1995 (8) TMI 190 - SC - VAT and Sales Tax

Whether the cast iron in the list of declared goods in the Tamil Nadu General Sales Tax Act would include Cast Iron Castings ? Held that - There is considerable force in the contention of the appellant. The appeals are allowed. The circular dated 14-9-1993 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. The respondents, however, will be at liberty to tax any product made out of the rough unmachined cast iron castings in accordance with law.

Issues Involved:
1. Whether "cast iron" in the list of declared goods under the Tamil Nadu General Sales Tax Act includes "cast iron castings".
2. The binding nature of clarifications/circulars issued by the government on quasi-judicial authorities.
3. Interpretation of "cast iron" and "cast iron castings" under the Central Sales Tax Act and its implications on tax rates.

Issue-wise Detailed Analysis:

1. Inclusion of "Cast Iron Castings" in Declared Goods:

The primary issue was whether "cast iron" in the list of declared goods under the Tamil Nadu General Sales Tax Act includes "cast iron castings". The appellant argued 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 quantities of carbon, silica, etc., the molten metal is poured into molds to get cast iron castings. The Supreme Court in Bengal Iron Corporation v. Commercial Tax Officer had determined that "cast iron" is different from "cast iron castings". The Court reiterated that "cast iron" used in item (iv) of section 14 of the Central Sales Tax Act is the material out of which the petitioner's products are manufactured. Therefore, "cast iron" is different from the cast iron pipes, man-hole covers, bends, etc., manufactured and sold by the appellant.

2. Binding Nature of Clarifications/Circulars:

The judgment emphasized that clarifications/circulars issued by the Central Government and/or State Government represent merely their understanding of the statutory provisions and are not binding upon the courts. The understanding of the Government, whether in favor or against the assessee, is nothing more than its understanding and opinion. The quasi-judicial functioning of the authorities under the Act is bound by law and not by any administrative instructions, opinions, clarifications, or circulars. The law is what is declared by the Supreme Court and the High Court, not by the executive.

3. Interpretation of "Cast Iron" and "Cast Iron Castings":

The Court examined the judgment in Bengal Iron Corporation and concluded that "cast iron" and "cast iron castings" are distinct commodities. The molten metal obtained by melting raw materials and pouring it into molds to get cast iron castings is still considered "cast iron" in its primary form. The Court stated that cast iron has to be in some shape, whether as a bar, billet, or in some other form. It is not the shape of the rough mold that is determinative of the issue, but whether it is a finished product or only a rough mold to be used in manufacturing finished products. Therefore, rough cast iron castings in their primary form must be treated as "cast iron".

However, if any machining, polishing, or other processes are done to the rough cast iron casting to produce items like pipes, manhole covers, or bends, these cannot be regarded as "cast iron casting" in its primary form but as products made out of cast iron castings. Such products cannot be treated as "declared goods" under Section 14(iv) of the Central Sales Tax Act.

Conclusion:

The Supreme Court allowed the appeals, quashing the circular dated 14-9-1993 and the impugned show cause notices issued pursuant to the circular. The Court clarified that "rough unmachined cast iron castings" would 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. However, the respondents are at liberty to tax any product made out of the "rough unmachined cast iron castings" in accordance with the law. There was no order as to costs.

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