Bombay High Court
The Commissioner Sales Tax vs Jai Hind Industries Ltd on 30 October, 2015
Bench: S.C. Dharmadhikari
str.58.12.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SALES TAX REFERENCE NO. 58 OF 2012
IN
REFERENCE APPLICATION NO.54 OF 1997
The Commissioner of Sales Tax ..Applicant
Vs.
M/s. Jai Hind Industries Limited ..Respondent
Mr. V. A. Sonpal, Special Counsel, for the Applicant State.
Mr. P. C. Joshi a/w Mr. Piyush Shah, for the Respondent.
CORAM :- S. C. DHARMADHIKARI,J. &
B. P. COLABAWALLA, J.
RESERVED ON :- September 15, 2015.
PRONOUNCED ON :- October 30, 2015.
JUDGMENT :- [Per B. P. Colabawalla, J]
1. By this Reference, the First Bench of the Maharashtra
Sales Tax Tribunal (for short, the "MSTT") has referred the
following questions of law for a decision of this Court under
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Section 61 of the Bombay Sales Tax Act, 1959 (for short the "BST
Act"):-
(a) Whether on the facts and circumstances of the
case and on true and correct interpretation of
Entry C-I-29 of Part I of Schedule-C, the Tribunal
was justified in law in holding that the non-
ferrous metal castings as manufactured and sold
by the respondents (original appellants) are
nothing but non-ferrous metal ingots?
(b) Whether on the facts and circumstances of the
case and on true and correct interpretation of
Entry C-I-29, the Tribunal was justified in law in
holding that the non-ferrous metal castings,
namely aluminum castings manufactured and
sold by the respondents (original appellants) are
covered by Entry C-I-29?
2. The real dispute in the present Reference is whether
raw aluminum castings manufactured and sold by the Respondent
herein, are covered by the residual Entry C-II-102 of the BST Act
and exigible to tax @ 10% or whether they fall under Entry C-I-29
exigible to tax @ 4%.
3. The brief facts giving rise to the present controversy
are that the Respondent herein (M/s. Jai Hind Industries Limited)
manufactures raw aluminum castings required by the automobile
industry. It had sold such castings for cylinder head cover
supplier part to M/s Tata Engineering and Locomotive Company
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Ltd (for short, "TELCO Ltd."), vide invoice No.1682 dated 13th
December, 1994. It is the case of the Respondent that they
purchase aluminum alloy in the form of ingots which are then
melted with the help of a melting furnace at 700° C. This molten
metal is put into a dye through a special opening and considerable
pressure is applied to the molten aluminum, due to which it
reaches all the cavities inside the mould to form a necessary
casting on solidification. This casting is then ejected and further
cleaned, after which it is dispatched to their customers. At the
time of making sale to their customers, the Respondent charged
4% sales tax on the sale of the aforesaid raw aluminum castings.
This was done on the basis of a judgment of the MSTT in the case
of M/s Ceepla Industries v/s The State of Maharashtra (Second
Appeal No. 3 of 1991 dated 20th December, 1991). However,
subsequently the Respondent learnt about the another judgment
of the MSTT in the case of M/s B. S. J. Foundries and Works v/s the
State of Maharashtra (S. A. No.1242 of 1991 dated 31st October,
1994), wherein the MSTT took a different view in respect of non-
ferrous raw castings. In this decision, the MSTT had diverted
from the earlier view and non-ferrous castings were held to be
covered by the residual Entry C-II-102.
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4. In this view of the matter, the Respondent on or about
28th December, 1994 filed an application under Section 52 of the
BST Act before the Commissioner of Sales Tax and sought
determination regarding the rate of sales tax applicable on the
sale of raw aluminum castings. The Commissioner, by his order
dated 13th January, 1996 (under Section 52(2) of the BST Act)
came to the conclusion that the sale of raw aluminum castings for
cylinder head covers sold vide invoice No.1682 dated 13th
December, 1994 by the Respondent to TELCO Ltd. were covered
by Schedule Entry C-II-102 and liable to tax at 10%. This order
further clarified that this determination would not affect the
Respondent's previous liability up to 30th June, 1993 provided
they had not collected more than 4% sales tax on the sale of the
same goods i.e. the aluminum castings.
