the
rates applicable to the products according to their classification under the
First Schedule to the Tamil Nadu General Sales Tax Act. The circular referred
to the decision in the case of Bengal Iron Corporation (supra) and stated that
as a result of this decision `rough cast iron castings whether machined or unmachined'
have to be treated as distinct and different from cast iron and the earlier
stand that rough cast iron castings were `declared goods' has to be reversed
and tax shall be levied on cast iron castings accordingly. This circular
superseded all earlier circulars and it was declared that the revised
classification will take effect from 1.4.1993.
case of the appellant, Vasantham Foundry, is that it is doubtful whether such
clarification/circulars can have any binding effect on quasi judicial
authorities under the Sales Tax Act. But, following this circular, notices were
issued by Commercial Tax Officer to various foundry owners proposing to assess
to tax sale of cast iron castings at the rate of 8%. A group of writ petitions
were moved by Vasantham Foundry, Coimbatore, and members of Southern India Engineering Manufacturers Association, Coimbatore and the Coimbatore District Tiny
and small Scale Industries Association, Coimbatore, challenging the aforesaid clarification as well as notices. All these
writ petitions were dismissed by a common order in which it was held that there
was absolutely no merit in all these cases. The law as to the treatment of the
cast iron castings and as to in what manner the goods by the description cast
iron castings had to be treated for assessment purposes, has been declared by the
Supreme Court and is binding not only on all quasi judicial functionaries, but
also upon all courts and all persons in this country under Article 141 of the
Constitution. It was held that the relevant provisions of Andhra Pradesh
General Sales Tax Act were identical with those of corresponding provisions of
the Tamil Nadu Act and in that view of the matter, the circular issued by the
State of Tamil Nadu to give effect to the judgment of the supreme Court, cannot
be quashed by the issuance of a writ of certiorari as prayed.
appellant has now come up before this Court and has contended that the decision
of this Court in the case of Bengal Iron Corporation (supra) is being
misconstrued and misunderstood by all the States' revenue authorities. The
circular issued by the Tamil Nadu Government will affect 6,000 foundries in the
State. In fact, all the foundries in the country will be similarly affected by
the misunderstanding of this jadgment. It has been prayed that a large number
of notices have been issued to individual foundry owners like Vasantham
Foundry. Unless these notices are withdrawn at once, they will suffer
irreparable loss or damage.
going into the controversy raised in this case, it is necessary to examine the
judgment in the case of Bengal Iron Corporation (supra) and decide exactly what
was decided in that case. Bengal Iron Corporation, the appellant in that case,
had purchased `cast iron' and from that cast iron the appellant manufactured
several goods like manhole covers, bends, cast iron pipes, etc. It was pointed
out in the judgment:- "It is thus clear that `cast iron' is different from
`cast iron castings' manufactured by the appellant. `Cast iron' is purchased by
the appellant and from that `cast iron' he manufactures several goods like
manhole covers, bends, cast iron pipes, etc. In other words, `cast iron' used
in Item (iv) of Section 14 of the Central Act is the material out of which the
petitioners products are manufactured. Position remains the same, even if the
appellant purchases iron and mixes it with carbon and silicon thereby deriving
`cast iron' and then pours it into different moulds.
sum, `cast iron' is different from the cast iron pipes, manhole covers, bends
etc. manufactured and sold by the appellant. It cannot be denied, in such a
situation that the products manufactured by the appellant are, in commercial
parlance, different and distinct goods from the cast iron.
this aspect is not seriously disputed by Shri Ganguli, the learned counsel for
the appellant." The appellant, in the instant case, has not disputed the
above proposition laid down in the case of Bengal Iron Corporation (supra). It
has been argued that if in a given case it is found that agricultural
implements or parts of a motor vehicle or manhole covers, bends, or cast iron
pipes are being produced in a foundry, these cannot be treated as `cast iron',
but will have to be treated as finished goods made of cast iron. But, 'cast
iron casting' at its primary stage must be treated as declared goods. When pig
iron or scrap iron is melted in the foundry and mixed with carbon and silicon,
it cannot be said that the molten metal was cast iron and when the molten metal
is poured into a mould, it ceased to be cast iron.
