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TMI Blog1991 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds. The question for consideration is whether they are entitled to a higher rate of development rebate specified in section 33(1)(b)(B)(i)(a) and to relief under section 80-I (as it stood at the relevant time) of the Income-tax Act, 1961. The answer to this question turns entirely on whether the assessees are engaged in the manufacture or production of any one or more of the articles or things specified in the relevant Schedule to the Act. They claim that the articles manufactured by them fall under item No. 1 of the list of articles and things set out in the relevant Schedule which reads : " Iron and steel (metal), ferro-alloys and special steels. " This contention was rejected by the Income-tax Officer but has been accepted by the Appellate Assistant Commissioner, the Tribunal and the High Court. Hence, these appeals by the Revenue. It has been brought to our notice that there is a difference of judicial opinion on this issue among the High Courts. The Calcutta High Court, in Indian Steel and Wire Products Ltd. v. CIT [1977] 108 ITR 802, and the Allahabad High Court, in CIT v. Kay Charan P. Ltd. [1991] 190 ITR 190, have answered the question in the negative and against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondent was merely re-rolled into bars, flats and plates. They were processed for convenience of sale. The raw materials were only rerolled to give them attractive and acceptable forms. They did not in the process lose their character as iron and steel. The dealer sold 'iron and steel' in the shape of bars, flats and plates and the customer purchased 'iron and steel' in that shape. We, therefore, hold that the bars, flats and plates sold by the assessee are iron and steel exempted under the Notification. The conclusion arrived at by the High Court is correct." (2) The second decision referred to is Devi Das Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC). Here, one batch of appellants before the court carried on business in rolling steel. They purchased steel scrap and steel ingots and converted them into rolled steel sections. They contended that the levy of purchase tax on the steel scrap and ingots side by side with sales tax on the rolled steel sections constituted double taxation of the same commodity contrary to the provisions of section 15 of the Central Sales Tax Act, 1956. This contention was rejected. It was held that the process by which the steel scra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently fabricated forms of the metal. The court felt that this construction was inconsistent with the scheme of the earlier notifications to which reference had been made and observed (p. 415) : "While, broadly, a metal in its primary form and a metal in its subsequently fabricated form may be said to belong to the same genus, the distinction made between the two constitutes a dichotomy of direct significance to the controversy before us." After referring to its earlier decisions in State of M. B. v. Hiralal [1966] 17 STC 313 (SC), Devi Dass Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC) and State of Tamil Nadu v. Pyarelal Malhotra [1976] 37 STC 319 (SC), the court concluded (p. 417) : "We are of the definite opinion that the only interpretation possible is that aluminium rolled products and extrusions are regarded as distinct commercial items from aluminium ingots and billets in the notifications issued under the U. P. Sales Tax Act." The above decisions were rendered in the context of the Sales Tax Acts and notifications thereunder. They, however, bring out two points. First, they make it clear that there is a real and clear dichotomy between "iron and ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even the expression "iron and steel"-which is wider than the expression we are concerned with, as it is not further qualified by the word "metal"-was held to mean iron and steel used as raw material for the manufacture of other goods. The court held that bars, flats and plates only represented such raw material in attractive and acceptable forms. Sri Gauri Shankar, for the Revenue, contended that the use of the appellation "metal" in the entry we are concerned with further restricts the nature of the qualifying industry but we are not inclined to agree. Obviously, it is not used to denote the metal in its pristine form as an ore or as an extraction from the ore. In the context of a manufacturing industry, it is used, we think, for emphasising the distinction between the metal used as a raw material in the manufacture of various articles and the commercial articles made therefrom. We would, therefore, attach the same meaning to the expression as Hiralal's case [1966] 17 STC 313 (SC) did. In that case, the court held that the bars, flats and pieces turned out by the assessee from the scrap metal were not products manufactured from the raw material but only represented the raw m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls : for producing bars which may be flat, round, half-round, triangular, square, hexagonal or octagonal ; (iv) Seamless pile mills, : for producing pipes and tubes skelp mills and continuous and other tubular products ; Buttweld pipe mills (v) Plate mills : for manufacturing plates ; and (vi) Hot strip mills and cold : for producing sheets, strips and reduction mills coils. (b) The Explanatory Notes to Chapter 72 (Iron and Steel) of the Harmonised Commodity Description and Coding Nomenclature (NCCN) are also on the same lines. The chapter covers ferrous