1. The Gujarat Sales Tax Tribunal has in this reference referred the following question to this court for opinion :
'Whether on the facts and in the circumstances of the case, unserviceable machinery and spare parts of such machinery purchased by the opponent fall under entry 22 of Schedule E or entry 3 of Schedule B to the Bombay Sales Tax Act, 1959 ?'
2. Following are the brief facts, which gave rise to this reference, which is preferred by the Commissioner of Sales Tax. The opponent M/s. Bharat Iron and Brass Foundries, Ahmedabad, is a firm which purchases materials such as unserviceable machinery, its spare parts, iron and steel scraps, pig iron, etc., for being melted and also for manufacturing castings after melting them. The opponent-assessee was assessed for the period from 1st April, 1963, to 31st March, 1964, for the purpose of levying sales tax. During the course of the said assessment, the assessee claimed set-off contemplated by rule 41 of the Bombay Sales Tax Rules (hereinafter referred to as the 'Rules') on the ground that it has paid taxes on the purchase of unserviceable machinery and spare parts, which are used in melting and preparing castings. According to the assessee, the tax which it has paid on these purchases is at the rate of 3 per cent. under the Bombay Sales Tax Act, 1959 (hereinafter referred to as the 'Act'), and general sales tax at the rate of 3 per cent. The Sales Tax Officer concerned rejected this claim of the assessee for the set-off with the result that the assessee preferred an appeal before the Assistant Commissioner of Sales Tax. It, however, failed even before the Assistant Commissioner of Sales Tax. It, therefore, preferred a second appeal before the Tribunal.
3. It is found that the set-off, which is claimed by the assessee, is for the amount of Rs. 2,785.61.
4. The set-off is claimed by the assessee under rule 41 which provides for drawback, set-off, etc. of tax paid by a manufacturer. It is not in dispute that the relevant clause of this rule, which applies to the facts of this case, is clause (e) which is in the following terms :
'(e) A sum recovered from the manufacturing dealer by another registered dealer by way of sales tax or general sales tax or both, as the case may be, on the purchase by him, of goods from such registered dealer, being goods specified in Schedule C to the Act other than in entries 1 to 11 (both inclusive) and 15 therein and in Schedule D other than in entries 1 to 4 (both inclusive) therein and in Schedule E other than in entries 1 and 2 therein, when the purchasing dealer did not hold a recognition, or when the dealer held a recognition but effected the purchase otherwise than against a certificate under section 12 of the Art, provided that such goods are used by him in the manufacture of taxable goods for sale or in the packing of taxable goods manufactured by him for sale.'
5. It is apparent from the above clause of rule 41 that the set-off in question would be available to the assessee only if his case falls within any of the entries of different schedules specifically mentioned in the clause.
6. Now the case of the department is that the assessee would not be entitled to claim any set-off of the tax paid by it at the time of the purchase of the articles in question because these articles being iron and steel scraps, are covered by entry 3 of Schedule B of the Act. The contention of the department is that since clause (e) of rule 41 does not cover entry 3 of Schedule B, the assessee is not entitled to any set-off whatever.
7. So far as the assessee is concerned, its contention is that the goods, on which it has paid tax at the time of purchase, are not the goods covered by entry 3 of Schedule B but are the goods covered by entry 22 of Schedule E, which is the residuary entry, and since clause (e) of rule 41 covers the said entry of Schedule E, the set-off in question is available to it.
8. At this stage, it would be proper to make a reference to the different entries, on which reliance is placed by the parties before us. Entry 3 of Schedule B, Part I, attached to the Act, is in the following terms :
'3. Iron and steel, that is to say, -
(a) pig iron and iron scrap,
(b) iron plates sold in the same form in which they are directly produced by the rolling mill,
(c) steel scrap, steel ingots, steel billets, steel bars and rods, (d)(i) steel plates ---|(ii) steel sheets |sold in the same form in|which they are directly(iii) steel bars and tin bars |produced by rolling mill.'|(iv) rolled steel sections || (v) tool alloy steel ---
The department wants us to hold that the materials on which the assessee has paid tax at the time of purchase were iron scrap and steel scrap covered by the above-quoted clauses (a) and (c) of entry 3 of first part of Schedule B.
9. Entry 22 of Schedule E on which the assessee has put reliance is in the following terms :
'All goods other than those specified from time to time in section 14B and in Schedules A, B, C and D and in the preceding entries.'
Obviously, this entry is a residuary entry and, therefore, if the goods in question are not covered by any of the preceding schedules, i.e. Schedules A, B, C and D as well as other entries specified in Schedule E, then they would be covered by this residuary entry.
10. It is thus an admitted position that if the goods on which the assessee has paid tax at the time of purchase are covered by the above-referred entry 22 of Schedule E, the assessee would be entitled to claim the set-off in dispute. However, if the goods are covered by the above-referred entry 3 of the first part of Schedule B, then no such set-off can be claimed by the assessee. Therefore, the simple question which arises to be determined is whether the goods are covered by entry 3 of the first part of Schedule B or not.