judgment, this contention must be upheld. When Section 14 declared certain
goods as of special importance in inter-State trade or commerce, it could not
have the molten metal in contemplation. It is nobody's case that the molten
metal is bought and sold in the market. What is bought and sold is cast iron,
which is obtained by pouring molten metal in the moulds. The moulds may be of verious
shapes or sizes, but the type or nature or the size of the mould will not
decide the question whether the end product will be `cast iron' or not. Cast
iron has to be in some shape, whether as a bar, as a billet or in some other
molten metal has to be poured into some mould to obtain `cast iron' so that it
can be traded, transported and used in obtaining finished goods out of it. It
is not the shape of this rough mould that is determinative of the issue. What
is determinative is whether it is finished product or only a rough mould to be
used in manufacturing finished products.
fact that the rough mould approximates in shape to the finished goods that will
be ultimately made out of it does not make it any the less a rough mould. What
emerges from the moulds is a cast iron casting in its primary form, that is to
say, rough cast iron casting. But, that will not take it out of the ambit of declared
goods. If cast iron or cast iron casting in the primary form is not to be
treated as declared goods, then the whole purpose of including cast iron in the
list of declared goods will be defeated.
Central Sales Tax Act imposed a levy of tax on sale or purchase of goods that
takes place in course of inter- State trade or commerce. `Declared goods' and
`goods' have been defined in sub-sections (c) and (d) of Section 2 of the Act:-
"(c) `declared goods' means goods declared under Section 14 to be of Special
importance in inter-state trade or commerce;
`goods' includes all materials, articles, commodities and all other kind of
movable property, but does not include newspapers, actionable claims, stocks,
shares and securities;" By including `cast iron' among the goods of
special importance in inter-State trade or commerce, the Legislature could not
have given the phrase `cast iron' a narrow and limited meaning so as to exclude
everything made out of cast iron in molten form. Only some of the goods which
are dealt with in inter-State trade or commerce, have been declared as goods of
special importance. On these goods tax can be levied only at one point and the
rate of tax will not exceed 4% of its price. It is not conceivable that molten
metal can be sold or purchased in course of inter-State trade or for that
matter even in course of intra-State sale or purchase.
for argument's sake that a quantity of molten metal can be purchased by a
customer, it can only be delivered by a foundry in a container. The molten
metal will solidify on cooling and acquire the shape and size of the container.
In other words, the molten metal will become rough cast iron casting.
Similarly, if the molten metal is delivered in moulds, it will acquire the size
and shape of the moulds as soon as it cools down and will acquire the size and
shape of mould. It is nobody's case that it is the molten metal which is dealt
with in inter-State trade or commerce. When the Central Government declared
cast iron as goods of special importance in inter-State trade or commerce, it
must have in contemplation some commodity which is actually traded in
inter-state trade or commerce. If rough cast iron castings are treated as
something distinct and separate from cast iron, the purpose behind Sections 14
and 15 will be defeated.
been asserted on behalf of the appellant that `cast iron' would have to be
given its natural meaning and understood in the light in which the expression
has been understood by the trade for several decades. The Central Government
through the Department of Revenue has issued several clarificatory letters
confirming that `cast iron' and `cast iron castings' would mean the same item
for the purpose of declaration under the Act. This contention is sought to be
supported by the following statement in McGraw- Hills's Encyclopedia of Science
& Technology, 7th Edition, Volume 3:- "Cast Iron A generic term
describing a family of iron alloys containing 1.8-4. 5% carbon. Cast iron
usually is made into specified shapes, called castings, for direct use or for
processing by machining, heat treating, or assembly." It will be seen from
this that `cast iron' and `cast iron castings' are not being described as two
different commodities. Cast iron usually is made into specified shapes or
castings. This corroborates the argument urged on behalf of the appellant that
cast iron can exist only in the form of cast iron castings or cast iron scap.
