RANGANATHAN - (1.) THE Judgment of the court was delivered by
(2.) THESE appeals involve a common question and hence can be disposed of by a common order. The respondent assessees are steel rolling mills engaged in the manufacture of M.S. (mild steel) rods, bars or rounds. The question for consideration is whether they are entitled to a higher rate of development rebate specified in Section 33(l)(b)(B)(i)(a) and to relief under S. 80-I (as it stood at the relevant time) of the Income Tax Act, 1961. The answer to this question entirely turns on whether the assessees are engaged in the manufacture or production of any one of 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 1 of the list of articles and things set out in the relevant Schedule which reads: 736 "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. COMMISSIONER OF INCOME TAX and the Allahabad High court in COMMISSIONER OF INCOME TAX v. Kay Charan Pvt. Ltd. have answered the question in the negative and against the assessee. On the other hand, the Kerala High court in COMMISSIONER OF INCOME TAX v. Mittal Steel Re-rolling and Allied Industries (P) Ltd. and COMMISSIONER OF INCOME TAX v. West India Steel Co. Ltd. , the Madras High court in the judgment under appeal, reported as COMMISSIONER OF INCOME TAX (Addl.) v. Trichy Steel Rolling Mills Ltd., the Punjab and Haryana High court in COMMISSIONER OF INCOME TAX v. Krishna Copper and Steel Rolling Mills (here under appeal) and COMMISSIONER OF INCOME TAX v. Ludhiana Steel Roll- ing Mills and the Allahabad High court in Singh Engineering Works Pvt. Ltd. v. C11 have taken a view in favour of the assessee. This controversy needs to be resolved. In may be useful, at this stage, to refer to three decisions of this court, the decisions or observations in which have influenced the High courts: (1 The first of these is State of M.B. v. Hiralal . This case arose under the Madhya Bharat Sales Tax Act. Under S. 5 of the said Act, two notifications had been issued. The first notification exempted from sales tax certain listed goods, one of which was "iron and steel", while the second notification specified the rates and stages for levy of sales tax on a number of articles, one of which was "... goods prepared from any metal other than gold and silver". Hiralal, who owned a re- rolling mill, purchased scrap iron locally and imported iron plates from outside and, after converting them into bars, flats and plates in his mills, sold them in the market. He claimed exemption under the first of the above notifications. This claim was upheld by this court. The judgment of the Court is a short one, the relevant paragraph of which reads as folows: 737 "Learned counsel for the State contends that the expression iron and steel' means iron and steel in the original contribution and not iron and steel in the shape of bars, flats and plates. In our view, this contention is not sound. A comparison of the said two Notifica- tions brings out the distinction between raw materials of iron and steel and the goods prepared from iron and steel: while the former is exempted from tax, the latter is taxed. Therefore, iron and steel used as raw material for manufacturing other goods are exempted from taxation. So long as iron and steel continue to be raw materials, they enjoy the exemption. Scrap iron purchased by the respondent was merely re-rolled into bars, flats and plates. They were processed for convenience of sale. The raw materials were only re-rolled 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 Dass Gopal Krishnan v. State of Punjab 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 a purchase tax on the steel scrap and ingots side by side with a sales tax on the rolled steel S. constituted double taxation of the same commodity contrary to the provisions of S. 15 of the Central Sales Tax Act, 1956. This contention was rejected. It was held that the process by which the steel scrap (or ingot) lost its identity and became rolled steel S. was a process of manufacture and that, since the goods purchased and those sold were different, no question of double taxation arose; (3 The third decision, Hindustan Aluminium Corporation Ltd. v. state of U.P. 1 involved the interpretation of certain notifications issued under S. 3-A(2 of the U.P. Sales Tax Act, 1948. The two notifica- tions with which the court was concerned prescribed rates of tax at which certain goods were taxable. Item No. 6 in the notification of 1973 described the goods as: "All kinds of minerals and ores and alloys except copper, tin, zinc, nickel or alloy of these metals only." Item No. 1 of the second notification read: 738 All kinds of minerals, ores, metals and alloys including sheets and circles used in the manufacture