5. Being aggrieved by this order of determination, the
Respondent approached the MSTT by filing Appeal No.33 of 1996.
This Appeal, along with the Appeals filed by M/s Jay Bhawani
Engineering Works (Appeal No.26 of 1996) and M/s Balwant
Industries (Appeal No.28 of 1996) were heard by the Third Bench
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of the MSTT at Mumbai and after considering the arguments of the
Revenue as well as the respective Appellants before it, the MSTT
allowed the Appeals and held that the sale of raw aluminum
castings would fall under Entry C-I-29 exigible to tax @ 4% and not
under Entry C-II-102 exigible to tax @ 10%.
6. Being aggrieved thereby, the Revenue preferred a
Reference Application No.54 of 1997 before the MSTT requesting
it to refer the questions of law set out in paragraph 1 above, to this
Court under Section 61(1) of the BST Act. The said Reference
Application No.54 of 1997 was rejected by the MSTT vide its
judgment and order dated 16th December, 2000. On this rejection,
the Revenue moved this Court by filing an application under the
first proviso to Section 61(1) of the BST Act which application was
registered as Sales Tax Application No.3 of 2001. When this Sales
Tax Application No.3 of 2001 reached hearing before this Court,
by an order dated 25th July, 2003, this Court directed the MSTT to
draw and refer the questions of law set out in paragraph 1 above
to this Court for its decision. It is in these circumstances that this
Reference has come up for our consideration.
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7. In this background, Mr Sonpal, Special Counsel for the
Applicant - Revenue contended that raw aluminum castings sold
by the Respondent herein could never be classified under Entry C-
I-29 of the Bombay Sales Tax Act 1959. It was the submission of
Mr Sonpal that what was manufactured by the Respondent was in
fact a new commercial commodity different from what was
described in the aforesaid Entry. He submitted that raw
aluminum castings could never fall within the meaning of the
word 'ingots' appearing in Entry C-I-29. It was therefore his
submission that raw aluminum castings were correctly classified
under the residual Entry C-II-102, and the MSTT was in error in
overturning the order of determination passed by the
Commissioner dated 13th January, 1996. In support of the
aforesaid submission, Mr Sonpal placed heavy reliance on a
decision of the Supreme Court in the case of Bengal Oil
Corporation and another v/s Commercial Tax Officer and
others.1 He submitted that the present case was squarely covered
by the ratio laid down by the Supreme Court in Bengal Oil
Corporation's case.1
1 1994 Supp (1) SCC 310
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8. It was the submission of Mr. Sonpal that on the other
hand, the MSTT placed reliance on another decision of the
Supreme Court in the case of Vasantham Foundry v/s Union of
India and others2 and on the basis thereof, overturned the order
of the Commissioner and held that the items sold by the
Respondent herein vide their Invoice No.1682 dated 13th
December, 1994 fell in Entry C-I-29 exigible to tax at 4% and not
in the residual Entry C-II-102 exigible to tax at 10%. He submitted
that the reliance placed on the decision of the Supreme Court in
Vasantham Foundry's case2 was wholly misplaced as the facts in
that case were totally different from the facts before us. He
therefore submitted that the questions of law referred to this
Court for its determination and which are set out in paragraph 1
of this judgment be answered in the negative and in favour of the
Revenue.
9. On the other hand, Mr Joshi, learned counsel
appearing on behalf of the Respondent, sought to support the
order of the MSTT on all counts. He submitted that there was no
question of law and which could be termed as substantial, that
required our consideration in view of the fact that the MSTT had
2 (1995) 5 SCC 289
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come to the findings that it had on the basis of the factual matrix
before it. The MSTT has taken into consideration all the facts
including the processes that are required to be undertaken for
manufacturing raw aluminum castings as well as the processes
these castings further undergo at the purchaser's end before they
are put to use. He submitted that in this factual matrix, the case
of the Respondent was squarely covered by the decision of the
Supreme Court in the case of Vasantham Foundry2 and therefore,
in any event, the question of law as framed in paragraph 1 above
ought to be answered in the affirmative and in favour of the
Respondent.