Casting' has been described in McGraw-Hills's Encyclopedia of Science &
Technology, 7th Edition Volume11:- "Metal Casting.
introduction of molten metal into a cavity or mold where, upon solidification,
it becomes an object whose shape is determined by mold cinfiguration." But
these statements have to be understood in the context of sales tax
enactment-the test being whether the basic metal remains the same after the
treatment or whether commercially known different goods emerge. It cannot be
said that cast iron after it is machined and finished and sold as different
goods, e.g., bends, pipes, manhole covers, motor parts, etc. will still be
treated as cast iron. The test is whether the goods are being dealt with as
cast iron or as different goods made out of cast iron in the market place.
Encyclopedia Americana, International Edition, Volume 5, has explained `cast
iron' and `casting' in the following manner:- "Cast Iron: Cast iron is a
general term that describes a series of iron-carbon- silicon alloys, which are
produced by pouring the molten alloy into molds. In contrast with steel, in
which carbon is chemically combined with the iron, cast irons contain more
carbon than can be retained in solution. By varying the carbon and silicon
content of the alloy several types of cast iron are produced, each with
distinctive properties and uses. The production of a cast iron object,
regardless of the type of iron, involves several steps." "Casting:
Casting is the process of producing a metal object of a desired shape by
pouring molten metal into a mold and allowing the metal to cool and solidify.
Man has been making cast metal objects for artistic or practical purposes since
very early times, when the first castings probably were made of gold or copper
formed in a stone or clay mold. The earliest axes and other useful metal
objects were cast in open molds of stone or baked clay. Early art objections
were made of cast gold, silver, copper, or bronze; one existing life-sized
portrait head in cast bronze from Mesopotamine dates from about 2250 B.C.
shaping of metals in the liquid state has been in development for centuries.
With the growth of industrial societies, the need for metal castings has become
very great. In the United States alone the industry produces more than 16
million tons of castings annually, using iron, steel, copper aluminium, zinc,
alloys, and magnesium alloys." Therefore, it appears from this that the
molten form is not regarded as `cast iron' at all according to the Encyclopedia
Americana. It is produced by pouring the molten alloy into moulds. `Casting' is
also used generally to describe the process of producing a metal object of a
judgment, the molten metal produced in a foundry cannot be described as `Cast
iron'. In particular having the purpose behind Sections 14 and 15 of the
Central Sales Tax Act in mind, cast iron cannot be construed to mean anything
but the solidified material which is bought and sold in inter-State trade or
commerce. The shape and size of the solidified material is quite unimportant
for the purpose of Section 14. If molten matal is poured into a mould, what
comes out may be regarded as a casting. Even then such iron casting in its
solid form must be treated as `cast iron' in Section 14(iv) of the Central
Sales Tax Act. To repeat, the test is whether the goods in question are being
bought and sold, i.e., dealt with and understood, in commercial parlance as
cast iron or as different goods, e.g., manhole covers, pipes, motor parts, etc.
in our view `cast iron casting' in its basic or rough form must be held to be`cast
iron'. But, if thereafter any machining or polishing or any other process is
done to the rough cast iron casting to produce things like pipes, manhole
covers or bends, these cannot be regarded as `cast iron casting' in its primary
or rough form, but products made out of cast iron castings. Such products
cannot be regarded as `cast iron' and cannot be treated as `declared goods'
under Section 14(iv) of the Central Sales Tax Act. This view is not in conflict
with the view taken in the case of Bengal Iron Corporation (supra), but it is
in consonance with the decision in that case.
argument was also made that from the very beginning when`cast iron' was brought
in the list of declared goods under Central Sales Tax Act and suitable
legislation was passed by the State Government to treat `cast iron' as declared
goods and levy tax thereon at the rate prescribed by the Central Sales Tax Act
and at a single point. All the State Governments have taken the view that
`rough cast iron casting' should be treated as `cast iron'. Reliance has been
placed on (i) circular dated 5.10.79 issued by the Commissioner of Commercial
Taxes, Hyderabad, Andhra Pradesh;(ii) circular dated 24.6.91 issued by the
Commissioner & Secretary, Commercial Tax Department, Tamil Nadu; (iii) Memorandum
of Government of Andhra Pradesh issued on 27.7.84; (iv) clarification made by
the Government of India vide its letters dated 28.2.1977 and 21.1.1984; (v)
Memorandum dated 17.4.85 issued by the Government of Andhra Pradesh; (vi)
communication Memo No. 11469 C.T./7A12/88 dated 31.7.91 issued by the
Commissioner of West Bengal; and (vii) letter from the C.C.T. Andhra Pradesh
these communications consistent view has been taken that`cast iron castings'
have to be treated as `cast iron'.