of brass wares and scraps containing only any of the metals, copper, tin, zinc, or nickel except a those included in any other notification issued under the Act." The appellant Corporation, which carried on the business of manufacturing and dealing in aluminium metal and various aluminium products, claimed the benefit of these notifications for its products. The High Court held that, while aluminium ingots, wire bars and billets would fall in the category of "metals and alloys", rolled products prepared by rolling ingots and extrusions manufactured from billets must be regarded as different commercial commodities from the ingots and billets and therefore outside the category of "metals and alloys". Such rolled products included plates, coils, sheets, circles and strips. The extrusions were manufactured in the shape of bars, rods, structurals, tubes, angles, channels and different types of sections. This conclusion was upheld by this Court. The court referred to the history of the notifications issued by the State Government from time to time in this behalf and came to the conclusion that the inference was irresistible that when such a notification referred to a metal, it referred to the metal in the primary or original form in which it was saleable and not to any subsequently fabricated form. The court rejected the contention that the word "all" used in the notification in referring to "all kinds of minerals, ores, metals and alloys", should be given its fullest amplitude so as to include even 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: "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 dichotomy of direct significance to the controversy before us." After referring to its earlier decisions in State of M.B. v. HiralaL Devi Dass Gopal Krishnan v. State of Punjab 0 and State of T.N. v. Pyare Lal Malhotra 2, the court concluded "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 notification issued under the U.P. Sales Tax Act."
(3.) 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 739 between "iron and steel" and "products or goods made of iron and steel" and, indeed, between any metal as such and the products or goods fabricated therefrom. This is also clear from the various entries in the relevant schedules under the Income Tax Act itself. For instance, Item 2 in the list is: "Aluminium, copper, lead and zinc (metal)". While ingots and sheets manufactured from scrap have been held to fall under Item 2, finished commercial products like aluminium pigments, aluminium arti- cles and aluminium caps have been held to fall outside it. See COMMISSIONER OF INCOME TAX v. Rashtriya Metal Industries Ltd. 3, a case under the Companies' (Profits) Surtax Act, 1964, Indian Aluminium Co. Ltd. v. COMMISSIONER OF INCOME TAX 4 and Indian Aluminium Co. Ltd. v. COMMISSIONER OF INCOME TAX 5, Jeewanlal 1929 Ltd. v. COMMISSIONER OF INCOME TAX 6 and COMMISSIONER OF INCOME TAX v. Fitwell Caps P. Ltd. 7 So also, Item 7 refers, inter alia, to "cables" which is only a type of thick copper wire used for the transmission of electricity. It has been held that insulated copper wires of a type known as winding wires will not fall under Item 7 as they are not used for the above pur- pose and that an industry engaged in its manufacture is not an industry eligible for the reliefs of the kind presently under consideration: See Hindustan Wire Products Ltd. v. COMMISSIONER OF INCOME TAX 8. This decision is of no direct relevance here except to point out that no attempt was made in the case to contend that they will fall under Item 2 of the Schedule which covers "aluminium, copper, lead and zinc (metals)". Item 11 in the Schedule refers to "steel castings and forgings and malleable iron and steel castings". THE expressions "casting" and "forging" refer to processes used in the manufacture or production of articles of iron and steel and also mean, particularly when used in the plural, the articles produced by the process. Item 21 which refers to "Seamless Tubes" also furnishes a similar indication. THEre is, therefore, a distinction between the article or thing referred to in the Schedule as "iron and steel (metal)" and articles or things manufactured from "iron and steel". Secondly, the decision in State of M.B. v. Hiralal shows 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 740 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 a 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 distinc- tion 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 . 