10. We have perused the papers and proceedings in the
Sales Tax Reference alongwith the order of determination dated
13th January, 1996 passed by the Commissioner, the order dated
13th June, 1997 passed by the MSTT in Appeal No.33 of 1996 as
well as the order of Reference dated 29th January, 2004. The
narrow dispute that arises for our consideration is whether raw
aluminum castings manufactured and sold by the Respondent fall
within Entry C-I-29 of the BST Act, or whether the same could be
classified under the residual Entry C-II-102. Entry C-I-29 reads as
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under :-
Sr. Description of Goods Rate of Rate of Period of
No. Sales Tax Purchase operation
tax
29 (i) Non-ferrous metal powder and 4% 4% 1-4-1994 to
scrap 30-9-1995
(ii) Non-ferrous metal foils, sheets, 4% 4% 1-4-1994 to
rods, wires, bars, slabs, blocks, ingots, 30-9-1995
circles, tubes, angles, strips, plates
and slugs (other than those of gold
and silver specified in entry 1 of Part
1 of this Schedule) which are bare and
not coated, covered baked or
laminated with any other material.
Explanation : For the purpose of sub-
entry (ii)
(i) the term 'tubes' does not include
tubular containers intended for
packing or storing of any goods, and
(ii) the term 'angles' does not include
slotted or perforated angles.
Similarly, Entry C-II-102 reads as under:-
Sr.No Description of Goods Rate of Rate of Period of
Sales Tax Purchase operation
tax
102 All goods other than those covered 10% 10% 1-9-1990 to
from time to time by the other 30-9-1995
schedules and the preceding entries
of this schedule.
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11. It is not in dispute before us that aluminum is a non-
ferrous metal. The facts before us and which have been
elaborately set out in the order of the MSTT dated 13th June, 1997
are really undisputed. The facts are that the Respondent
manufactures raw aluminum castings required by the automobile
industry. It sells its castings to Telco Ltd. as well as Premier
Automobiles Ltd. Initially, the Respondent purchases aluminum
alloy in the form of ingots. These ingots are then melted with the
help of a melting furnace at 700° C. This molten metal is then put
into a dye through a special opening and considerable pressure is
applied to the molten aluminum, due to which the metal reaches
all the cavities inside the mould to form the necessary casting on
solidification. This casting is then ejected. After this, the raw
casting is subjected to preliminary machining, such as milling or
drilling operations to suit the jigs and fixtures for further
finishing. The proof machining and final machining operations
are not carried out by the Respondent but by their customers viz.
Telco Ltd. and Premier Automobiles Ltd. It is in these
circumstances and looking to these facts that the Respondent
contended that therefore these are raw castings. In support of the
aforesaid argument, Mr Joshi pointed out that M/s Telco Ltd. and
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M/s. Premier Automobiles Ltd. had issued Certificates that raw
castings procured by them from the Respondent are subjected to
extensive machining such as milling, drilling, tapping etc. at their
end before they are further used in the manufacture of a motor
vehicle / chassis. At paragraph 22 of the order dated 13th June
1997, we find that these Certificates have been relied upon by the
MSTT. It is not the case of the Revenue that these Certificates are
not genuine and / or could not be relied upon for any reason.
