K.A.C. Trading Corporation vs The State of Tamil Nadu

Balasubrahmanyan, J.—In this appeal from the order of the Board of Revenue, the question relates to single point taxation under entry 4(b)

and (d)(ii) of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959, before its amendment by Act 39 of 1973. Iron plates and

steel plates are admittedly single point items. The assessee in this case sold sheet cuttings and plate cuttings in the course of its business. It is not

quite clear whether the sheet cuttings and plate cuttings are out of steel plates or iron plates. But the assessee''s contention before the assessing

authority was that in either case they were not liable for multi-point sales tax. It was urged that the assessee had sold the iron and steel plates in the

same form in which they were directly produced by the rolling mill.

The assessing authority, however, did not accept these contentions. The assessing authority held that the goods sold by the assessee were

taxable at multi-point. The crucial findings of the assessing authority are as under :

Their contention that the goods are sold in the same form in which they are purchased in the rolling mills is not acceptable. They have also not

proved their contention. Sheet cuttings or plate cuttings are not produced in the rolling mills as cuttings. Cuttings are made only after the purchase

of sheets from rolling mills. So it cannot be said that the plate cuttings and sheet cuttings are the same form as produced by the rolling mills.

However, this assessment by the assessing authority was set aside by the Appellate Assistant Commissioner in appeal. The Appellate Assistant

Commissioner treated the plate and sheet cuttings dealt in by the assessee as falling under entry 4 of the Second Schedule and since they were

second sales by the assessee, granted exemption on the disputed turnover of Rs. 49,644.59.

The order of the Appellate Assistant Commissioner was called for by the Board of Revenue for scrutiny. The Board took the view that the

exemption granted by the Appellate Assistant Commissioner to the turnover in question as second sales was not justified. According to the Board,

once the plates were cut into smaller pieces, they cannot be said to retain the form in which they were directly produced by the rolling mill. In this

view, the Board set aside the order of the Appellate Assistant Commissioner and restored the order of assessment.

In this appeal by the assessee, it is submitted by its learned counsel that notwithstanding the fact that the iron and steel sheets which were

produced by the rolling mills were thereafter cut into pieces and sold by the assessee, there was no resultant change in the form of iron and steel

plates, but they still retained the same form in which they were directly produced by the rolling mills. It was urged that the mere act of cutting the

products from the rolling mills into smaller pieces cannot change either the identity of the goods or their nature as the same commercial product.

We are disposed to accept this submission of the assessee as well-founded. As a matter of construction, we must give a natural meaning and not

a strained meaning to the words ""sold in the same form in which they are directly produced by the rolling mill"", which qualify both the sub-items

iron plates"" and ""steel plates"" occurring in entry 4 of the Second Schedule. We must also construe the expression consistent with the scheme of

single point taxation espoused in the Second Schedule. According to the Supreme Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and

Others, , the object of single point taxation under the Second Schedule to the Tamil Nadu General Sales Tax Act was ""to tax sales of goods of

each variety and not the sale of the substance out of which they are made"". Elaborating on this theme, the Supreme Court observed as under :

Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are merely

joined together, they may remain commercially the goods which cannot be taxed again, in a series of sales, so long as they retain their identity as

goods of a particular type.

The above passage from the judgment of the Supreme Court shows that it would be a matter of indifference for entry 4 or any other entry in the

Second Schedule if two articles of the same type falling under the same entry are merely joined together for the process of joining does not make

for a different commercial commodity so as to subject it to multiple taxation. What we have in the present case is a fortiori case. It is simply the

opposite process of iron and steel plates being cut into smaller sizes. In our view, therefore, the process of sizing or subdividing iron and steel

plates does not make for a commodity different in form from iron and steel plates rolling down from the assembly line of a rolling mill.

We have adopted the construction of entry 4 in the Second Schedule following the approach of the Supreme Court, which, with respect, we

regard as one of substance. Even if we address ourselves strictly to the qualifying words of entry 4 in the Second Schedule, namely, ""the same

form in which they are directly produced by the rolling mill"", we arrive at the same result. In our opinion, cutting iron plates and steel plates into

smaller sizes may involve a change in the size, but not change in the form. Even on a strict adherence to the language of entry, therefore, we must

differ from the views expressed by the assessing authority and the Board of Revenue.

The learned Government Pleader cited before us a decision of the Orissa High Court in Alguram Harinarayan Ram v. Assistant Commissioner

of Sales Tax [1971] 27 STC 385. In that case a Division Bench of the Orissa High Court had had to construe the expression ""Iron plates sold in

the same form in which they are directly produced by the rolling mill"" occurring in a notification issued by the Orissa Government under the Orissa

Sales Tax Act, 1947. The question before the learned Judges was whether B.P. sheets produced by the rolling mills, when cut into smaller sizes by

the assessee can yet be regarded as retaining the same form in which they were directly produced by the rolling mills. The learned Judges

expressed the view that once the plates were cut into pieces they cannot be said to retain the same form in which they were directly produced by

the rolling mills. According to the learned Judges, the expression ""form"" used in the relevant notification must carry a wide meaning so as to include

any ""shape or configuration"".

We do not agree with the view expressed by the Orissa High Court on the construction of the phrase ""form"" occurring in the single point entry.

We would prefer, on the contrary, to rely on an observation of a Bench of this Court in Arkay''s National Engineering and Foundry Co. v. State of

Tamil Nadu [1980] 46 STC 394 in which it was said : ""Merely because the goods undergo the process of cutting, it may not follow that the goods

have lost their identity."" This observation was made in the context of an enquiry by the Division Bench, whether mere steel scraps which were left

over as leavings and shavings in the manufacturing must of a dealer can be said to retain the same form in which the goods came out of the steel

rolling mills, within the meaning of entry 4(c) of the Second Schedule to the Act. While holding that the scrap in its very nature being the bye-

product or industrial waste of a steel goods manufacturing unit was a different commercial commodity and cannot be said to retain the same form in

which iron and steel articles have come out of the rolling mills, the learned Judges, however, took care to point out, in the passage we have earlier

quoted that the mere process of cutting the iron and steel goods may not make for a change in the identity of the goods or the form in which those

goods were produced by the rolling mills.

State of Tamil Nadu Vs. Pyare Lal Malhotra and Others,

The learned Government Pleader cited an earlier decision of a Division Bench of this Court in State of Tamil Nadu v. Syam Steel Rolling Mills

(P.) Ltd. [1977] 40 STC 156 as containing observations in support of the view expressed by the Board in this case. Having read through the said

decision, we do not think that any different note has been struck by the learned Judges in that case from that expressed either by the Supreme

Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others, or by this Court in the subsequent case of Arkay''s National Engineering and

Foundry Co. v. State of Tamil Nadu [1980] 46 STC 394. As a matter of fact, the learned Judges of this Court in the decision cited by the

Government Pleader while restating the ruling of the Supreme Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others, relied on the self-

same passage in the Supreme Court''s decision which we have quoted earlier in this judgment.

For all the above reasons, we hold that the order passed by the Appellate Assistant Commissioner was the right one and the Board of

Revenue was not justified in reversing that order. We accordingly allow the appeal, set aside the Board''s order, and restore that of the Appellate

Assistant Commissioner. The appellant will have its costs from the State. Counsel''s fee Rs. 250.