Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, HARYANA ETC. ETC.
Vs.
RESPONDENT:
KRISHNA COPPER STEEL ROLLING MILLSJAGADHRI ETC. ETC.
DATE OF JUDGMENT12/11/1991
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
RAMASWAMI, V. (J) II
OJHA, N.D. (J)
CITATION:
1992 AIR 422 1991 SCR Supl. (2) 187
1992 SCC Supl. (1) 732 JT 1991 (4) 350
1991 SCALE (2)1014
ACT:
Income-tax Act, 1961--Sections
33(1)(b)(B)(i)(a), 80-I inten-__Construc-
tion--Historical background-Relevance
of--Legislative intention.
Income-tax, Act, 1961---Sections
33(1)(b)(B)(i)(a), 80-I, Fifth Schedule, item
I--Manufacture of mild steel rods, bars or
rounds--Whether entitled to a higher rate of
development febate and relief under--"Semifin-
ished Steel" and "Finished Steel "---Construc-
tion "Forging and castings" whether articles
made of iron and steel.
HEADNOTE:
The respondents-assessees were engaged in
the manufacture of mild steel rods, bars or
rounds. They claimed that as the articles
manufactured by them fell under item 1 of the
list set out in the Fifth Schedule, they were
entitled to a higher rate of development
rebate specified in section 33(1) (b) (B) (i)
(a) and to relief under section 80-1 of the
Income-Tax Act, 1961.
The Income-Tax Officer rejected the claim
of the assessees, whereas the Appellate As-
sistant Commissioner, the Tribunal and High
Court accepted their claim. Hence the Revenue
filed appeals before this Court.
The contentions of the appellant-Revenue
were that iron and steel ceased to be a metal
when it came out of the furnace in the primary
steel mills in the form of ingots. In the next
stage the ingots became semi-finished products
in the shape of billets, blooms and slabs. It
was said to be the stage where the raw materi-
als were converted into. In different form or
shape; that the expression "iron and steel
(metal)" meant the iron and steel as it
emerged in the form of billets, blooms and
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slabs from the steel mill and that all subse-
quent products whether in the form of rails,
rods (including wire rods), bars, angles,
channels, tees, sees, pipes, tubes, sheets,
strips, plates and coils would constitute
articles made of iron and steel, and that
rolling mills making bars and rods were not
covered by item 1 of the Fifth Schedule.
188
On the other hand, the respondents-asses-
sees contended that in the steel industry the
manufacture of ingots, billets, blooms, etc.
represented only an intermediate stage at
which the iron and steel metal became semi-
finished steel. When the semi-finished steel
was converted into plates, bars or rods, they
became finished steel. The bars, rods and
rounds, which were continued to be iron and
steel in a finished form, were used to manu-
facture the products of iron and steel by
various processes, such as, rolling, cutting,
shearing, forging, hammering, etc. and that
the products of iron and steel were different
from that of iron and steel (metal).
