Telangana
Steel Industries Vs. State of A. P [1994] INSC
160 (4 March 1994)
Hansaria
B.L. (J) Hansaria B.L. (J) Jeevan Reddy, B.P. (J)
CITATION:
1994 AIR 1831 1994 SCC Supl. (2) 259 JT 1994 (7) 27 1994 SCALE (1)884
ACT:
HEAD NOTE:
The
Judgment of the Court was delivered by HANSARIA, J.- Leave granted.
2. Law
has some bright patches as well as some grey areas.
Some
areas remain grey despite best efforts to illuminate them by enlightened
judgments as they get engulfed in darkness or become part of twilight zone
either because of typical climatic condition or changes in conceptual
firmament.
3. In
the present cases, we are concerned with one of the grey areas of the legal
world. The same is as to when a new commercial commodity comes into existence
following processing or manufacturing undergone by the parent object, which in
most cases serves as a raw material for the end- product. This aspect of the
matter assumes importance when a law taxes sale of goods. To find out whether a
particular good is exigible to sales tax or not despite the raw material used
in the production having been taxed earlier, the test evolved is whether a new
commercial commodity has come into existence.
4. As
to when it can be said as aforesaid has been a subject-matter of catena of
decisions. We do not propose either to catalogue them or even examine some of
them to find out as to why in one case it was held that a new commercial
commodity had not come into existence and in another a different view was
taken. It would be enough if we note some of the leading decisions. These are:
(1) Tungabhadra
Industries Ltd. v. CTO1 wherein hydrogenated groundnut oil 1 (1960) 11 STC 827:
AIR 1961 SC 412: (1961) 2 SCR 14 261 (commonly called Vanaspati) was not held
to be a different product from groundnut oil,
(2) Hindustan Aluminium Corpn. Ltd. v. State of Up.2, where rolled products and extrusions were regarded
as different commercial commodity from aluminium ingots and billets,
(3) Dy.
CST (Law), Board of Revenue (Taxes) v. Pio Food Packers3, where pineapple
slices sold in sealed cans after processing the pineapples were not regarded as
different goods,
(4) Alladi
Venkateswarlu v. Govt. of A.p.4 where parched rice (Atukulu) and puffed rice (Muramarulu)
were held not different from rice,
(5) Ganesh
Trading Co. v. State of Haryana5 and Babu Ram Jagdish Kumar and Co. v. State of
Punjab6 in both of which rice was accepted as a different commodity from paddy,
(6)
State of Karnataka v. B. Raghurama Shetty7 in which
certain observations were made regarding bread being different from wheat flour
inasmuch as flour is consumed in the production of bread and so a new commodity
comes into existence.
5.
When the Gauhati High Court was confronted with a similar situation in Modem
Candle Works v. Commissioner of Taxes8, to which decision one of us (Hansaria,
J.) was a party, it had to labour hard to find out as to whether any principle
as such can be culled out from large number of decisions noted in that case. Saikia,
C.J., as he then was, stated for the Bench that different considerations Would
apply when the court is concerned with edible articles ill contrast to
non-edible articles. As to what test should be applied in both types of
articles were then stated as below in paragraph 18 :
"From
the above decisions involving edible articles some of the criteria found are -
whether the entry article is a genus of which the test article is a species;
whether the essential characteristics of the entry article are still to be
found in the new article;
whether
there has been addition of external agents thereby making it different; and
whether there has been a process of transformation of such a nature and extent
as to have resulted in the production of a new article as commonly understood
in the market where it is dealt with. So long it does not result in a new
article, the nature, duration and transformation of the original commodity
would not be material.
In the
other line of decisions involving articles which are not as such edible, we
find that it is the concept of the consumption of the original commodity in the
course of production of a new commodity as understood commonly by the people
who use it would be material. The nature and extent of the process, whether the
labour is manual or mechanical, whether the duration is short or long, whether
the production requires expertise or not would no doubt be relevant but would
not alone be decisive."
6. The
above adequately shows how a valiant effort was made to read a common thread
running through different judgments noted in the decision. A Bench of this
Court as well had gone through this exercise recently in Rajasthan Roller Flour
Mills Assn. v. State of Rajasthan9, (hereinafter the Rajasthan case) 3 1980
Supp SCC 174: 1980 SCC (Tax) 319: (1980) 46 STC 63 4 (1978) 2 SCC 552: 1978 SCC
(Tax) 112: (1978) 41 STC 394 5 (1974) 3 SCC 620: 1974 SCC (Tax) 100: (1973) 32
STC 623 6 (1979) 3 SCC 616: 1979 SCC (Tax) 265: (1979) 44 STC 159 7 (1981) 2
SCC 564: 1981 SCC (Tax) 134: (1981) 47 STC 369 8 (1988) 71 STC 362 (Guj) 9 1994
Supp (1) SCC 413: JT (1993) 5 SC 138 262 in which, one of us (Jeevan Reddy, J.)
delivering judgment for a two-Judge Bench noted some leading decisions on this
aspect of the matter and held that flour, maida and suji are different
commercial commodities from wheat.
