9911796707
TMI Blog1982 (11) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... Mills purchased certain quantity of M.S. ingots from Mohta Ispat Ltd., also a registered dealer under the Bombay Act. In respect of this sale, the said Mohta Ispat Ltd. issued to Shree Ram Steel Rolling Mills a bill dated 14th April, 1976, for a sum of Rs. 67,544.58. As this was a first sale of these ingots, the said Mohta Ispat Ltd. became liable to pay to the Government sales tax under section 7(1) of the Bombay Act. They accordingly recovered from Shree Ram Steel Rolling Mills the amount which they would have to pay to the Government as sales tax and included the said amount in the said bill. After these ingots were re-rolled into M.S. rounds of 25 mm., some of these rounds were sold by Shree Ram Steel Rolling Mills to Messrs. V.K. Steel, Bombay, for a sum of Rs. 11,973.23. Shree Ram Steel Rolling Mills were under the impression that this transaction of sale by them was not exigible to sales tax by reason of the provisions of section 7(1)(ii) of the Bombay Act and the question that we have to decide is whether this transaction of sale by Shree Ram Steel Rolling Mills is exigible to sales tax or not. So far as Sales Tax Reference No. 7 of 1978 is concerned, the applicants, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applications to the Commissioner under section 52(1) of the Bombay Act to determine their tax liability in respect of their aforesaid transactions. The questions which Shree Ram Steel Rolling Mills posed to the Commissioner were as follows: "(1) Whether the activity of re-rolling ingots into M.S. rounds of 25 mm. amounts to process of manufacture as defined under the Bombay Sales Tax Act, 1959? (2) Whether any tax is payable on the M.S. rounds of 25 mm. sold by them under their invoice No. 983 of 28th April, 1976, and if so, the rate thereof?" The Commissioner purporting to follow the aforesaid decision of the Supreme Court held by his order dated 5th July, 1976, that the activity of re-rolling ingots into M.S. rounds would amount to "manufacture" within the meaning of section 2(17) of the Bombay Act and the case of Shree Ram Steel Rolling Mills would not fall within the scope of clause (xviii) of rule 3 of the Bombay Sales Tax Rules, 1959 (hereinafter for the sake of brevity referred to as "the said Rules"), and that consequently the sale of M.S. rounds in question made by them was liable to sales tax at the rate of 4 per cent by reason of the provisions of section 7(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a common judgment. It is out of this judgment and order of the Tribunal that the present references have been made at the instance of the assessee. In order to appreciate what the Tribunal has held, the questions referred to this Court and the arguments advanced at the Bar, it is necessary to set out at this stage the relevant statutory provisions. Clause (3) of article 286 of the Constitution of India as substituted by the Constitution (Sixth Amendment) Act, 1956, provides that "any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify". Parliament has, in pursuance of the above power conferred upon it, declared certain goods to be of special importance in inter-State trade or commerce and has imposed certain restrictions and conditions in regard to the levy and rates of tax on the sales or purchases of these goods by the States. This Parliament has done by enacting Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) There shall be levied a sales tax, on the turnover of sales of declared goods specified in Part I of Schedule B at the rate set out against each of them in column 3 thereof, but after deducting from such turnover- (i) sales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14, (ii) resales of goods purchased by him on or after the appointed day from a registered dealer, if a certificate as provided in section 12A is furnished, and, (iii) sales of goods, or resales of goods to which clause (ii) does not apply, to an authorised dealer, or to a commission agent holding a permit who purchases on behalf of a principal who is an authorised dealer upon such dealer or commission agent, as the case may be, furnishing a certificate as provided in section 12. (2) ..................................... (3) In order to ensure that after the due date of the coming into force of section 15 of the Central Sales Tax Act, 1956, tax shall not be levied on the sales or purchases of declared goods at more than one stage, it is hereby provided that if under this Act, or any earlier law, any tax has been levied or is leviable on the sale or purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) plates both plain and chequered in all qualities; (viii) discs, rings, forgings and steel castings; (ix) tool, alloy and special steels of any of the above categories; (x) steel melting scrap in all forms including steel skull, turnings and borings; (xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings; (xii) tin-plates, both hot dipped and electrolytic and tinfree plates; (xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy and light crane rails; (xiv) wheels, tyres, axles and wheel sets; (xv) wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper; (xvi) defectives, rejects, cuttings or end pieces of any of the above categories." As the tax liability which is contended for in the case of Metro Steel Rolling Mills is of purchase tax under section 13 of the Bombay Act, it will be convenient to reproduce the said section. Section 13 at the relevant time provided as follows: "Purchase tax payable on certain purchases of goodsfrom an unregistered dealer.Where a dealer, who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient. Sub-clause (ii) of clause (26) uses the word "manufacture". The word "manufacture" is not used in that sub-clause in its ordinary sense but is used in the artificial sense given to it by clause (17) of section 2. Section 