Dismissing the appeals filed by the Revenue,
this court,
HELD: 1. In interpreting the provisions in
S.33(1)(b)(B)(i)(a), S.80-I of the Income-Tax
Act, 1961, the Court would do well to keep in
mind the background in which concessions to
certain basic industries were introduced in
the Income-Tax Act. The historical background
reflects the intention of the legislature to
grant progressively certain exemptions, re-
liefs and concessions for certain types of
industries, which were considered important
for national development. The industry in iron
and steel and other metals figured in all the
lists. [199 C, 200 B]
2. The incentive concession or relief
granted under the provisions has to be con-
strued in a broad and comprehensive manner so
as to cover all manufacturing activities
legitimately pertaining to the specified core
industry with no limitation save what may be
called for by the wording of a particular
entry. So far as items 1 and 2 are concerned,
the wording points to a distinction between
the metal which is used as the base and other
articles manufactured therefrom. Pig iron and
iron scrap are fed into furnaces to produce
ingots, billets and blooms. But both are iron
and steel in different forms, the latter being
referred to as "semi-finished steel". Like-
wise, the bars, rods, rounds, wire rods and
the like constitute the second stage in which
one gets only "finished" forms of iron and
steel. Having regard to the nature and weight
of the metal, it has to be "finished" to
assume these forms before manufacturers of
iron and steel articles can take over and
proceed to manufacture articles from them by
drawing wires or converting them into rails or
shaping them into tees, zees, pipes, tubes and
the like. [200 C-E]
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3. Whether the article produced is the
raw material 01, an article made of iron and
steel has to be decided on the basis of the
189
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. [200 G]
4. The departmental instructions that
machinery and plant in "rolling mills" will
not be eligible for the higher development
rebate would not 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 bars and rods should
not be eligible for the higher rate of devel-
opment rebate. [200 G-201 B]
5. In considering the issue, the court
should not be carried away be classifications
of stages of manufacture that may be relevant
for other purposes. What the court should
examine is not the nature of the mill which
yields the article but the nature of the
article or thing that is manufactured and ask
the question whether such articles or things
can be considered as raw material for manufac-
ture of other articles made of the metal or is
it itself an article made of the metal. [201
B-C]
6. The goods in the present case fail in
the former category. The mild steel rods, bars
or rounds which are manufactured by the asses-
sees are only finished forms of the metal and
not articles made of iron and steel. They only
constitute raw material for putting up arti-
cles of iron and steel such as grills or
windows by applying to them processes, such
as cutting or turning. The rod or the wire
rods are likewise not products of iron and
steel but only certain finished or refined
forms of the metal itself. [201 C-D]
7. Forging and castings are not covered
by item 1 being articles made of iron and
steel but that since the legislature definite-
ly intended to give relief even in respect of
such articles, item 11 and also item 21 were
introduced. Even if MS steel rods, bars and
rounds cannot be taken as iron and steel
(metal), they would fail under the category of
"forgings and castings" referred to in item
11. [201 G-H]
190
8. The conclusion drawn by the High Court
that the assessee was entitled to the higher
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development rebate, though, it produced arti-
cles only from iron scrap, does not call for
any interference. [202 C, D]
C.I. T. v. Mittal Steel Re-tolling and
Allied Industries (P) Ltd., (1977) 108 ITR 207
(Kerala); CI. T.v. West India Steel Co. Ltd.,
(1977) 108, ITR 601 (F.B.) (Kerala); Addl.
Commissioner of Income Tax v. Trichy Steel-
Rolling Mills Ltd., (1979) 118 ITR 39
(Madras); C.I.T.v. Krishna Copper Steel Roll-
ing Mills, (1979) 119 ITR 256 (Punjab & Har-
yana); CI.T.v. Ludhiana Steel Rolling Mills,
(1989) 180 ITR 155 (Punjab & Haryana) and
Singh Engineering Works Pvt. Ltd. v. CI.T.,
(1979) 119 ITR 891 (Allahabad), approved.
Indian Steel and Wire Products Lid v.
Commissioner of Income-tax, (1977) 108 ITR 802
(Calcutta) and Commissioner of Income-Tax v.
Kay Charan Pvt. Ltd., (1991) 190 ITR 190
(Allahabad); over-ruled.
State of Madhya Bharat v. Hira Lal, (1966)
17 STC 313 (S.C.) Devi Dass Gopal Krishnan v.
State of Punjab, (1967) 20 STC 430 (SC);
Hindustan A1uminium Corporation Ltd. v. State
of (U.P., (1981) 48 STC 411 (S.C.) State of
Tamil Nadu v. Pyarelal Malhotra, (1976) 37 STC
319 (SC); C.I.T.v. Rashtriya Metal Industries
Co. Ltd., (1983) 142 ITR 306 (Cal); Indian
A1uminium Co. Ltd v.C.I.T, (1980) 122 ITR 660
Cal. and (1983) 140 I.T.R 114 Cal; Jeewanlal
v. CI.T., (1983) 142 ITR 460 (Cal); C.I.T v.
