1982 (11) TMI 154 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the activity of re-rolling ingots into M.S. rounds amounts to a process of manufacture under the Bombay Sales Tax Act, 1959.
2. Whether any tax is payable on the M.S. rounds sold by Shree Ram Steel Rolling Mills and the rate thereof.
3. Whether the activity of re-rolling rolling scrap into rounds amounts to a process of manufacture under the Bombay Sales Tax Act, 1959.
4. Whether purchase tax under section 13 is payable on the rolling scrap purchased from an unregistered dealer and the rate thereof.
5. Interpretation of section 2(26)(ii) and (iii) and rule 3(xviii) of the Bombay Sales Tax Rules, 1959.
6. Whether the Tribunal was justified in not accepting the interpretation of section 2(26)(iii) of the Act and rule 3(xviii) of the Rules, thus departing from the principle of stare decisis.

Issue-wise Detailed Analysis:

1. Re-rolling Ingots into M.S. Rounds as Manufacture:
The applicants argued that the activity of re-rolling ingots into M.S. rounds should not be considered as "manufacture" within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959, as it falls under the exclusion provided by rule 3(xviii) of the Bombay Sales Tax Rules, 1959. The Commissioner, however, held that this activity does amount to "manufacture," making the sale of M.S. rounds subject to sales tax.

2. Taxability of M.S. Rounds Sold:
The primary question was whether the sale of M.S. rounds by Shree Ram Steel Rolling Mills was exigible to sales tax under section 7(1)(ii) of the Bombay Act. The Tribunal upheld the Commissioner's decision that the sale was taxable, rejecting the applicant's claim for exemption based on the interpretation of "resale" under section 2(26) of the Act.

3. Re-rolling Rolling Scrap into Rounds as Manufacture:
Metro Steel Rolling Mills contended that re-rolling rolling scrap into rounds should not be considered as "manufacture" under the Act. The Commissioner and the Tribunal disagreed, holding that this activity constitutes "manufacture," thus making the purchase of rolling scrap from an unregistered dealer subject to purchase tax under section 13 of the Act.

4. Purchase Tax on Rolling Scrap:
The issue was whether Metro Steel Rolling Mills had to pay purchase tax under section 13 for rolling scrap purchased from an unregistered dealer. The Tribunal affirmed the Commissioner's decision that purchase tax was payable, rejecting the applicant's argument that the purchase should be exempt as a "resale" under section 2(26)(iii).

5. Interpretation of Section 2(26)(ii) and (iii) and Rule 3(xviii):
The applicants argued that their activities should fall under the exclusions provided by rule 3(xviii) and should be considered "resale" under section 2(26)(ii) and (iii). The Tribunal, following the Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra, held that each item in section 14 of the Central Act is a separate taxable commodity, thus rejecting the applicants' interpretation.

6. Principle of Stare Decisis:
The applicants contended that the Tribunal should not have deviated from the department's long-standing interpretation of section 2(26)(iii) and rule 3(xviii). The court held that while a superior tribunal is not bound by the decisions of inferior tribunals, the Tribunal was justified in following the Supreme Court's decision in Pyare Lal Malhotra's case.

Conclusion:
The court concluded that the Tribunal and the Commissioner erred in applying the decision of the Supreme Court in Pyare Lal Malhotra's case to the applicants' cases. The court held that the sale of M.S. rounds by Shree Ram Steel Rolling Mills and the purchase of rolling scrap by Metro Steel Rolling Mills should be considered as "resale" under section 2(26)(ii) and (iii) of the Act. Consequently, the applicants were entitled to the deductions claimed. The court answered questions (1) and (2) in the negative, in favor of the assessees, and question (3) in the affirmative, in favor of the department. The respondents were ordered to pay the costs of the references fixed at Rs. 300 to the applicants.