7. The
above shows complexity of the concept of a different commercial product coming
into existence because of manufacturing process undertaken. It is because of
this that we do not propose to decide the controversy at hand, which is whether
iron wires are separate commercial goods from wire rods from which they are
produced, by trying to answer whether they are one commercial commodity or
separate. The point has however arisen for consideration because we are
concerned with a single point sales tax, which would not allow taxing of the
same commodity again.
It is
also not in dispute that if the two goods at hand be different commodities, the
single point taxing principle would not debar realisation of tax once again
from the sale of wires. Shri Tarkunde's whole emphasis is that goods in
question cannot be regarded as two different commercial commodities. Let it be
seen why this stand has been taken by the learned counsel on behalf of the
appellants and whether the same is sound?
8. The
stand owes its origin to clubbing together of wire rods and wires in sub-clause
(xv) of clause (iv) of Section 14 of the Central Sales Tax Act, 1956 (for short
'the Act'), which deals with what is commonly known as declared goods, in which
case Section 15 of the Act would come into play which would not permit levying
of sales tax at more than one stage on such goods. On the strength of a
four-Judge Bench decision of this Court in State of TN. v. Pyare Lal Malhotra10
it is strongly contended by Shri Tarkunde that wire rods and wires having been
mentioned in one sub-item, they have to be treated as one goods and not two
different goods.
9. Pyarelal
case1O being the kingpin or sheet-anchor of Shri Tarkunde's submission, we may
carefully note as to what was really decided in that case. There, this Court
was examining whether steel rounds, flats, plates etc. were exigible to tax
under the provisions of Tamil Nadu Sales Tax Act. These products were also
declared goods, and so, an argument was advanced that the iron scrap from which
the goods had been manufactured having suffered sales tax, tax could not be realised
once again from the sale of plates, flats, rounds etc. This Court did not
accept the contention but the reason given for rejecting the contention is what
is pressed into service by Shri Tarkunde, according to whom, the reason given
therein establishes his contention conclusively.
10. As
we are concerned with the products of iron and steel, as was Pyarelal case1O,
let the relevant part of Section 14 of the Act dealing with it be noted :
"
14. Certain goods 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 (iv) iron and steel, that is to
say,- (xv) wire rods and wires - rolled, drawn, galvanised, aluminised, tinned
or coated such as by copper;
10
(1976) 1 SCC 834: 1976 SCC (Tax) 102: (1976) 3 SCR 168 263
11. In
Pyarelal case10, the contention on behalf of the assessee was that steel
rounds, flats, plates etc. were not different commercial commodities because
they were products of iron and steel, and so, were not taxable once again, as
all the products of iron and steel mentioned in various sub- items of clause
(iv) have to be taken as one commodity inasmuch as the legislature visualised
iron and steel as one commodity. It may be stated that at the relevant time (as
also now) iron scrap was one of the sub-items; and steel plates, sheets etc.
part of another sub-item, albeit in separate sub-divisions. Assessees'
contention was rejected by this Court by stating that it was not the substance
(i.e. iron and steel) which should be taken as an object of taxation, but goods
of iron and steel, as otherwise sales tax law itself would undergo a change
from being a law which taxes the sale of "goods" to a law which taxes
sale of "substance" out of which goods are made. The Court also
pointed out that steel plates, sheets etc. formed part of a sub-item different
from that of iron scrap. What is sought to be relied on by Shri Tarkunde is the
observation at p. 171 of the Report that the amendment which was brought about
in item (iv) by 1972 Act following the recommendation of Select Committee was
intended to "consider each 'sub-item' as a separate taxable commodity for
purpose of sales tax".
12.
Our attention is also invited to what has been stated at p. 172 - the same
being that each of the sub-category of a sub-item retains its identity as a
commercially separate item so long as it retains the sub-division. The argument,
therefore, is that goods of one sub-item and in one sub- division have to be
taken as one commercial commodity.
13.
Before expressing our opinion on the aforesaid submission, it would be
necessary to note whether any different view in the matter has been taken in
the Rajasthan case9, which also dealt with the question of as to how products
of a declared goods have to be taxed. Shri Chari appearing for Revenue contends
that in this case this Court held flour, maida and suji derived from wheat as commodities
different from wheat, and so, taxable once again, despite wheat having suffered
tax; and we should take the same view qua wires. A perusal of this decision
shows that the view in question was taken because "wheat simpliciter was
mentioned as a declared goods in sub-clause (iii) of clause (i) of Section 14
of the Act and not wheat products. So this case has not departed from the view
taken in Pyarelal 10, which had been duly noted in this decision.
14. At
this stage, we may note the object behind interdicting multiple-point tax on
declared goods which follows from the mandate contained in clause (a) of
Section 15 of the Act. According to us, the purpose behind this provision is to
minimise the tax burden on declared goods because of the special importance of
these goods in inter- State trade and commerce.