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 material rolled out in attractive and acceptable forms. Per contra, in Devi Dass Gopal Krishnan rolled steel S. were held to be products manufactured from steel scrap and ingots. But that will not be conclusive here because the relevant provision here contemplates something manufactured out of iron ore or iron scrap. THE question really therefore is: having regard to the nature of the iron and steel industry and its processes, do M.S. bars, rods and rounds represent the raw material for the manufacture of articles of iron and steel or are they themselves articles made of iron and steel? For deciding the above issue, learned counsel on both sides have placed before us a good deal of literature about the iron and steel industry as well as the glossary of terms used therein: (a) A succinct summary of the processes involved, illustrated by a figurative chart, is given in the very first page of The Making, Shaping and Treating of Steel. It is unnecessary to set out the process in detail here except to note that molten pig iron coming out of the blast furnace and iron scrap are fed into steel making furnaces, wherefrom by a basic oxygen process or elec- tric process or open-hearth process, molten steel is ladled out into moulds to form ingots. There are three stages in the manufacture of steel: (i) the first stage when ingots are obtained by tapping and then teeming the molten steel into rectangular moulds; (ii) the second stage where semi-finished steel is cast in the form of blooms, billets and slabs by re-heating the ingots to an appropriate temperature and rolling or forging them into shapes; and (iii) the production from blooms, billets and slabs - again by processes of hot rolling, cold rolling, forging, extruding, drawing etc. of finished steel products: bars, plates, structural shapes, rails, 741 wire, tubular products, coated and uncoated sheet steel etc. all in the many forms required by users of steel. The third of the processes involves heating the blooms, billets and slabs in heating furnaces and then processing them through various types of mills: JUDGEMENT_732_SUPP1_1992Html1.htm (b) The Explanatory Notes to Ch. 72 (Iron and Steel) of the Harmonised Commodity Description and Coding Nomenclature (HCCN) are also on the same lines. The Ch. covers the 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 is 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 converted into steel in steel works but some are used in foundries (iron works) for manufacture of ingot moulds, cast iron tubes and pipes and castings and the remainder are cast into the forms of pigs or blocks, in casting machines or sand-beds or produced in the form of irregularly shaped lumps (plate iron) or granulated. Pig iron, cast iron, sponge iron, waste and scrap constitute the primary steel making materials. Steel making processes are either pneumatic or hearth processes and the steel produced by these and other 742 processes are classified in various ways. Although molten steel may be cast (in foundries) into its final shape in moulds (steel castings), most molten steel is cast into ingots in moulds. At the casting, pouring and solidification stages, steel is classified as 'rimming' or effervescent, 'killed' or non-effervescent and 'semi-killed' or balanced steel. After they have solidified and their temperature has been equalised, the ingots are rolled into semi-finished products (blooms, billets, rounds, slabs, sheet bars) on primary cogging or roughing mills (blooming, slabbing etc.) or converted by drop hammer or on a forging press into semi-finished forgings. Semi-finished products and, in certain cases, ingots are subsequently converted into finished products. These may be flat products (such as wide flats, universal plates, wild coil, sheets, plates and strip) or long products (such as bars and rods, not rolled, in irregularly wound coils, other bars and rods, angles, shapes, S. and wire). These products are obtained by plastic deformation, hot or cold. The hot processes are hotolling, forging or hot-drawing and the cold processes are cold-rolling, extrusion, wire-drawing, bright drawing, centreless grinding or precision turning. The Ch. proceeds to classify the various products in considerable detail. (c) Reference has also been made to the tariff classifications under the central Excises and Salt Act, 1944 and the central Excise Tariff Act, 1975. Our attention was also invited to the Specification and Glossary prepared for the Bureau of Indian Standards by expert Products Sectional Committee on the subject of Iron and Steel. Extracts were also furnished from the New Encyclopaedia Brittanica Macropaedia, Webster's Third New International Dictionary, the Encyclopaedia of Chemical Technology by Kirk Othmer. We do not, however, propose to discuss these extracts and definitions as we do not think they can assist us in coming to any conclusion on the issue before us. ;