Fitwell Caps-P. Ltd., (1986) 159 I.T.R. 454;
Hindustan Wire Products v. CI.T 1 (1986) 161
ITR 749; Indian Steel and Wire Products Lid v.
C.I.T. (1977) 108 I.T.R. 802; C.I.T.v. Tensile
Steel Lid, (1983) 141 ITR 223 (Guj) and CI.
T.v. Ludhiana Steel Rolling Mills, (1989) 180
ITR 155 (P & H)-referred to.
Speci’fication and Glossary--By Expert
Products Sectional Committee of Bureau of
India Standards, New Encyclopedia Brittanica
Macropaedia, 15th Edn. Vol.21; Websters, Third
New International Dictionary; Encyclopaedia of
Chemical Technology--By Kirk Othmer, 3rd. Edn.
Vol.21;// Book on Small-Scale Steel Making--By
R.D.Walker, The Budget Speech of the Finance
Minister, (1968) 48 ITR [Statutes] 34; (1965)
55 ITR [Statutes] 57 and 122-referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 104[NT] of
1979.
From the Judgment and Order dated
3.10.1978 of the Punjab and Haryana High Court
in 1.]". Reference No. 60 of 1974.
191
WITH
Civil Appeal Nos. 1801 to 1804/89 & 6254
(NT)/90
Dr. V.Gauri Shankar, S.Rajappa, Ms. A.
Subhashini and Manoj Arora for the Appellants.
T.A.Ramaehandran and Ms. Janki Ramachandran
for the Respond-
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ents.
The Judgement of the Court was delivered by
RANGANATHAN, J. These appeals involve a common question
and hence can be disposed of by a common order. The respond-
ent assessees are steel rolling mills engaged in the manu-
facture 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
Revenue.
It has been brought to our notice that there is a dif-
ference 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, (1977) 108
I.T.R. 802, and the Allahabad High Court in Commissioner of
Income-Tax v. Kay Charan Pvt. Ltd., (1991) 190 I.T.R 190
have answered the question in the negative and against the
assessee. On the other hand, the Kerala High Court in C.I.
T.v. Mittal Steel Re-rolling and Allied Industries (1’) Ltd.
(1977) 108 I.T.R. 207 and CIT v. West India Steel Co. Ltd.
(1977) 108 I.T.R. 601, FB. The Madras High Court in the
judgment under appeal, reported as Addl. Commissioner of
Income-tax v, Trich Steel Rollling Mills Ltd., (1979) 118
I.T.R. 39, the Punjab & Haryana High Court in C.I.T. v.
Krishna Copper and Steel Rolling Mills, (1979) 119 I.T.R.
256; (hereunder appeal) C.I.T.v. Ludhiana Steel Rolling
Mills, (1989) 180 I.T.R. 155; and the Allahabad High Court
in Singh Engineering Works Pvt. Ltd. v. C.I.T., (1979) 119
I.T.R. 891 have taken a view in favour of the assessee. This
controversy needs to be resolved.
192
It may be useful, at this stage, to refer to three
decisions of this Court, the decisions or observations in
which have influenced the High court.
(1) The first of these is State of Madhya Bharat v.
Hiralal, (1966) 17 S.T.C. 313. This case arose under the
Madhya Bharat Sales Tax Act. Under section 5 of the said
Act, two notifications had been issued. The first notifica-
tion exempted from sales tax certain listed goods, one of
which was "iron and steel", while the second notification
specified the rates and stages lot 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 follows:
"Learned cournsel for the State contends that
the expression "iron and steel means iron and
steel in the original condition and not iron
and steel in the shape of bars, flats and
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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 re-
spondent was merely re-rolled into bars, flats
and plates. They were processed for conven-
ience of sale. The raw material 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 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. They purchased steel scrap and steel ingots
and converted them into rolled steel sections. They
193
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
sections constituted double taxation of the same commodity
contrary to the provision 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 sections 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., (1981) 48 S.T.C. 411, involved the
interpretation of certain notifications issued under section
3A(2) of the U.P. Sales Tax Act, 1948. The two notifications
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:
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 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 vations
aluminium products, claimed the benefit of these notifica-
tions 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
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"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 Govern-
ment from time to time in this behalf and came to the con-
clusion 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
194
"all kinds of minerals, ores, metals and alloys" should be
given its fullest amplitude so as to include even subse-
quently 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 con-
troversy before
US."
