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TMI Blog1991 (8) TMI 307X X X X Extracts X X X X X X X X Extracts X X X X ..... of such goods, the tax levied under the State law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce. This restriction imposed on the powers of the State to impose sales tax on declared goods, is carried out in section 5(4) of the State Act read with the Fourth Schedule thereto. 2.. The petitioners, herein, are dealers in M.S. wires; according to them, they purchase M.S. wire rods from the registered dealers within the State of Karnataka and out of such M.S. wire rods of thicker gauge, wires of thinner gauge are drawn and these wires are then sold by them. 3.. In the case of the petitioner in W.P. No. 1077 of 1988 (M/s. Bahri Steel Wires) assessments for the periods earlier to 1983-84 were concluded on the basis that the sales of these M.S. wires drawn out of M.S. wire rods (which had already suffered tax under the State Act), were not taxable further, because, as per section 5(4) of the State Act read with its Fourth Schedule, only a single point of tax was leviable. Regarding the goods enumerated under item 2 of the said Schedule, the point of levy is the sale by the first or earliest of successive dealers in the State liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m deduction of the said tax, from the tax leviable on the sale of M.S. wires. 6.. The learned counsel for the petitioners contended that, the meaning attributable to the Fourth Schedule to the State Act has to be the meaning attributable to the items of goods mentioned in section 14 of the Central Act and if the alleged manufacture of a new article does not result in its transformation into a new species and thus continues to be the same taxable commodity under section 14 of the Central Act, position under the State Act would not be in any manner different, because, section 15 of the Central Act restricts the State's power of taxation in that regard. There is no dispute regarding this proposition. 7.. Mr. Indrakumar, learned counsel for the petitioners, relied on sub-item (xv) of item (iv) of section 14 of the Central Act and contended that, "Wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper;" form one taxable commodity and therefore the M.S. wires drawn out of tax-paid M.S. wire rods, continues to be the article stated in sub-item (xv), just as the M.S. wire rods and if so, by virtue of section 15, the sales of said M.S. wires shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of the levy of sales tax, the taxable event is the sale of the goods and whenever a new article emerges out of another article and the new article is commercially treated as a different commodity, the said new article could be the subject of taxation when it is sold or purchased and for the said purpose the new article is never treated as having the benefit obtained by the earlier article. Mr. Dattu, for this proposition referred to a passage in the decision of the Supreme Court in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319. In the said case, "steel rounds, flats, angles, plates, bars" were manufactured out of iron and steel scraps. At the relevant point of time under section 14 of the Central Act steel scrap was found in item (iv), sub-item (c) and the manufactured articles referred here as steel rounds, etc., were not part of the said sub-item. However, all these sub-items were enumerated under the main item 'iron and steel'. It was contended by the dealer therein that the manufactured articles such as steel rounds, flats, etc., came out of iron and steel scraps and the latter had been subjected to the levy of sales tax already and therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracting the sales tax. The test is to see whether the goods having a particular taxable description loses that description and category, under the particular sales tax legislation. 9.. The above understanding of the proposition laid down by the Supreme Court flows out of the entire decision of the Supreme Court in Pyare Lal Malhotra's case [1976] 37 STC 319. At page 321 of the report, section 14 of the Central Act as it then stood prior to its amendment in the year 1972 is quoted. Thereafter the Supreme Court also has given the present entry (iv) found in section 14 of the Central Act. The effect of the change made by the amendment is commented upon by the Supreme Court thus: "It will be seen that iron and steel' is now divided into 16 categories which clearly embrace widely different commercial commodities, from mere scrap iron and leftovers of processes of manufacturing to 'wires' and 'wheels, tyres, axles and wheel sets'. Some of the enumerated items like 'melting scrap' or 'tool alloys' and 'special steels' could serve as raw material out of which other goods are made and others are definitely varieties of manufactured goods. If the subsequent amendment only clarifies the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Abdul Shukoor and Co. v. State of Madras [1964] 15 STC 719, the Supreme Court was concerned with the provisions in the Madras General Sales Tax Act and the Rules framed thereunder governing the levy of sales tax on sale or purchase of hides and skins. The Supreme Court was not concerned with the provisions of the Central Act and the impact of sections 14 and 15. The question was whether the State had competence to treat the raw hides and skins and dressed hides and skins differently and the Supreme Court held that the State Legislature had competence to treat them differently because both of them constituted different commercial commodities. In the instant cases before us the question is entirely different and the question has arisen under a different context. 