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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