12. On the basis of these facts, we have to now examine
whether the case of the Respondent falls within the ratio of the
decision of the Supreme Court in the case of Vasantham Foundry2
or whether the same would be covered by Bengal Iron
Corporation's case.1
13. The facts of Bengal Iron Corporation's case1 reveal
that the Appellant before the Supreme Court manufactured and
sold cast iron pipes, manhole covers, bends etc. These items
manufactured by the Appellant (Bengal Iron Corporation) were
assessed to sales tax on the turnover of sale by treating them as
general goods. It was the Appellant's contention that these goods /
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products were 'cast iron' within the meaning of Item (2) (i) of
Schedule III to the Andhra Pradesh General Sales Tax Act, 1957
and therefore liable to tax only at 4%. The Assessing Officer
rejected this claim of the Appellant and held that 'cast iron
castings' manufactured by the Appellant were not declared goods
falling within the relevant entries of the Andhra Pradesh General
Sales Tax Act, 1957 and correspondingly not liable to tax only at
the rate of 4%. When this matter was carried all the way to the
highest court of the land, the Supreme Court, after relying upon
another judgment of the Andhra Pradesh High Court in the case of
Deccan Engineers v/s State of Andhra Pradesh [1992 Vol.84
S.T.C. 92 (AP)] came to the conclusion that the words 'cast iron'
were different from 'cast iron castings' manufactured by the
Appellant. The Supreme Court came to a categorical finding that
the products manufactured by the Appellant, in common
commercial parlance, were different and distinct from the 'cast
iron' from which they were manufactured. The relevant portion of
the aforesaid decision is set out at paragraph 6 (of SCC Report)
and reads as under:-
"6. It is thus clear that 'cast iron' is different from 'cast iron
castings' manufactured by the appellant. 'Cast iron' is purchased
by the appellant and from that 'cast iron', he manufactures
several goods like manhole covers, bends, cast iron pipes, etc. In
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other words, 'cast iron' used in Item (iv) of Section 14 of the
Central Act is the material out of which the petitioners products
are manufactured. Position remains the same, even if the
appellant purchases iron and mixes it with carbon and silicon
thereby deriving 'cast iron' and then pours it into different
moulds. In sum, 'cast iron' is different from the cast iron pipes,
manhole covers, bends etc. manufactured and sold by the
appellant. It cannot be denied, in such a situation that the
products manufactured by the appellant are, in commercial
parlance, different and distinct goods from the cast iron. Indeed
this aspect is not seriously disputed by Shri Ganguli, the learned
counsel for the appellant. His case is entirely based upon certain
clarifications and circulars issued both by the Central and State
Governments and in particular upon an order issued by the
Andhra Pradesh Government under Section 42(2) of the A.P. Act
namely G.O.Ms. No. 383 dated April 17, 1985. It is, therefore,
necessary to refer to them."
(emphasis supplied)
14. What can be discerned from the aforesaid decision is
that the products manufactured by Bengal Iron Corporation
though called 'cast iron castings' were different from the words
'cast iron' and were in fact different and distinct goods from 'cast
iron' being manufactured and sold in the market. It is in this
factual scenario that the Supreme Court opined that 'cast iron
castings' manufactured by the Appellant were different from 'cast
iron' as appearing in the relevant Entry under section 14 of the
Central Sales Tax Act, 1956 as also in Schedule III of the Andhra
Pradesh General Sales Tax Act, 1957.
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15. As far as the decision of the Supreme Court in
Vasantham Foundry2 is concerned, it was the case of the
Appellant therein that the basic materials for producing 'cast iron'
were pig iron, steel scrap, iron scrap, cast iron scrap etc. After
melting these raw materials and adding the requisite quantity of
carbon, silica etc., the molten metal in the cupola furnace was
poured into moulds of different specifications to get the 'cast iron
castings' as required by the end users. The foundry owners like
the Appellant manufactured these rough 'cast iron castings'
according to the specifications of their customers, who in turn,
after putting them through various other processes like
machining, grinding, polishing etc., manufactured final products
like manhole covers, pipes, components, agricultural implements
etc. It was the argument of the Appellant that the proposition laid
down Bengal Iron Corporation's case1 was that if agricultural
implements or of parts of motor vehicles or manhole covers, bends
or cast iron pipes etc were being produced, they could not be
treated as 'cast iron' but would have to be treated as finished
goods made of 'cast iron'. In other words, it was argued in
Vasantham Foundry's case2 that if in a given case, it is found that
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the products / goods manufactured from 'cast iron' are finished
goods, it is only in those circumstances that the ratio of Bengal
Iron Corporation's case1 would apply. If 'cast iron castings' in its
raw form and at its preliminary stage are manufactured, they
would fall within the words 'cast iron' exigible to tax at 4%. In this
light, it was argued by the Appellant that the judgment of the
Supreme Court in the case of Bengal Iron Corporation1 was being
misconstrued and misunderstood by all the States' Revenue
Authorities. After considering its decision in Bengal Iron
Corporation1 and upholding this contention, the Supreme Court at
paragraphs 15, 16 and 17 (of the SCC report) held thus:-
"15. In our judgment, this contention must be upheld. When
Section 14 declared certain goods as of special importance in
inter-State trade or commerce, it could not have the molten metal
in contemplation. It is nobody's case that the molten metal is
bought and sold in the market. What is bought and sold is cast
iron, which is obtained by pouring molten metal in the moulds.
