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TMI Blog2005 (7) TMI 616X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 22,94,775 under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as "the TNGST Act"). The petitioner reported the above turnover as taxable at 4 per cent claiming the goods he sold to be forgings, and hence as declared goods falling under entry 4(viii) of the Second Schedule to the TNGST Act. 5.. The C.T.O. however called for the accounts of the petitioner and after verifying them observed that the silica manganese steel rods purchased by the petitioner as raw material were subjected to various processes and then supplied to the railways as a different commercial commodity, viz., elastic rail clips. Hence the second respondent treated the above goods as falling under the general item under entry 63, Part D of the First Schedule to the TNGST Act taxable at 8 per cent. Since the goods were supplied to the railways, i.e., a Government department, the second respondent levied tax at 4 per cent but also levied 15 per cent surcharge, 5 per cent additional surcharge and additional sales tax at 1.5 per cent. He also levied penalty of Rs. 37,881 under section 12(3)(b) of the TNGST Act by order dated March 20, 1997. 6.. Against that order, the petitioner filed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shing and machining could not be classified as declared goods. 9.. Learned counsel for the petitioner contended that the first respondent had failed to consider that the petitioner had purchased silico manganese steel rods from other States and the manufacturing activity is nothing but twisting of the product into a required shape by heat treatment and of forging as specified by the railways. The elastic clips holds together the sleeper and the rails in the railway track. There is no machining or polishing done in the above process. Hence, it was contended that the finding of the first respondent was not correct. 10. Learned counsel for the petitioner contended that the lower authorities have treated the rail clips as finished product for the sole reason that there was a difference between raw materials and the end-product of rail clips, but the lower authorities have failed to note that there was a change in the shape only by heat treatment and forging process while the materials have not lost its original character. It is alleged that the rail clips are only forgings as enumerated in item 4 (viii) of the Second Schedule, and hence are declared goods. Hence it was contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71 STC 112; (1988) 35 ELT 605." 15.. The learned counsel for the petitioner submitted that the lower authorities have treated the rail clips as general goods because there was a difference between the raw materials and end-product, viz., rail clips. Since, a different commercial commodity has emerged the lower authorities held that it should be treated as the item falling under the general entry. The learned counsel for the petitioner further submitted that the lower authorities failed to note that there was change in shape only by heat treatment and forging process, and the materials had not lost its original character. Hence, it was contended that the rail clips sold by the petitioner are only forgings as enumerated in entry 4(viii) to the Second Schedule to the TNGST Act and are declared goods and hence no surcharge or additional surcharge or additional sales tax could be levied. 16.. The learned counsel for the petitioner relied on the decision of the Supreme Court in Tata Iron Steel Co. Ltd. v. Union of India [1988] 71 STC 112 (SC); (1988) 35 ELT 605. The issue involved in that decision was whether the steel wheels, tyres and axles supplied by the appellant therein to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the learned single Judge of the Delhi High Court in Metal Forgings Pvt. Ltd. v. Union of India (1985) 20 ELT 280 at paragraph 12: 'The process of manufacture of forged products consists of cutting of steel, pre-heating of material, heating and beating of steel material till final shaping is achieved. The steel forging process involves open forging process where the quantity is small and drop/ close die forging and/or upset forging process under which the product is made with the help of dies. Thereafter, the extra/unwanted materials is removed by either trimming or by gas cutting or by skin cutting to achieve the shape and section nearest to the forged steel product required and also the forging clearances specified in the standards by I.S.I. or International. It is conceded by the Government that forging would not cease to be forging by processes like removal of superfluous extra skin of cast iron.' The learned Judge has further pointed out in the next paragraph of the said judgment that the removal of extra/unwanted surface steel by either trimming or by gas cutting or by skin cutting of the forged products must be regarded as incidental or ancillary to the process of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to goods declared to be of special importance in inter-State trade or commerce to lay down restrictions and conditions subject to which any State law may regulate the tax on sales or purchase of such declared goods in the State. Accordingly, section 14 of the Central Sales Tax Act declares a number of goods as goods of special importance in inter-State trade or commerce, and section 15 places certain restrictions on the tax payable on sale or purchase of declared goods. One of the restrictions imposed by section 15 is that the tax payable under the State Sales Tax Act in respect of any sale or purchase of such declared goods shall not exceed 4 per cent of the sale or purchase price thereof. 22.. The contention of the petitioner is that the elastic rail clips sold by it to the railways falls under section 14(iv)(viii) of the Central Sales Tax Act, and hence sales tax, surcharge, additional surcharge put together should not exceed 4 per cent. 23.. The assessee purchases silica manganese steel rods out of which elastic rail clips are manufactured and sold to the railways. These elastic rail clips are used for holding together the sleeper and the rails on the railway track. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act." 27.. In our opinion, what has been stated by the Supreme Court about cast iron castings is applicable mutatis mutandis to forging as well. Hence, elastic rail clips which was manufactured by the petitioner from steel rods and supplied to the railways as a final product cannot be characterised as forging. 28.. In our opinion, the reliance placed on the decision of the CEGAT in Sikka Heat Treatment Centre case (1996) 81 ELT 628 is misconceived. In that case the Tribunal for the purpose of levy of excise duty held that elastic rail clips should be considered as "pieces roughly shaped by forging", one of the items enumerated under item 26AA(ia)/25(8) of CET. It is pertinent to note that under item 26AA(ia)/25(8) various products were enumerated and the Tribunal found the elastic rail clips as answering the description of "pieces roughly shaped by forging". In our opinion, the decision of the CEGAT cannot be extended to a sales tax law wherein the object is not to tax the substance but to tax the products manufactured out of the substance, vide State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319 (SC); AIR 1976 SC 800. At any event we are not in agreement with the vie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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