11. The Tribunal seems to be of the view that entry 3 of the first part of Schedule B contemplates iron and steel, either in raw form or in the form of plates produced by rolling mills. Therefore, according to the opinion of the Tribunal, this entry would not be applicable to those articles of machinery which are treated as 'scrap'. Under the circumstances, the Tribunal has come to the conclusion that the goods which have been purchased by the assessee on payment of tax, are not covered by entry 3 of Schedule B, and, therefore, the assessee would be entitled to the set-off in question. The department has felt aggrieved at this decision of the Tribunal and has, therefore, preferred this reference, in which the question, which is already quoted above, has been referred to this court for opinion.
12. It is an admitted position that the articles which are purchased by the assessee and on which the tax is paid at the time of the said purchase, are old and unserviceable machinery and its spare parts. Now in order to bring these articles within the purview of entry 3 of Schedule B, two things are required to be proved : (1) that the goods in question were of iron and steel and (2) that they amounted to 'scrap'. If these two ingredients are satisfied then the goods can be said to be iron scrap or steel scrap, as contemplated by the entry. So far as the first requirement is concerned, we find that at no stage of the proceedings before the Sales Tax Officer, Assistant Commissioner or the Tribunal, it was contended that the goods in question were not made of iron and steel. The only contention which is found to have been raised by the assessee before the lower authorities as well as the Tribunal was whether they amounted to 'scrap' or not. Under the circumstances, we propose to decide this reference on the hypothesis that the goods were of iron and steel. If that is so, the only question which we are called upon to consider is whether they amounted to 'scrap' as contemplated by entry 3. On this question Shri Pathak, who appeared on behalf of the assessee-opponent, contended that the word 'scrap' connotes broken parts of machinery and not the machinery, which is found to be unserviceable as machinery. In other words, his contention was that if it is found that the machinery is for some reason not useful as machinery and, therefore, if it is sold away by weight not on the basis that it is machinery, but on the basis that it is an old useless article of machinery, it would not amount to 'scrap' as contemplated by entry 3. We find that this argument is not acceptable. In this connection, we may refer to the 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 the purpose of reprocessing. Reprocessing here refers to the word 'metal' and, therefore, the use to which it can be put is the use as a 'material' for the purpose of reprocessing or manufacturing some other article. As a matter of fact, the old machinery and its spare parts, which have been purchased by the assessee, are actually used by the assessee itself for melting and recasting. They have been sold also like that by the vendor of the assessee. It is an admitted fact that these articles have been purchased and sold on the basis of their weight and not on the basis of their utility as machinery. Under the circumstances, we find that discarded machinery of this type which is suitable only for reprocessing or manufacturing some other materials, is scrap within the meaning of entry 3 of Schedule B.
13. Shri Pathak however contended that while appreciating whether this machinery and spare parts amount to 'scrap' or not, we should apply the common parlance test, which was applied by the Supreme Court in Ramavatar Budhaiprasad v. The Assistant Sales Tax Officer, Akola ( 12 S.T.C. 286 (S.C.)). We find that even if this test is applied, the case of the assessee does not improve. Applying this test the question is what is meant by the word 'scrap' in common parlance or what the persons, who are usually associated with 'scraps' of unserviceable machinery meant when they use the word 'scrap' in relation to the said machinery. We are of the opinion that the machinery which is totally unserviceable as such, is referred to even in common parlance as 'scrap'. A piece of machinery, which is admittedly unserviceable and which cannot be put to any use even after some repairs, is always referred to as 'scrap' in common parlance. When every hope of putting it to its original use even after repair is given up, the only use to which it can be put to use is as a 'scrap'. Therefore, when such machinery is made of some metal, it is purchased not as machinery but as metal and is also put to use as metal simpliciter. Speaking of the facts of this case, the old machinery and spare parts on which the assessee is found to have paid tax, at the time of their purchase have actually been put to use as metal and not as machinery because it is an admitted position that they have been melted and recast. Under the circumstances even applying the common parlance test, machinery which is totally unserviceable as machinery can be treated as scrap.
14. Shri Pathak wanted us to consider whether such unserviceable machinery can form part of inter-State trade or commerce and, therefore, can be covered by Schedule B. Here it should be noted that Schedule B consists of those goods which are found to be of importance in inter-State trade or commerce and it was for this reason that Shri Pathak has advanced the above argument. But we find that it is only for the Legislature to decide what goods can be treated as of importance in inter-State commerce or trade. The function of this court is only to decide whether a particular item of goods would be covered by a particular entry mentioned in one of the Schedules attached to the Act. We, therefore, see no force even in this contention of Shri Pathak.
15. We may note here that the view which is taken by the Tribunal, namely, that entry 3 of Schedule B refers only to raw iron and iron plates rolled from mills is not correct, because this entry refers even to iron scrap and steel scrap. If the word 'scrap' includes within its ambit even the articles which have once undergone a manufacturing process, then obviously this view is incorrect. Under the circumstances, we find that the articles regarding which the assessee has paid purchase tax, which the assessee now wants to claim as a set-off under rule 41, clause (e), were the articles covered by entry 3 of Schedule B. That being so, we are of the opinion that the view taken by the Tribunal is not correct. Therefore, our answer to the question, which is referred to us, is that the machinery purchased by the opponent, does not fall within the residuary entry 22 of Schedule E but falls under entry 3 of Schedule B attached to the Bombay Sales Tax Act, 1959. This reference is, therefore, disposed of accordingly. The cost of the applicant-Commissioner of Sales Tax shall be borne by the opponent-assessee in this reference. Reference answered accordingly.