2(17) defines the word "manufacture" as follows: "'manufacture', with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed." By its very language this definition expressly excludes certain manufactures and manufacturing processes from amounting to manufacture. These are manufactures and manufacturing processes which are to be prescribed by the Rules made under the Act. Rule 3 of the Rules has prescribed such manufactures and manufacturing processes. That rule states that: "For the purposes of clause (17) of section 2 'manufacture' shall not include the following manufactures and manufacturing processes, namely, .........". Then follow several clauses in which these manufactures and manufacturing processes are listed. Clause (xviii) of rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay Sales Tax Rules, 1959, adopted by the department as also by the Tribunal, for over 16 years and thus departing from the principle of stare decisis?" So far as Sales Tax Reference No. 7 of 1978 made at the instance of Metro Steel Rolling Mills is concerned, questions Nos. (2) and (3) are identical with questions Nos. (2) and (3) in Sales Tax Reference No. 51 of 1977, and it is unnecessary to set them out. Question No. (1) in Sales Tax Reference No. 7 of 1978 with the correction agreed upon by the parties is as follows: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law that in spite of the provisions of section 2(26)(ii) of the Bombay Sales Tax Act, 1959, and rule 3(xviii) of the Bombay Sales Tax Rules, 1959, re-rolling of rolling scrap into rounds of 6 mm. was an activity of manufacture as defined in section 2(17) of the Act and that purchase tax under section 13 was payable on the purchase of Rs. 1,657.50 effected on 5th February, 1976?" The circular of the Commissioner of Sales Tax was issued, the orders in the aforesaid determination proceedings were passed and the appeals filed by the applicants before the Tribunal were d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Hiralal [1966] 17 STC 313 (SC). Prior to the enactment of the Central Act, Parliament in pursuance of the power conferred upon by the said clause (3) of article 286 as it then stood had enacted the Essential Goods (Declaration and Regulation of Tax on Sales or Purchases) Act, 1952 (Act No. 52 of 1952), which came into force on 9th August, 1952. In Schedule I to the said Act, iron and steel were declared essential for the life of the community. Thereafter, the Government of Madhya Bharat, in exercise of the powers conferred upon it by section 5 of the Madhya Bharat Sales Tax Act, Samvat 2007 (Act No. 30 of 1950), issued two notifications, namely, Notifications Nos. 58 and 59. Under Schedule I to the said Notification No. 58, no tax was payable inter alia on the sale of iron and steel. Notification No. 59 described the goods, the sales of which were taxable and the stage of sale at which they were taxable. Under Schedule IV to the said Notification No. 59 goods prepared from any metal other than gold and silver were subject to sales tax when the sale was by an importer or producer. Counsel for the State contended that the expression "iron and steel" used in the relevant part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STC 319 (SC). The scheme of the Tamil Nadu Act so far as taxing declared goods is concerned appears to be radically different from the scheme of taxing declared goods in the Bombay Act. Unlike section 4 of the Tamil Nadu Act, section 7 of the Bombay Act does not tax the entire turnover of sales of declared goods but so far as the levy of sales tax is concerned only that part of the turnover of sales which remains after deducting from the turnover of sales of goods specified in clauses (i), (ii) and (iii) of sub-section (1) of section 7. Similarly, in the case of general sales tax which has now been abolished by the Maharashtra Sales Tax (Amendment) Act, 1981 (Maharashtra Act 32 of 1981), what was made exigible to tax was the turnover which remains after deducting from the turnover of sales of all declared goods, the sales of goods specified in clauses (i), (ii) and (iii) of sub-section (2) of section 7. So far as purchase tax is concerned, it is not the dealer's entire turnover of purchases of declared goods which is made subject to tax, but only that part of the turnover of total purchases which remains after deducting therefrom the turnover of purchased goods resold by the dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in clause (17) of section 2. For this purpose, Mr. Jetly relied upon the last part of that clause, namely, that the term "manufacture" does not include "such manufactures or manufacturing processes as may be prescribed". As mentioned earlier, these manufactures and manufacturing processes which have been statutorily excluded from the definition of "manufacture" are set out in rule 3 of the Rules and it is clause (xviii) of rule 3 which has been relied upon by Mr. Jetly. That clause has been reproduced by us earlier. Under that clause if "the goods specified in any entry in Schedule B" to the Bombay Act are subjected to any process or if anything is done to them, "which does not take them out of the description thereof in that entry", it would not amount to "manufacture" within the meaning of section 2(17). According to Mr. Jetly, learned counsel for the applicants in both the references, the words "the description thereof in that entry" means the description of the processed or manufactured goods in that entry and not the description of the purchased goods or in other words, if the purchased goods and such goods after being processed both fall in the same entry in Schedule B, cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In order to test the correctness of the rival submissions we must bear in mind the purpose for which rule 3 was made. It was expressly made to exclude certain types of manufacture and manufacturing processes from amounting to manufacture