After referring to its earlier decisions in State of
M.P.v. Hiralal, (1966) 17 S.T.C. 313, Devi Dass Gopal Krish-
nan 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 extrusions are regarded as
distinct commercial items from aluminium
ingots and billets in the notification 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 steel" and
"products or goods made of iron and steel" and, indeed,
between any metal as such and the products or goods fabri-
cated 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 alumimum pigments, aluminium arti-
cles and aluminium caps have been held to tall outside it.
See C.I. T.v. Rashtriya Metal Industries Ltd., (1983) 142
I.T.R. 306 (Cal). a case under the Companies (Profits)
Surtax Act, 1964; Indian Aluminium Co. Ltd. v. CI.T., (1980)
122 I.T.R. 660 (Cal.); (1983)140 I.T.R 114 (Cal); Jeewanlal,
(1929)Ltd. v. CI.T. (1983) 142 I.T.R, 460 (Cal.) and CI.T.
v. Fitwell Caps P. Ltd. [1986] 159 I.T,R. 454 (Kar). ’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 purpose and that an industry
engaged in its manufacture is not an industry eligible for
the reliefs of the kind presently under consideration: See:
Hindustan
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195
Wire Products v. C.I.T., (1986) 161 I.T.R. 749. This deci-
sion is of no direct relevance here except to point out that
no atttempt 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
(vide: Glossary of Tenns published by the Bureau of Indian
Standards and relating to Iron and Steel: Part VI,
"Forging"). 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 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 qualify-
ing 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 (supra) 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 repre-
sented the raw material rolled out in attractive and accept-
able forms. Per contra, in Devidass Gopal Krishnan, [1962]
20 S.T.C. 430 rolled steel sections 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 the 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:
196
(a) A succinct summary of the processes involved, illus-
trated by a figurative chart, is given in the very first
page of "The Making, Shaping and Treating of Steel", edited
by Lankford and others (10th Edition),. page 1. It is unnec-
essary 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 electric process or open-hearth
process, molten steel is ladled out into moulds to form
ingots. There are three stages in the manufacture of the
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steel:
(i) the first stage when ingots are obtained
by Lapping 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 reheating the ingots to an appro-
priate temperature and rolling or forging them
into shapes; and
(iii) the production from blooms, billets
and slabs-again by process of hot rolling,
cold rolling, forging, extruding, drawing
etc.-of finished steel products; bars, plates,
structural shapes, rails, 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:
(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 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 cost into
the forms of pigs or blocks, m 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 proc-
esses and the steel produced,by these and other 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.
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_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 productrs (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 forg-
ings. 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, hot rolled, in irregularly wound coils, other
bars, and rods, angles, shapes, sections and wire). These
products are obtained by plastic deformation, hot or cold.
The hot processes are hot-rolling, forging or hot-drawing
and the cold processes., are cold-rolling, extrusion, wire-
drawing, bright drawing, centreless grinding or precision
turning. The chapter proceeds to classify the various
products in considerable detail.-
(c) Reference has also been made to the tariff classi-
fications 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
Committees on the subject of Iron and Steel. Extracts were
also furnished
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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 ex-
tracts 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 manufac-
ture, by various processes such as rolling, cutting, shear-
ing, 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. v. CIT, (1980) 122 I.T.R. 550 where,
while following the earlier decision in Indian Steel and
Wire Products Ltd. v. CIT, (1977)108 I.T.R. 802, the court
observed that there is really no divergence in view between
the Calcutta and Kerala views and that the real question for
consideration in each case is whether the articles in ques-
tion constitute finished products and represent articles of
iron and steel or merely represent the raw material viz.
iron and steel (metal) in a different form and shape.