been argued that the word `cast iron' must be understood in the way the trade
understands it. This understanding has been recognized and implemented by the
various circulars issued by various State Government and the Central Government
from time to time in a consistent view.
meaning should not be discarded without very strong reasons. In the instant
case, if the well-understood meaning is discarded and the new meaning is
adopted, 6,000 foundries in the State of Tamil nadu and thousands of other
foundries all over the country will suffer irreparable loss or damage.
it has been contended that the circular dated 14.9.93 issued by the Tamil nadu
Government is based on misconception of the law laid down by this Court in the
case of Bengal Iron Corporation (supra). The aforesaid circular reads as
follows:- CIRCULAR Sub: TAGST Act 1959 - Cast iron rough castings -
clarification regarding rate of tax - judgment of Supreme Court in the case of
Bengal Iron Corporation - Revised Clarification - Issued.
This office Lr. R. Dis. A2/3492/81 dated 24.6.1981.
Judgment of Supreme Court in 90 STC 47. In this office Lr. No. R. Dis.
A2/3492/81 dated 23.6.81, it wqs clarified (in modification of all previous
instructions) that rough (un- machined) cast iron castings were liable to be
taxed as declared goods under sub- item 1 of item 4 of the Second Schedule.
Supreme Court in the case of Bengal Iron Corporation (90 STC 47) has held that
cast iron castings do not come under the definition of cast iron mentioned in
item (iv) (iv)(i) of Section 14 of CST Act, as they are manufactured from cast
iron and sold.
Supreme Court has observed that cast iron used in item (iv) (i) of Section 14
of CST Act is the material out of which the products like man-hole covers,
bends, cast iron pipes are manufactured; that it cannot be denied that products
manufactured are in commercial parlance, different and distinct goods from cast
iron. The apex Court has gone into the clarifications issued by the Government
of India at various points of time and has come to this conclusion. As a result
of the judgment of Supreme Court cast iron castings (whether machined or unmachined)
have to be treated as distinct and different from cast iron.
cast iron castings which are parts of machinery/automobiles etc, are to be
classified under the respective main items of the first schedule, This will
also call for the levy of surcharge, additional surcharge and limit. These
additional levies were hitherto not collected because rough cast iron castings
were treated as declared goods. The department and the trade have been
following the above clarifications that rough cast iron castings are declared
goods. The reversal of this stand by the department in view of the judgment of
Supreme Court has, therefore, to be given effect to from the current year only.
3. In supersession
of the clarification issued by this office relating to the taxation of rough
cast iron castings, it is hereby clarified that such rough cast iron castings
are liable to tax at the rates applicable to the products according to their
classification under the first Schedule (for clarification will take effect
from First April 1993. Government are being addressed for orders not to re-open
past assessment involving sales of rough cast iron castings. In respect of
pending assessments, revised rate of tax may be applied, but collection of
difference between the tax assessed and;
levies of surcharge, additional surcharge and additional sales tax may be
deferred pending receipt of orders of waiver from Government." We are of
the view that there is considerable force in the contention of the appellant.
The appeals are allowed.
circular dated 14.9.93 is quashed and the impugned show cause notices issued
pursuant to the aforesaid circular are also quashed, with the clarification
that `rough unmachined cast iron castings' will continue to be treated as
declared goods under sub-item (i) of Item (iv) of the Second Schedule to the
Tamil Nadu General Sales Tax Act, 1959.
respondents, however, will be at liberty to tax any product made out of the
`rough unmachined cast iron castings' in accordance with law.
will be no order as to costs.
APPEALS NOS. 2640 AND 2641 OF 1994 In view of our judgment in Civil Appeals
Nos.2638 and 2639 of 1994, the above appeals are also allowed. There will be no
order as to costs.