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TMI Blog2008 (3) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... TNGST Act") together with a surcharge at five per cent on tax and for a direction to the Commercial Tax Officer to restore the sales tax recovered over and above four per cent pursuant to the order of the first respondent dated July 4, 2005. In W.P. No. 28254 of 2007, the petitioners, Neyveli Lignite Corporation (a wholly owned Public Sector Undertaking of the Central Government) seek to set aside the order dated April 16, 2007 passed by the Commissioner of Commercial Taxes and for a consequential direction to the Commercial Tax Officer to restore the differential tax over and above four per cent paid by them on the sale of scrap made by them vide sale order dated February 16, 2005. In view of the inter-connectivity between both the writ petitions, they were heard together and are disposed of by a common order. M/s. NLC were running a B & C plant, which was commissioned in the year 1965. As the said unit was continuously running at loss, it was permanently closed down from April 2001 and the employees were disengaged from the said unit and were transferred to other units run by the NLC. The closure of the B & C unit, which was registered as a factory under the Factories Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and finally on February 21, 2006, the District Collector permitted the use of explosives to break the structures of B & C plant. In the meanwhile, the Commercial Tax Officer (hereinafter referred to as, "the CTO"), Cuddalore, who is the third respondent in W.P. No. 15072 of 2007 and second respondent in W. P. No. 28254 of 2007, vide order dated April 29, 2005 informed the NLC that if the plant and machineries of the B & C plant were sold as scrap and the bidder was asked to dismantle and transport them as a steel scrap, such sales of scrap was taxable at four per cent. Thereafter, M/s. Chitrahar Traders made an application under section 28A of the TNGST Act to the first respondent-Commissioner of Commercial Taxes and sought for a ruling on the rate of tax payable on the scrap purchased by them. By a proceedings dated May 10, 2005, the Commissioner of Commercial Taxes informed the auctioneer that they were taxable at four per cent as per entry No. 4(xvi) of the Second Schedule of the TNGST Act. On May 30, 2005, an application in form XIV was made by the NLC to the first respondent stating that the disposal was in one lot and the buyers themselves were dismantling, cutting and rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, 2007 was filed by the first respondent. The first respondent-Commissioner of Commercial Taxes once again indicated that the sale of whole plant and machineries of the B & C plant was on "as-is-where-is" basis and "no complaint" basis and it was not sold as a scrap. He also refused to take note of the contents of the sale order dated February 16, 2005. Reliance was placed by the Revenue on the judgment in N.J. Durairaj v. Joint Commercial Tax Officer [1989] 73 STC 199 (Mad) wherein it was held that the sale of scrap by an assessee after dismantling of a wrecked ship was taxable in the hands of the appellant as a first sale. Further reliance was also placed on the decision of the Bombay High Court in Commissioner of Sales Tax v. Indian Metal Traders [1978] 41 STC 169 wherein it was held that the process of breaking up or dismantling a ship would fall within the compass of "manufacture". Therefore, in the present case, breaking and dismantling of B & C plant by the petitioner will amount to manufacture of scrap which is taxable in its hands as first sale of iron scrap under entry 4 of the Second Schedule to the TNGST Act. On the strength of the same, it was contended that the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners, that the transaction between the parties was transparent and was an undertaking between two public sector undertakings by the Government of India and there was nothing to hide in respect of the facts before the authorities. He also submitted that B & C plant commissioned during 1965 became unusable. As a matter of fact, It was closed during April 2001 and the entire work force was also sent to other units and the factory licence had also been surrendered. Thereafter, it was only a junk and it had no resale value. It is for the NLC to decide whether they should dismantle and sell it as a scrap or ask the auction purchaser to do the same. In either way, the contents of the commodity does not get changed and it remains as a scrap. It is open to the NLC to take a pragmatic view on the dismantling and as it involved a skilled exercise and also with a view to save the expenditure on the dismantling, it was indicated to the Agency that it will be sold on "as-is-where-is" basis so that the NLC is not put to loss. On this exercise, the nature of the goods does not get changed and it was unfair for the department which originally informed that they are liable to pay tax only at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictionary meaning of the word 'scrap', which is found in Webster's Dictionary at page 1626. On that page the dictionary gives 8 different meanings which can be attributed to this word. Out of these eight meanings, only the following are relevant for the purpose of this reference: '(1) a small piece; a little bit; a fragment; as scraps of meat. (2) discarded metal in the form of machinery, auto parts, etc., suitable only for reprocessing.' 