within the meaning of section 2(17). Rule 3(xviii) expressly speaks of declared goods being subjected to a process. Now, the description of processed goods must necessarily differ from the same goods before they were subjected to a process. Now, it is difficult to conceive of any manufacturing process applied to scrap or ingots which would not change their description as scrap or ingot. The same would apply to the other types of goods specified in the different entries in Schedule B. If the interpretation of clause (xviii) of rule 3 canvassed by Mr. Phadkar on behalf of the department were to be accepted, it would make clause (xviii) redundant. We also find no reason for reading the words "the description thereof in that entry" in the narrow sense canvassed by Mr. Phadkar. The language of the clause shows that the word "thereof" refers to the goods specified in any entry in Schedule B. So long as the result of the manufacture or manufacturing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h sub-entry. The reason for this is obvious. It is that the whole of entry 3 has been treated by the legislature as constituting but one single entry. If the contention made by Mr. Phadkar were correct, the words "or part thereof", that is, "or part of an entry" in section 17 would be redundant. We are further fortified in the conclusion we have reached by a reference to the Bombay Sales Tax (Amendment) Act, 1973 (Maharashtra Act 32 of 1973). By section 6 of that Act, entry 3 in Part I of Schedule B was wholly substituted. The said section provided: "In Schedule B appended to the principal Act,(a) in Part I, for entry 3, the following entry shall be substituted, namely: " Thereafter the whole of entry 3 as reproduced earlier was set out except that the rate of tax specified was three paise in the rupee, the rate of four paise in the rupee being substituted in that entry with effect from 1st July, 1975, by the Bombay Sales Tax (Amendment) Act, 1975 (Maharashtra Act 23 of 1975). The above instances clearly show that whenever the legislature wanted to refer to an entire entry, it used the word "entry" and when it wanted to refer to a part of an entry, it used expressions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rolling Mills would be entitled to deduct under section 13 the price they have paid for purchasing the goods in question from their turnover of purchases. It was Mr. Jetly's submission that in addition to the case of both these applicants falling under sub-clause (ii) of section 2(26), it also fell under subclause (iii) of section 2(26). If the case of the applicants is a resale by reason of clause (ii) of section 2(26), it is immaterial whether it is also a resale by reason of sub-clause (iii) of section 2(26). As, however, considerable arguments were advanced before us on this aspect of the case and as almost the entire arguments before the Tribunal were advanced on this aspect of the case, we will proceed to deal with sub-clause (iii) also. Though at the first blush it may appear that the language used in clause (xviii) of rule 3 is very much the same as in sub-clause (iii) of section 2(26), on a careful examination of these two provisions it would appear that the language used is different. Clause (xviii) of rule 3 is in positive terms. It speaks of subjecting the goods specified in any entry in Schedule B to any process or doing anything to them, while sub-clause (iii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods specified in that entry in Schedule B. The words "description thereof" have relation to the opening words of sub-clause (iii), namely, "being goods specified in any entry in Schedule B" and not with the governing clause of clause (26) of section 2, namely, "a sale of purchased goods". It, therefore, follows that if nothing is done to the goods which will take them out of the description of goods contained in the entry in Schedule B in which the description of purchased goods occurs the sale of such goods would amount to a resale. Here in the cases before us, entry 3 in Part I of Schedule B to the Act contains the description of both the goods purchased as well as the goods sold, and the applicants were entitled to the deductions claimed by them also on the ground that the respective sales by them were resales by reason of sub-clause (iii) of section 2(26). In our opinion, both the Commissioner and the Tribunal were in error in coming to the conclusion that the decision of the Supreme Court in Pyare Lal Malhotra's case [1976] 37 STC 319 (SC) governed the cases of the two applicants. They failed to take into account that there were no provisions in the Tamil Nadu Act correspo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Pyare Lal Malhotra's case [1976] 37 STC 319 (SC). The department obviously believed that the cases referred to in the said circular were covered by that judgment and proceeded by that circular to give notice of its change of opinion to the entire trade so that none may suffer prejudice thereafter. That the department had not acted capriciously in placing the interpretation it did on Pyare Lal Malhotra's case [1976] 37 STC 319 (SC) is shown by the fact that the Tribunal accepted the department's point of view. The fact that we have not accepted their interpretation and pointed out the fallacy into which the Commissioner and the Tribunal have fallen cannot make the wrong interpretation placed by the Commissioner and the Tribunal upon the judgment of the Supreme Court capricious. According to the applicants, the Tribunal should not have accepted the interpretation placed by the department upon section 2(26)(iii) and rule 3(xviii) of the Rules contrary to the interpretation earlier placed by the department upon these statutory provisions and in doing so the Tribunal departed from the principle of stare decisis. We are unable to appreciate this argument. The Tribunal is a sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
