TMI Blog1991 (11) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... Dr. V. Gauri Shankar, S.Rajappa, Ms. A. Subhashini and Manoj Arora for the Appellants. T. A. Ramaehandran and Ms. Janki Ramachandran for the Respondents. JUDGMENT 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 s.33(1) (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 or more of the articles or things specified in the relevant Schedule to the Act. They claim that the articles manufactured by them fail under item 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 Income-Tax Officer but has been accepted by the Appellate Assistant Commissioner, the Tribunal and the High Court. Hence these appeals by the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sound. A comparison of the said two Notifications 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 material 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 Devidass Gopal Krishnan v. State of Punjab, (1967) 20 S.T.C. 430. Here, one batch of appellants before the Court carried on business in rolling steel. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistible 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 a dichotomy of direct significance to the controversy before US." After referring to its earlier decisions in State of M.P.v. Hiralal, (1966) 17 S.T.C. 313, Devi Dass Gopal Krishnan v. The State of Punjab, (1967) 20 S.T.C. 430 and State of Tamil Nadu v. Pyarelal Malhotra, (1976) 37 S.T.C. 3 19, the Court concluded: "We are of the definite opinion that the only interpretation possible is that aluminium rolled products and extrus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 MB. v. Hiralal, (1966) 17 S.T.C. 313 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 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 articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bs in heating furnaces and then processing them through various types of mills: (i) Structural mills : for obtaining structural shapes like beams, angles, tees, zees, channels, piling etc. (ii) Rail mills : for producing standard rails, crane rails and joint bars; (iii) Bar mills : for producing bars which may be flat, round, halfround, triangular, square, haxagonal or octagonal; (iv) Seamless pile mills: for producing pipes and tubes and skelp mills and other tubular products; continuous Butt-weld pipe mills (v) Plate mills : for manufacturing plates; and (vi) Hot strip mills : for producing sheets, strips and coils. and cold reduction mills 197 (b)The Explanatory Not to Chapter 72 (iron and Steel) of the Harmonised Commodity Description and Coding Nomenclature (HCCN) are also on the same lines. The chapter covers the ferrous metals (pig iron, spilgeleisen, 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expert Products Sectional Committees on the subject of Iron and Steel. Extracts were also furnished from the New Encyclopaedia Brittanica Macropaedia (15th Edn., Vol.21), Webster's Third New International Dictionary, the Encyclopaedia of Chemical Technology by Kirk Othmer (3rd en., Vol.21) and a book on small-scale steel making by R.D. Walker. We do not, however, propose to discuss these extracts and definitions as we do not think they can assist us in coming to nay conclusion on the issue before us. Basically the argument of counsel proceed 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 steels. According to him, the bars, rods and rounds continue to be iron and steel_ m 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 kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the background in which concessions to certain basic industries were introduced in the Income-tax Act. The process started with the introduction of a rebate for exporters under the Finance Act of 1963 which continued till 1966. The Budget speech of the Finance Minister vide: (1963) 48 I.T.R. (St.) 34 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 Regulation) Act, 1951. Item 1 of the said Schedule reads: "1. Metallurgical Industries: A. Ferrous: (1) Iron and Steel (Metal) (2) Feno-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; (IA) Other non-ferrous metals and their alloys; (2) Semi-manufactures and manufactures. Again, in 1964,hen 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 industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... els, pickaxes, lathes, blowers, surface guiders and drills as in C.I.T. v. Ludhiana Steel Rolling Mills, (1989) 180 I.T.R. 155 (P H). Whether the article produced is the raw material or an article made of iron and steel has to be decided on the basis of the nature of the article and not the kind of mill which turns it out. It is significant that these items do not draw 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 by Dr. Gaurishankar, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itely intended to give relief even in respect of such articles, item 11 and (also item 21) were introduced. In fact, there is some force in the contention urged on behalf of the assessees that even if MS steel rods, bars and rounds cannot be taken as iron and steel (metal), they would fall under the category of "forgings and castings" referred to in item 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. 1404/79, 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 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 2 of the schedule, the higher development rebate would be available to an assessee who manufactured articles from aluminium scrap [vide, circular no.25 D (XIX-16) dated 10th October, 1966]. The High Court, on this basis, answered the question by saying that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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