'Scrap' as adjective is defined in this dictionary as: 'in the form of fragments, pieces, odds and ends, or left-overs, used and discarded.' It is thus evident from these dictionary meanings that broken parts or fragments of a machinery would undoubtedly be considered as 'scrap'. But the contention of Shri Pathak is that if an old and unserviceable machinery is not broken up or dismantled and is found in its original shape then it would not be covered by the meaning of the word 'scrap'. We, however, find that this contention is not acceptable because one of the dictionary meanings of the word 'scrap' is that it is a discarded metal in the form of a machinery and suitable only for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces even applying the common parlance test, machinery which is totally unserviceable as machinery can be treated as scrap." Further, the learned Senior Counsel relied upon the Division Bench judgment of this court in State of Madras v. Raman & Co. [1974] 33 STC 1 wherein similar question was also considered. In that case, the assessee purchased in auction condemned railway coaches sold by the railway department and later dismantled and sold the resultant iron material and timber in bulk. The question that came up for consideration was whether the sale of scrap by the assessee was the first sale taxable under the TNGST Act or whether it was a second sale exempted from the tax and the following passages found at pages 2 and 3 may be usefully extracted: "Therefore, the only question that has to be considered in this case is whether the turnover relating to the assessee's sale of scrap iron is a second sale as contended by the assessee or whether it is a first sale as contended by the Revenue. If it is only a first sale of scrap iron it could be taxed under the provisions of the Madras General Sales Tax Act. It is seen that the assessee purchased in auction the condemned railway ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Supreme Court. The decision of the Supreme Court, dismissing the appeal and affirming the opinion of the Division Bench, was also reported in State of Tamil Nadu v. Raman Co. [1994] 93 STC 185 (SC). The learned Senior Counsel referred to the proceedings dated May 10, 2005 wherein on a specific query by the auction purchaser, the first respondent himself clarified that the goods are liable to be taxed at four per cent as they were only scrap. The learned counsel also referred to voluminous documents including the gate passes and submitted that they were only described as scrap and they were taken on piece meal basis. g However, Mr. Haja Naziruddin, learned Special Government Pleader (Taxes) submitted that this court in N. J. Durairaj v. Joint Commercial Tax Officer, Mandaveli Division, Madras [1989] 73 STC 199 held that breaking up of a ship and selling it as a scrap will be liable for tax under the First Schedule. Further, reliance was also placed on the Division Bench judgment of the Bombay High Court in Commissioner of Sales Tax v. Indian Metal Traders [1978] 41 STC 169 and the relevant passage found in page 174 may be extracted below: "The first contention of Mr. Sheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it does not have a universal application. In fact, the judgment of a Division Bench of this court in Raman Co.'s case [1974] 33 STC 1 affirmed by the Supreme Court is more apposite on the point in issue. The learned Special Government Pleader also referred to the judgment of the Supreme Court in Rainbow Steels Ltd. v. Commissioner of Sales Tax, Uttar Pradesh [1981] 47 STC 298. In that case, the question that came up for consideration was sale of an old thermal power plant, which, at the time of sale by the vendor, was in perfect running condition and, therefore, the sale at that time cannot make the consignment a scrap. There, the question that was considered was, what was the definition of the term "old machinery" and it was held that the meaning should be restricted since it is analogous to expressions like discarded, unserviceable or obsolete. I do not think that this case is of any assistance to the respondents. Ultimately, the goods being what they are, is a real test and labelling it in one way or the other cannot help either side. In the present cases, B & C plant had become unusable and the factory had been closed and the factory licence had been surrendered and i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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