On the other hand, Dr. Gauri Shankar, learned counsel
for the Department, submits that iron and steel ceases to be
a metal when it comes out of the furnace in the primary
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steel mills in the form of ingots. At the best, the next
stage at which the ingots become semi-finished products in
the shape of billets, blooms and slabs may also be said only
to convert the raw material into a different form or shape.
But, he says, by no stretch of imagination can the next
stage during which the billets, blooms and slabs are
heated/and passed through various types of mills enumerated
earlier be considered as involving not any manufacture but
only a conversion of the raw material into other forms or
other shapes. According to the learned counsel, the expres-
sion "iron and steel (metal)" only comprehends the iron and
steel as it emerges in the form of billets, blooms and slabs
from the steel mills and that all subsequent products wheth-
er in the form of
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rails, rods (including wire rods), bars, angles, channels,
tees, zees, pipes, tubes, sheets, strips, plates and coils
turned out by the various other types of mills would consti-
tute articles made of iron and steel. He also invited our
attention to a clarification by the Central Board of Taxes,
in response to a query from the Federation of Indian Cham-
bers of Commerce and Industry, that "rolling mills making
bars and rods are not covered by item 1 of the Fifth Sched-
ule".
We have considered the arguments addressed by both
counsel. In our opinion, Sri Ramachandran is right in con-
tending that in interpreting the provisions under considera-
tion, we would do well to keep in mind the background in
which concessions to certain basic industries were intro-
duced 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 indus-
tries named in the Finance Act was similar to and included
many of the items, including items 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
200
continued under the Finance Act of 1965: Vide, (1965) 55
I.T.R. (St.) 57 and 122 which introduced a higher develop-
ment rebate for machinery or plant installed for the pur-
poses of construction, manufacture or production of any one
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or more of the articles or things specified in the list in
the Fifth Schedule. The Finance Act of 1966 substituted a
new concession to these priority industries basic to the
commercial development of the community. This historical
background reflects the intention of the legislature to
grant progressively certain exemptions, reliefs or conces-
sions for certain types
of industries which were considered important for na-
tional development-/
The industry in iron and steel and other metals figures in
all these lists_) The only relevance of this background to
the issue before us is that it gives an indication that the
incentive, concession or relief granted under these provi-
sions has to be construed in a broad and comprehensive
manner so as to cover all manufacturing activities legiti-
mately pertaining to specified core industry with no limita-
tion save what may be called for by the wording of a partic-
ular entry. So far as items 1 and 2 are concerned, as earli-
er pointed out, the wording points to a distinction between
the metal which is used as the base and other articles
manufactured therefrom. We have earlier pointed out that pig
iron and iron scrap are fed into furnaces to produce ingots,
billets and blooms. But both are iron and steel in different
form, the latter being referred to as "semi-finished steel".
Likewise, we think, the bars, rods, rounds, wife rods and
the like constitute the second stage in which one gets only
"finished" forms of iron and steel. Having regard to the
nature and weight of the metal, it has to be "finished" to
assume these forms before manufacturers of iron and steel
articles can take over and proceed to manufacture articles
from them by drawing wires or converting them into rails or
shaping them into tees, zees, pipes, tubes and the like see
CI.T. v. Tensile Steel Ltd., (1983) 141 I.T.R. 223 (Guj) or,
again, producing articles of iron like ploughs, shovels,
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, there-
fore, seem to be justified if it intends to draw a distinc-
tion 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
201
includes not merely the production of ingots, billets and
the like but also the production of bars and rods are eligi-
ble 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 bars and rods should not be eligible
for the higher rate of development rebate. In considering
the issue before us, we should not be classifications of
stages of manufacture that may be carried away by classifi-
cation of stages of manufacture that may berelevant forother
purposes. We would like to emphasise, at the cost ofrepeti-
tion, that what we should examine is not the nature of the
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mill which yeilds the article but the nature of the article
or thing that is manufactured and ask ourselves the question
whether such article or thing can be considered as raw
material for manufactrure of other articles made of the
metal or is it itself an article made of the metal. On this
issue our view is, as we have already stated, that the goods
in the present case fall in the former category. We think
Sri Ramachandran is right in pointing out that the mild
steel rods, bars or rounds which are manufactured by the
assessees here are only finished forms of the metal and not
articles made of iron and steel. They only constitute raw
material for putting up articles of iron and steel such as
grills or windows by applying to them processes such as
cutting or turning. The rod or the wire rods (with which
some of the decisions were concerned) are likewise not
products of iron and steel but only certain finished or
refined forms of the metal itself.
