1984 (7) TMI 351 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Tax rate applicability on galvanised plain (G.P.) and galvanised corrugated (G.C.) sheets under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956.
2. Interpretation of "iron and steel" under section 14 of the Central Sales Tax Act, 1956, and relevant notifications.
3. The effect of departmental circulars on the legal position.
4. The impact of the Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra on the interpretation of "iron and steel."

Detailed Analysis:

1. Tax Rate Applicability on G.P. and G.C. Sheets:
The primary issue was whether G.P. and G.C. sheets should be taxed at 2% or 6% under the Rajasthan Sales Tax Act, 1954, and the Central Sales Tax Act, 1956. Initially, these items were taxed at 2%, but from January 1, 1964, the rate was increased to 6% based on a departmental clarification. The Commercial Taxes Officer held that the change in tax rate was due to the interpretation that these items did not fall under "iron and steel" as defined in section 14 of the Central Sales Tax Act and the notification dated March 2, 1963. The Board of Revenue upheld this view, stating that galvanisation altered the basic nature and properties of the iron sheets and wires, thus excluding them from the "iron and steel" category.

2. Interpretation of "Iron and Steel":
The court examined whether G.P. and G.C. sheets fell under the term "iron and steel" as per section 14 of the Central Sales Tax Act and the notification dated March 2, 1963. The Board of Revenue initially held that galvanisation changed the basic properties of the items, excluding them from being classified as "iron and steel." However, a larger Bench of the Board of Revenue later disagreed, holding that galvanisation and corrugation did not change the essential character of iron and steel, thus including these items under "iron and steel." This view was supported by several High Courts, including Andhra Pradesh, Allahabad, Jammu and Kashmir, Calcutta, and Gujarat.

3. Effect of Departmental Circulars:
The Board of Revenue noted that departmental circulars could not alter the legal position governed by law and rules. The initial departmental clarification that increased the tax rate to 6% from January 1, 1964, was not legally binding, and the legal interpretation of the relevant statutes and notifications was paramount.

4. Supreme Court's Decision in State of Tamil Nadu v. Pyare Lal Malhotra:
The Supreme Court's decision in Pyare Lal Malhotra was pivotal in interpreting "iron and steel." The court held that the phrase "that is to say" was used to exhaustively enumerate specific goods under "iron and steel." It clarified that each item listed under "iron and steel" constituted a separate commercial commodity for tax purposes. The court rejected the argument that "iron and steel" should be interpreted broadly to include all forms of iron and steel, emphasizing that the items listed should be considered separately. This decision influenced subsequent judgments, including those by the Madras and Allahabad High Courts, which held that galvanised and corrugated sheets did not fall under "iron and steel."

Conclusion:
The Rajasthan High Court concluded that entry No. 23 of the notification dated March 2, 1963, did not cover G.P. and G.C. sheets within the term "iron and steel." The reference was answered in the negative, affirming the higher tax rate of 6% for these items. The court emphasized that the 1972 amendment, which included these items under "iron and steel," could not be applied retrospectively to the earlier notification. The decision was based on the exhaustive enumeration principle established by the Supreme Court in Pyare Lal Malhotra's case.