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Addl. Commissioner of Income-tax Vs. Trichy Steel Rolling Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 373 of 1974 (Reference No. 186 of 1974)
Judge
Reported in[1979]118ITR39(Mad)
ActsIncome Tax Act, 1961 - Sections 33(1)B(1) and 80I
AppellantAddl. Commissioner of Income-tax
RespondentTrichy Steel Rolling Mills Ltd.
Appellant AdvocateNalini Chidambaram, Adv.
Respondent AdvocateK.J. Rebello, Adv.
Cases ReferredState of Madhya Bharat v. Hiralal
Excerpt:
.....in accordance with the definition in the finance act for the year 1967 as amended by the finance act of 1968. that definition referred to item (1) to schedule v. both the kerala high court as well as the calcutta high court had referred to the decision of the supreme court in state of madhya bharat v. so long as iron and steel continue to be raw materials, they enjoy the exemption. as long as iron and steel continued in the state of raw material they would enjoy the exemption. hiralal [1966]2scr752 ,it appears that iron and steel can be treated up to a certain stage as raw material which can take many shapes and forms like billets, slabs, ingots, etc......33(1)(b)(b)(1)(a) and 80-i ?'2. an identical question came up for consideration before the kerala high court twice. the matter was dealt with by a division bench in the first instance in the decision in cit v. mittal steel re-rolling & allied industries : [1977]108itr207(ker) , and in view of the doubts about the correctness of the decision being raised, the question was referred to a full bench later tinder another reference, and the full bench considered the question in the decision reported in cit v. west india steel co. ltd. : [1977]108itr601(ker) [fb]. in both the decisions the view had been taken that m. s. rods and steel sections manufactured by the concerned assessee for the relevant years amounted to 'iron and steel (metal)', which words occur in item (1) in schedule v.....
Judgment:

Govindan Nair, C.J.

1. The question that has been referred to us by the Income-tax Appellate Tribunal under Section 256(1) of the I.T. Act, 1961, for the years 1966-67 to 1969-70 in relation to the same assessee, Messrs. Trichy Steel Rolling Mills Ltd., Madurai, reads as follows:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee company is engaged in 'priority industry' as envisaged in the Income-tax Act, 1961, for the purpose of Sections 33(1)(b)(B)(1)(a) and 80-I ?'

2. An identical question came up for consideration before the Kerala High Court twice. The matter was dealt with by a Division Bench in the first instance in the decision in CIT v. Mittal Steel Re-rolling & Allied Industries : [1977]108ITR207(Ker) , and in view of the doubts about the correctness of the decision being raised, the question was referred to a Full Bench later tinder another reference, and the Full Bench considered the question in the decision reported in CIT v. West India Steel Co. Ltd. : [1977]108ITR601(Ker) [FB]. In both the decisions the view had been taken that M. S. Rods and steel sections manufactured by the concerned assessee for the relevant years amounted to 'iron and steel (metal)', which words occur in item (1) in Schedule V to the I.T. Act, 1961. In this reference also the question to be considered is whether the manufacturing of M. S. rods will fall within item (1) of Schedule V since Section 33(1)(b)(B)(1)(a) as well as Section 80-I, as it stood at the relevant time, used the expression 'priority industries' which has to be understood in accordance with the definition in the Finance Act for the year 1967 as amended by the Finance Act of 1968. That definition referred to item (1) to Schedule V. Our attention was invited to the decision of the Calcutta High Court in Indian Steel & Wire Products Ltd. v. CIT : [1977]108ITR802(Cal) , wherein a view different from that expressed by the Kerala High Court had been taken. Both the Kerala High Court as well as the Calcutta High Court had referred to the decision of the Supreme Court in State of Madhya Bharat v. Hiralal [1966] 17 STC 313. The Kerala High Court, however, understood the decision as applicable and as helpful in interpreting and supporting the view taken by it. The following is a passage from the judgment of Subba Rao J. in that decision reported in Crr v. West India Steel Co. Ltd. : [1977]108ITR601(Ker) , which is incidentally a Full Bench decision:

'So long as iron and steel continue to be raw materials, they enjoy the exemption. Scrap iron purchased by the respondent was merely rerolled into bars, fiats and plates. They were processed for convenience of sale. The raw materials 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.'

3. The term 'iron and steel' was mentioned in the notification construed by the Supreme Court under item 39. Item 9 therein referred to goods prepared from any metal other than gold and silver. Referring to these two items, the decision of the Calcutta High Court in Indian Steel & Wire Products Ltd. v. CIT : [1977]108ITR802(Cal) , commented (p. 811) :

'On comparison of these two items the Supreme Court held that there was a distinction between iron and steel as raw materials and goods made from iron and steel. As long as iron and steel continued in the state of raw material they would enjoy the exemption. Scrap iron and imported iron processed into bars, flats and plates only changed its form and made it more attractive and acceptable. They did not lose their character of a raw material and as such was entitled to exemption under Section serial No. 39.'

4. After having said so, the other references made to the decision of the Supreme Court are at pages 815 and 816 of the report. At page 815, it is stated:

'From the decisions reported in Vaiswaner Trading Co. v. State of Gujarat [1964] 15 STC 586 (Guj) and State of Madhya Bharat v. Hiralal : [1966]2SCR752 , it appears that iron and steel can be treated up to a certain stage as raw material which can take many shapes and forms like billets, slabs, ingots, etc. But there comes a stage when by further processing or manufacture it ceases to be a raw material and enter into the category of a finished product. The items in question have to be construed from this point of view.'

5. At page 816 of the report it is said:

'Similarly, in the case of iron bars, flats and plates case, State of Madhya Bharat v. Hiralal : [1966]2SCR752 , it was found as a fact that iron or steel in the shape of bars, flats and plates retained their character as a raw material and could not be held to be goods manufactured from iron and steel. To be noted is that the item in the Madhya Bharat Sales Tax Act did not read 'iron and steel (metal)' as in the statutebefore us and no other goods made out of iron and steel was specifically exempted.'

6. It is clear from the decision of the Supreme Court from the passage that had been extracted by the Kerala High Court which we have extracted here, that the 'iron and steel' in the shape of bars, flats and plates are iron and steel exempted under the notification. On the reasoning therein we come to the conclusion that M. S. rods will also be iron and steel. The only question is whether the addition of the word 'metal' after the term 'iron and steel' in Schedule V would make any difference. The real distinction is what has been pointed out by the Supreme Court and which has been noticed by the Calcutta High Court in the passage which we have extracted above and that is, whether, by the process of change resulting from the manufacturing process, an article different from iron and steel had come into existence or not. The Kerala High Court has referred to this aspect and has held that by producing M. S. rods from iron and steel in a raw material form, the iron does not cease to be iron and steel does not cease to be steel and naturally they continue in metal form. The word 'metal' is used to emphasise that the change should not be such as to alter the character of the iron and steel used from iron and steel into any other specified finished article. If there is no such change, iron and steel will continue as iron and steel (metal). With respect we follow the decisions of the Kerala High Court above cited and answer the question referred to us in the affirmative, that is, in favour of the assessee and against the department. The parties will bear their respective costs.


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