The moulds may be of various shapes or sizes, but the type or
nature or the size of the mould will not decide the question
whether the end product will be 'cast iron' or not. Cast iron has
to be in some shape, whether as a bar, as a billet or in some
other form. The molten metal has to be poured into some mould
to obtain 'cast iron' so that it can be traded, transported and
used in obtaining finished goods out of it. It is not the shape of
this rough mould that is determinative of the issue. What is
determinative is whether it is a finished product or only a rough
mould to be used in manufacturing finished products. The fact
that the rough mould approximates in shape to the finished goods
that will be ultimately made out of it does not make it any the less
a rough mould. What emerges from the moulds is a cast iron
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casting in its primary form, that is to say, rough cast iron casting.
But, that will not take it out of the ambit of declared goods. If cast
iron or cast iron casting in the primary form is not to be treated
as declared goods, then the whole purpose of including cast iron
in the list of declared goods will be defeated.
16. The Central Sales Tax Act imposed a levy of tax on sale or
purchase of goods that takes place in course of inter-State trade
or commerce. "Declared goods" and 'goods' have been defined
in sub-sections (c) and (d) of Section 2 of the Act:
"2.
(c)
'declared
goods'
means
goods
declared
under
Section
to
be
of
special
importance
in
inter--‐State
trade
or
commerce;
(d)
'goods'
includes
all
materials,
articles,
commodities
and
all
other
kinds
of
movable
property,
but
does
not
include
newspapers,
actionable
claims,
stocks,
shares
and
securities;"
17. By including 'cast iron' among the goods of special
importance in inter-State trade or commerce, the legislature
could not have given the phrase 'cast iron' a narrow and limited
meaning so as to exclude everything made out of cast iron in
molten form. Only some of the goods which are dealt with in
inter-State trade or commerce, have been declared as goods of
special importance. On these goods tax can be levied only at one
point and the rate of tax will not exceed 4% of its price. It is not
conceivable that molten metal can be sold or purchased in course
of inter-State trade or for that matter even in course of intra-
State sale or purchase. Assuming for argument's sake that a
quantity of molten metal can be purchased by a customer, it can
only be delivered by a foundry in a container. The molten metal
will solidify on cooling and acquire the shape and size of the
container. In other words, the molten metal will become rough
cast iron casting. Similarly, if the molten metal is delivered in
moulds, it will acquire the size and shape of the moulds as soon
as it cools down. It is nobody's case that it is the molten metal
which is dealt with in inter-State trade or commerce. When the
Central Government declared cast iron as goods of special
importance in inter-State trade or commerce, it must have in
contemplation some commodity which is actually traded in inter-
State trade or commerce. If rough cast iron castings are treated
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as something distinct and separate from cast iron, the purpose
behind Sections 14 and 15 will be defeated."
(emphasis supplied)
16. On perusing both the aforesaid judgments of the
Supreme Court, what is clear is that there is no conflict between
the two. They both operate in different fields. In Bengal Iron
Corporation's case1, it is held that goods manufactured from 'cast
iron' and which are finished products / goods, would not fall within
the words 'cast iron' and would be exigible to sales tax as general
goods. On the other hand, in Vasantham Foundry's case2, the
Supreme Court has held that raw 'cast iron castings' (and which
require some further processes by the purchaser before they are
put to use), would be included in the words 'cast iron' and would
therefore be exigible to tax at 4%. To put it simply, if cast iron
castings are in the raw form, it would be exigible to tax at 4%,
whereas if they culminate into finished goods they would exigible
to tax as general goods under the respective sales tax legislations.