15.
When the attention of the Sales Tax Appellate Tribunal, against whose orders
present appeals have been filed, was drawn to Pyarelal case10 and the argument
noted above was advanced, it observed that the two goods being distinct, the
argument was "really a camouflaged attempt to bypass the judgment".
According to us, the Tribunal did not properly understand the decision in
Pyarela10, which indeed supports the appellants's case. This is for the reason
that Pyarelal case10 ought to be taken to have accepted that goods of 264 one
sub-item should be taken as one taxable commodity.
Rajasthan
case9 does not lay down any different proposition.
16.
Despite the aforesaid being the position, Shri Chari contends that wires being
known as a different commercial commodity from rods, as were flour, maida and suji
accepted as different from wheat in Rajasthan case9, wires would be exigible to
tax on the ratio of that case. The position here being different, as both rods
and wires form part of one sub-item, Rajasthan case9 cannot assist the Revenue.
In view of rather persistent submission made by Shri Chari on this point, we
have applied our mind afresh as to whether despite rods and wires having been
mentioned together in sub-item (sub-clause) (xv) they have to be taken as
different commercial commodities for the purpose of' imposition of sales tax.
Had it been that the sub-item stopped after the word " wires", we
would have perhaps examined the submission of Shri Chari further, but the sub-
item being what it is, we state that wires were thought of as integral part of
rods and not distinct from rods, because the sub-item speaks about wires "
rolled, drawn, galvanised, aluminised, tinned or coated...... This shows that
the legislature did not want wires, even if the same be a separate commercial
commodity, to be taken as a commodity different from the rods for the purpose
of permitting imposition of sales tax once again on wires despite rods having
been subjected to sales tax. Indeed, the two goods - rods and wires - are so
closely knit in the sub-item that any separation of these does not seem
permissible. It would bear repetition to say that multipoint sales tax on the
declared goods being an interdiction of Section 15 of the Act, we would not be
justified in conceding the present demand of the Revenue unless a strong and
cogent case were to be made out, which we do not find.
17.
For the sake of completeness, we may say a few words about the use of the
expression "that is to say" in clause (iv), though Shri Chari has not
advanced any argument basing on this expression. Nonetheless, we are addressing
ourselves to this aspect because in Rajasthan case9 some observations have been
made about the purport of this expression. Reference was made there to what had
been stated in Pyarelal case10 about this expression. The meaning given in
Stroud's Judicial Dictionary (4th Edn., Vol. 5, p. 2753) was first noted and
then what was observed by Beg, J. in Pyarelal case10 was quoted. We do not
think that what has been stated about this expression in these decisions makes
any difference to the conclusion arrived at by us.
18.
The aforesaid being the approach to the controversy at hand, we do not propose
to refer to what had been stated in the counter-affidavit filed by the State
before the Tribunal relating to the process of manufacturing of wire from rods,
to which our attention has been invited by Shri Chari. We only wish to put on
record that in meeting what was mentioned in this regard in the
Counter-affidavit, Shri Lahoty, who assisted Shri Tarkunde, drew our attention
to what has been stated by the Indian Standard Institution on this subject,
reference of which is to be found at p. 19 of Vol. II of the Paper Book of CA
No. 68 of 1986 under the heading "2.4 wire". We have refrained from
going through the exercise of deciding whether wire is a different commercial
commodity from rod, because our approach has been different, as we wanted to
base our decision not on the touchstone of iron rod and wire being one or
separate commercial commodity, having found that these two goods have been
clubbed together in 265 sub-item (xv) (supra) which, according to us, made
material difference and clinched the issue.
19.
We, therefore, conclude by stating that iron wires cannot be taken as a
separate taxable commodity and, if wire rods which were purchased by the
appellants had suffered sales tax, the same could not be realised from the sale
of wires. Shri Lahoty indeed brought to our notice Notification Nos. 1 and 11
issued by the Government of Andhra Pradesh under GOMs No. 176 dated 13-2-1986
is per which sale of wires was exempted from sales tax starting from 1-4-1976
of the wire rods used by the wire drawing units in the State for the manufacture
of wire had been subjected to tax under the State Act.
20.
What is left to be decided is about the nature of the order to be passed on the
prayer of refund. In this connection, Shri Lahoty has drawn the attention to
the order dated 6-1-1986 passed by this Court while granting special leave
reading as under "We make no order for restraining the recovery of the
amount from the petitioners but we direct issue of notice returnable in four
weeks from today for considering the terms on which an order of refund should
be made." Our attention is then invited to Section 33-B of the statute in
question (Andhra Pradesh General Sales Tax Act) which deals with the subject-
matter of refund in cases of the present nature. We leave the appellants to
work out their remedies relating to refund in accordance with the provisions
contained in this section.
21. In
view of the above, the appeals are allowed by setting aside the impugned
judgments and by leaving the appellants to pursue the matter of refund as
indicated above. In the facts and circumstances, we leave the parties to bear
their own costs.
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