metals (pig iron, spiegeleisen, ferro-alloys and other materials) as well as certain products of the iron and steel industry (ingots and other primary products and the principal products derived therefrom) of iron or non-alloy steel, of stainless steel and of other alloy steel. It is pointed out that iron ore, waste, scrap metal, pre-reduced iron ore and other ferrous waste are converted by reduction in blast furnaces or electric furnaces into pig iron or sponge iron or lump iron. Electrolysis or other chemical processes are used only when iron of exceptional purity is required for special use. Most of the pig iron is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Edn. Vol. 21) and a book on Small-scale Steelmaking by R. D. Walker. We do not, however, propose to discuss these extracts and definitions as we do not think that they can assist us in coming to any conclusion on the issue before us. Basically, the argument of counsel proceeded on the following lines Sri Ramachandran, learned counsel appearing for the assessee, contends that, in the steel making industry, the manufacture of ingots, billets, blooms, etc., represents only an intermediate stage at which the iron and steel metal becomes semi-finished steel. The semi-finished steel is converted into plates, bars or rods which are described as "finished steel". According to him, the bars, rods and rounds continue to be iron and steel in a finished form. It is only finished steel that is subsequently used to manufacture, by various processes such as rolling, cutting, shearing, forging, hammering and so on into various kinds of products, which can be described as products of iron and steel in contrast with "iron and steel (metal)", the item covered under the relevant entry of the Schedules. He also draws our attention to a decision of the Calcutta High Court in Indian Aluminium Co. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r indicates that the incentive was granted to assessees engaged in the manufacture of any articles in an industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. Item No. 1 of the said Schedule reads : " 1. Metallurgical Industries A. Ferrous: (1) Iron and steel (metal) (2) Ferro-alloys (3) Iron and steel castings and forgings (4) Iron and steel structurals (5) Iron and steel pipes (6) Special steels (7) Other products of iron and steel. B. Non-ferrous (1) Precious metals including gold and silver, and their alloys (1A) Other non-ferrous metals and their alloys. (2) Semi-manufactures and manufactures." Again, in 1964, when the Finance Act of 1964 decided to grant a rebate in the corporation tax payable by companies in order to encourage development of certain industries which occupy an important place in our economy, the list of industries named in the Finance Act was similar to and included many of the items including items Nos. 1 to 3 of the list we are concerned with now. The reliefs were given to strengthen the reserves and augment the capacity of the corporate sector to develop. This process was continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l which turns it out. It is significant that these items do not draw a distinction between basic steel mills, integrated steel mills and the various other types of mills that are used in the industry which have been referred to earlier. The Board's clarification, referred to by Dr. Gauri Shankar, that the machinery and plant in "rolling mills" will not be eligible for the higher development rebate would not, therefore, seem to be justified if it intends to draw a distinction between the same machinery and plant when used in rolling mills and when used in other mills in the industry. If machinery and plant installed in steel mills where the process includes not merely the production of ingots, billets and the like but also the production of bars and rods are eligible for the higher development rebate, it is difficult to see why the same plant and machinery, when installed in rolling mills which proceed from the stage of ingots or billets to manufacture of bars and rods should not be eligible for the higher rate of development rebate. In considering the issue before us, we should not be carried away by classifications of stages of manufacture that may be relevant for other purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and castings" referred to in item No. 11. We do not, however, wish to express any concluded opinion on this aspect because item No. 11 was not relied upon by the assessee at any earlier stage. In C. A. No. 1404 of 1979, the assessee, Krishna Copper and Steel Rolling Mills, manufactured iron rods and girders out of scrap metal initially converted into billets. Before the High Court ( [1979] 119 ITR 256 (P H)), the argument seems principally to have turned on the question whether an assessee manufacturing these articles out of iron scrap would be entitled to the higher development rebate. The assessee cited a circular of the Board that, under item No. 2 of the Schedule, the higher development rebate would be available to an assessee who manufactured articles from aluminium scrap [vide Circular No. 25D (XIX-16) dated 10th October, 1966]. The High Court, on this basis, answered the question by saying that the assessee before it was also entitled to the higher development rebate though it produced articles only from iron scrap. This does not really answer the real question ; but, for the reasons we have already given, we agree with the conclusion drawn by the High Court. For the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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