17. Having noted this distinction, we would now have to
examine which one applies in the present case. It is not disputed
that the Respondent herein is purchasing non-ferrous metal ingots
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and are manufacturing primary and unfinished non-ferrous
castings (aluminum castings). The MSTT, at paragraph 22 of its
order dated 13th June, 1997 has categorically held that this fact
has been proved by the Respondent herein. Whilst coming to this
finding, the MSTT has relied upon several Certificates issued,
including the ones from M/s Telco Ltd. as well as M/s Premier
Automobiles Ltd. The Certificate issued by M/s Telco Ltd. dated
30th October, 1994 reads as under:-
"We state that the raw castings being procured by us from M/s
Jayahind Industries Ltd. are subjected to extensive machining
such as milling, drilling, tapping etc. at our end, before they are
further used in the manufacture of our motor vehicle/chassis."
(emphasis supplied)
Similarly, the Certificate dated 17th October, 1994
from M/s Premier Automobiles Ltd. reads thus:-
"This is to certify that the various types of raw castings
manufactured and supplied by M/s Jaya Hind Industries Ltd.,
Pune to us are being further processed at our end for carrying
out various operations viz. drilling, milling, tapping etc. and
thereafter used in the manufacture of our make cars."
(emphasis supplied)
18. From these Certificates it will be amply clear that what
is manufactured by the Respondent herein is very much in the
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raw, unfinished and primary form and are not finished goods.
These findings of fact have been arrived at by the MSTT after
taking into consideration all the material placed before it and we
do not think that these findings are in any way perverse and/or
contrary to the record. Further it is not even the case of the
Applicant - Revenue that these Certificates are unreliable and
therefore the MSTT was in error in placing reliance thereon. To be
fair to Mr. Sonpal, he did not even urge such an argument.
19. In view of this factual position, we find that the
reliance placed by Mr Joshi on the decision of the Supreme Court
in Vasantham Foundry's case2 is well founded. We find that the
aluminum castings manufactured and sold by the Respondent
herein to the automobile industry, are in its raw, unfinished and
primary form which require further processes such as milling,
drilling, tapping etc. by the purchaser before they are used in the
manufacture of their motor vehicles / chassis. This being the case,
we find that the ratio of the Supreme Court in the case of
Vasantham Foundry2 would apply with full force and accordingly,
the raw aluminum castings manufactured by the Respondent
herein would fall within Entry C-I-29 of the Bombay Sales Tax Act,
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1959 and not within the residual Entry C-II-102.
20. Having said this, we must now deal the argument of Mr
Sonpal, that the word 'castings' is not found in Entry C-I-29
appended to the Bombay Sales Tax Act, 1959 and therefore the
raw aluminum castings manufactured by the Respondent cannot
be classified under Entry C-I-29. This aspect of the matter has
been elaborately dealt with by the MSTT in paragraphs 29 to 31 of
its order and judgment dated 13th June, 1997. After relying upon
several dictionary meanings of the terms 'castings' and 'ingots' as
well as relying upon its earlier decision in the case of Ceepla
Industries v/s State of Maharashtra (Second Appeal No.3 of 1991
dated 20th December 1991), the MSTT has come to the conclusion
that 'casting' is nothing but an 'ingot' of a particular shape and
that the generic term 'ingot' includes a mass of a particular shape
and size.
21. We have carefully perused the aforesaid findings of the
MSTT and we are in full agreement with the same. In this view of
the matter, we are unable to agree with the argument of Mr Sonpal
that merely because the word 'castings' is not found in Entry C-I-
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29, the raw aluminum castings manufactured by the Respondent
cannot fall within the aforesaid Entry. In any event, we do not
think that the findings rendered by the MSTT on this aspect can
by any stretch of the imagination be termed as perverse or
suffering from any patent illegality giving rise to any substantial
question of law that would persuade us to take a different view.
22. In view of our discussion earlier in this judgment, both
the questions of law referred to this Court and set out in
paragraph 1 above, are answered in the affirmative and in favour
of the Respondent. The Sales Tax Reference is disposed of in the
aforesaid terms. However, in the facts and circumstances of the
case, there shall be no order as to costs.
(B.P. COLABAWALLA, J.) (S.C.DHARMADHIKARI J.)
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