10.. Mr. Indrakumar referred to an earlier decision of the Supreme Court in State of Punjab v. Chandu Lal Kishori Lal [1970] 25 STC 52; here the court was considering the effect of sections 14 and 15 of the Central Act on the levy of sales tax on ginned cotton. The contention was whether the sale of ginned cotton could be taxed when it came out of the cotton which has already suffered tax. The Supreme Court accepted the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court affirmed the view of the Madras High Court. The Supreme Court also approved the observations of the Tribunal which had stated that the leather from the stage of raw skins to the stage of dressed hides and skins may undergo various stages of changes. Under the classification for the purpose of section 14 of the Central Act, the various stages are irrelevant because all the hides and skins are brought together in one entry. While concluding, the Supreme Court further pointed out that "it was hardly material that coloured leather may be a form of leather or may even be said to represent a different commercial commodity. The statutory entry is comprehensive enough to include the products emerging from hides and skins until the process of dressing or finishing is done." The Madras High Court in the very case (Mahi Traders v. State of Tamil Nadu [1980] 45 STC 327) had observed at page 331: "For the purpose of the application of section 14(iii), it is not necessary to find out whether the resultant product is commercially different or not, and the only thing necessary to find out is whether it comes within the expression 'hides and skins, whether in a raw or dressed stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Governments. It reads: *Here italicised. "Sub-item (xv), viz., 'wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper' would include only (1) black annealed wire, (2) G.I. wire, (3) W.I. wire, (4) black M.S. wire and (5) H.B. wire. Barbed wire, stranded wire, coiled cables and wire nails are engineering items and cannot come under the classification of 'wire rods and wire'." The "Indian Standard" Second Revision issued by the Indian Standard Institution, 1983 edition, describes a wire as: "The product of a wire rod whose sectional area has been reduced at normal temperatures either by drawing through a specially prepared orifice or passing under pressure between suitably driven rolls." After referring to these, it was contended by the learned counsel for the petitioners that (1) the context of the legislation will have to be seen to gather the scope of the particular provision; and (2) the meaning attributed to the particular provision by the competent authorities at a time which is proximate to the timing of the enacted law should be accepted as prima facie correct view of the provision in question. 12. In Collector of Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive." Thereafter the Supreme Court also pointed out that the circulars issued by the Board therein were legally binding on the Revenue even if they deviate from the provisions of the Act. Similarly in the State of Orissa v. Dinabandhu Sahu Sons [1976] 37 STC 583 the Supreme Court pointed out that even if the communication issued by the Central Government to the State Governments has no statutory force and as such was not binding still it has a great relevancy. At page 586, the court held: "It cannot, however, be denied that the Ministry of Finance, Department of Economic Affairs, is intimately conversant not only with the policy of legislation for the purpose of implementation of the provisions of the Central Act but is also familiar with the nature and quality of the commodities as also their use from time to time. If, therefore, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on the sale of H.B. wires produced out of M.S. rods purchased which had already been subjected to taxation. The appellant contended that both M.S. rods and the wires formed one taxable commodity. This was rejected on the ground that H.B. wires were commercially different articles though prepared or manufactured out of M.S. rods. Pyare Lal Malhotra's case [1976] 37 STC 319 (SC) was referred in support of the proposition applied by the Bench. However, it is necessary to note that the contention therein was considered with reference to item 2(iv) of the Fourth Schedule to the State Act read with sub-item (xv) thereof. Apart from this indication of the facts involved, no other facts are forthcoming. It is thus clear that the parent goods involved in the said decision was treated as falling under item 2(iv) and the product which was sought to be taxed again, as falling under item 2(xv). Thus the two commodities were treated as belonging to different sub-items altogether. It was not a case where the parent goods and the product emerging therefrom belong to the same sub-item. In the instant case before us we are concerned with a different context altogether. 15.. The decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at M.S. wires drawn out of tax suffered M.S. wire rods cannot be taxed again when sold, by virtue of sections 14 and 15 of the Central Act and the said benefit enures to the dealer in the interpretation of the Fourth Schedule to the State Act. The clarification issued by the Commissioner to one of the dealers on July 6, 1987 as per annexure C does not reflect the correct position in law. 17.. The petitioners have come to this Court against the proposition notices. To what extent the proceedings should be continued is a matter for the respondents to consider in the light of the declaration of the law made in this judgment. We allow these writ petitions by declaring the law as stated above and further permit the petitioners to file objections to the proposition notices in case the respondents persist in proceeding with the earlier notices and the petitioners are granted six weeks time from today to file the necessary objections to the notices received by them. If for any reason orders have been finalised already in any of the cases and assessment orders have been made contrary to the law declared above and such an order is under challenge in any one of the writ petitions herein, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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