We do not think much assistance can be derived for the
interpretation of the provision before us from the Central
Excise & Salt Act or the various classifications statutorily
or commercially drawn up for that purpose. They are more
refined and intricate classifications for the purposes of
excise duty and cannot be imported into the present context.
As we have mentioned earlier, some guidance as to inter-
pretation of item 1 to the schedule can be derived from item
no.11, which refers to "forgings and castings". These ex-
pressions obviously refer to articles obtained from the raw
material iron and steel by forging and casting. The argument
in some of the decisions referred to before us that item no.
1 should be interpreted strictly because of the existence of
item no. 11 seems to proceed on an erroneous basis. It would
be more appropriate to say that forging and castings are not
covered by item 1 being articles made of iron and steel but
that since the legislature definitely 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 "forg-
ings and castings" referred to in item 11. We do not, howev-
er, wish to express any
202
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 arti-
cles 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 devel-
opment rebate would be available to an assessee who manufac-
tured 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 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 reasons stated above we are of the opinion that
the view taken by the High Courts in the present cases does
not call for any interference. The appeals, therefore, fail
and are dismissed. But in the circumstances we make no order
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regarding costs.
V.P.R. Appeal dismissed.
201
includes not merely the production of ingots, billets and
the like but also the production of bars and rods are eligi-
ble 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 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 classi-
fications of stages of manufacture that may be relevant for
other purposes. We would like to emphasise, at the cost of
repetition, that what we should examine is not the nature of
the mill which yeilds the article but the nature of the
article or thing that is manufactured and ask ourselves the
question whether such article or thing can be considered as
raw material for manufactrure of other articles made of the
metal or is it itself an article made of the metal. On this
issue our view is, as we have already stated, that the goods
in the present case fall in the former category. We think
Sri Ramachandran is right in pointing out that the mild
steel rods, bars or rounds which are manufactured by the
assessees here are only finished forms of the metal and not
articles made of iron and steel. They only constitute raw
material for putting up articles of iron and steel such as
grills or windows by applying to them processes such as
cutting or turning. The rod or the wire rods (with which
some of the decisions were concerned) are likewise not
products of iron and steel but only certain finished or
refined forms of the metal itself.
We do not think much assistance can be derived for the
interpretation of the provision before us from the Central
Excise & Salt Act or the various classifications statutorily
or commercially drawn up for that purpose. They are more
refined and intricate classifications for the purposes of
excise duty and cannot be imported into the present context.
As we have mentioned earlier, some guidance as to inter-
pretation of item 1 to the schedule can be derived from item
no. 11, which refers to "forgings and castings"- These
expressions obviously refer to articles obtained from the
raw material iron and steel by forging and casting. The
argument in some of the decisions referred to before us that
item no. 1 should be interpreted strictly because of the
existence of item no. 11 seems to proceed on an erroneous
basis. It would be more appropriate to say that forging and
castings are not covered by item 1 being articles made of
iron and steel but that since the legislature definitely
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
202
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 arti-
cles out of iron scrap would be entitled to the higher
development rebate. The assessee cited a circular of the
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Board that, under item 2 of the schedule, the higher devel-
opment rebate would be available to an assessee who manufac-
tured articles from aluminium scrap [vide, circular no.25 D
(XIX-16) dated 10 th 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 reasons stated above we are of the opinion that
the view taken by the High Courts in the present cases does
not call for any interference. The appeals, therefore, fail
and are dismissed. But in the circumstances we make no order
regarding costs.
V.P.R. Appeals
dismissed.
203