1979 (3) TMI 190 - HC - VAT and Sales Tax

Issues Involved:

1. Taxability of M.S. rounds, flats, and angles manufactured from iron and steel scraps.
2. Application of the doctrine of promissory estoppel against the government.
3. Interpretation of Section 14 and 15 of the Central Sales Tax Act and the Tamil Nadu General Sales Tax Act.
4. Impact of the Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra.
5. Validity of assessments made by the Commercial Tax Officer.

Detailed Analysis:

1. Taxability of M.S. Rounds, Flats, and Angles Manufactured from Iron and Steel Scraps:

The assessees contended that the iron and steel scraps used to manufacture M.S. rounds, flats, and angles had already suffered tax in the State as first sale of declared goods. They argued that under Section 14 of the Central Sales Tax Act, these goods were not liable to tax on second and subsequent sales. The Court initially allowed this contention, holding that the products emerging from various stages of manufacture could not be treated as different from "iron and steel." However, the Supreme Court reversed this decision, holding that each category of iron and steel listed in Section 14(iv) constitutes a separate commercial commodity. Thus, the conversion of steel scrap into M.S. rounds, flats, and angles results in new commercial commodities, which are separately taxable.

2. Application of the Doctrine of Promissory Estoppel Against the Government:

The assessees argued that the government should be estopped from levying tax due to a circular issued by the Ministry of Finance in 1972, which suggested that rolled steel sections manufactured from tax-paid billets could not be subjected to sales tax again. The Court rejected this argument, noting that the circular was issued after the relevant assessment years and that the Central Government is not authorized to grant exemptions under the Central Sales Tax Act. Moreover, the circular was advisory and did not bind the State Government, which had not issued a similar circular.

3. Interpretation of Section 14 and 15 of the Central Sales Tax Act and the Tamil Nadu General Sales Tax Act:

Section 14 of the Central Sales Tax Act declares certain goods, including iron and steel, to be of special importance in inter-State trade or commerce. Section 15 imposes restrictions on the State's power to tax these goods, including a limitation that tax shall not exceed 3% and shall not be levied at more than one stage. The Court initially interpreted these provisions to mean that all forms of iron and steel, whether raw material or finished product, should be treated as a single commodity for tax purposes. However, the Supreme Court clarified that each sub-category of iron and steel listed in Section 14(iv) retains its identity as a separate commercial commodity, which can be taxed independently.

4. Impact of the Supreme Court's Decision in State of Tamil Nadu v. Pyare Lal Malhotra:

The Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra played a crucial role in the Court's final judgment. The Supreme Court held that each category of iron and steel listed in Section 14(iv) constitutes a separate commercial commodity. This decision overruled the earlier judgment of the High Court, which had treated all forms of iron and steel as a single commodity for tax purposes. The High Court applied this principle to the present case, concluding that the conversion of steel scrap into M.S. rounds, flats, and angles results in new commercial commodities that are separately taxable.

5. Validity of Assessments Made by the Commercial Tax Officer:

The assessing authority initially levied tax on the turnover of M.S. rounds, flats, and angles at 2%. The assessees challenged this assessment, arguing that the products had already suffered tax as iron and steel scraps. The Court initially quashed the assessment and remanded the matter for fresh disposal. However, following the Supreme Court's decision, the Court upheld the validity of the assessments, stating that the conversion of steel scrap into M.S. rounds, flats, and angles results in new commercial commodities that are separately taxable.

Conclusion:

The High Court allowed the writ appeals and tax cases, directing the assessing authority to re-evaluate the assessments in light of the Supreme Court's decision. The Court rejected the plea of promissory estoppel and upheld the principle that each category of iron and steel listed in Section 14(iv) constitutes a separate commercial commodity, which can be taxed independently. The commercial character or identity of steel scrap is wholly different from steel ingots, steel billets, steel bars, and rods, and the fact that the steel scrap had already suffered tax does not confer immunity from taxation on the converted goods.

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