Khandelwal Ferro Alloys Limited vs State of Andhra Pradesh

Jeevan Reddy, J.—These tax revision cases preferred by the State as well as by the assesses arise from a common judgment and order of the Sales Tax Appellate Tribunal in a batch of appeals. Three common questions fell for consideration before the Tribunal. They were :

(1) Whether the transactions in question are export sales falling under the second limb of section 5(1) of the Central Sales Tax Act ?

(2) Whether the State of Andhra Pradesh has no jurisdiction to bring the transactions to tax under the Andhra Pradesh General Sales Tax Act since they are inter-State transactions exigible to tax only by the State of Maharashtra under the Central Sales tax Act; and

(3) Whether "manganese" in entry 1 of the Second Schedule to the Andhra Pradesh General Sales Tax Act takes within its purview "ferro manganese" ?

The appeals were first heard by a Bench of the Tribunal comprising Sri M. N. Rao, Chairman, and Sri Krishnamurthy, Departmental Member. Both the Members answered questions Nos. 1 and 2 in favour of the Revenue and against the dealers; but, on question No. 3 they differed. The Chairman held that "ferro manganese" sold by the assesses to the Minerals and Metals Trading Corporation is "manganese" within the meaning of entry 1 of the Second Schedule to the Andhra Pradesh General Sales Tax Act, exigible to tax at the last point of purchase, and hence only the Minerals and Metals Trading Corporation is liable to pay the said tax, but not the dealers. The Departmental Member was, however, of the opinion that "ferro manganese" is not "manganese" and is, therefore, taxable as "general goods" u/s 5 of the Act. On this reasoning he held that the dealers are liable to pay tax u/s 5(1) of the Act. The matter was then referred to a Full Bench of three Members, comprising the original two Members and Sri. P. A. Chowdary, Accountant Member. The Accountant Member agreed with the Chairman that ferro manganese is "manganese" within the meaning of entry 1 in the Second Schedule. In view of the majority opinion, all the appeals (filed by the assesses) were allowed.

The two assesses herein, "Khandelwal Ferro Alloys Ltd.", and "Ferro Alloys Corporation" are manufacturers of ferro manganese. Ferro manganese is exported in large quantities, but its export is canalized through the Minerals and Metals Trading Corporation. The assesses sold the commodity to the Minerals and Metals Trading Corporation which, in turn, sold it to foreign buyers. The department sought to treat ferro manganese as "general goods" and sought to levy tax upon their sales u/s 5(1) of the Act. This was disputed by the dealers on the three main grounds referred to above. Though the first two contentions were negatived, as stated above, by the Tribunal, it was held by majority that ferro manganese is "manganese" within the meaning of entry 1 of the Second Schedule and, therefore, the Minerals and Metals Trading Corporation alone, being the last purchaser in the State, is liable to pay the tax. In other words, it was held that ferro manganese cannot be taxed as "general goods" u/s 5(1) of the Act. It is agreed before us by both the counsel for the assesses and the Government Pleader that if we agree with the majority opinion of the Tribunal that ferro manganese is "manganese" within the meaning of item 1 of the Second Schedule, no other question arises for consideration. We heard counsel for both the parties on the above question alone on the understanding that if we disagree with the Tribunal, we shall hear the parties on the other questions.

Section 5 of the Andhra Pradesh General Sales Tax Act is the main charging section. Sub-section (1) of section 5 says that every dealers (other than a casual trader and an agent of a non-resident dealer) whose total turnover for a year is not less than 2 lakhs (this figure has been varying from time to time) and every agent of a non-resident dealer, whatever be his turnover for a year, shall pay a tax for each year at the rate of 5 paise (this rate also has been varying from time to time; at the relevant time concerned in these cases it was 3 paisa) on every rupee of his turnover. Sub-section (2), however, says that notwithstanding anything contained in sub-section (1), tax shall be levied (a) in the case of goods mentioned in the First Schedule at the rates, and only at the point of sale specified, on the turnover of sales in each year relating to such goods, irrespective of the quantum of the turnover, and (b) in the case of goods mentioned in the Second Schedule, at the rates and only at the point of purchase specified, on the turnover of purchase in each year relating to such goods, irrespective of the quantum of turnover.

Thus, in case of goods falling in the First Schedule or the Second Schedule, tax is levied only at one point of sale or purchase, as the case may be, while in the case of goods not falling within the First, Second, Fifth and Sixth Schedules, tax will be levied at each point of sale, at the rate specified in section 5(1). Now in this case it is found by the Tribunal, agreeing with the Revenue, that ferro manganese was sold by the assesses to the Minerals and Metals Trading Corporation which in turn exported the same. The question is, whether the assessees, who sold the commodity to the Minerals and Metals Trading Corporation, are liable to pay the tax u/s 5(1) of the Act ? In other words, the question is whether ferro manganese sold by the assessees to the Minerals and Metals Trading Corporation is "manganese" within the meaning of entry 1 of the Second Schedule, which would make the Minerals and Metals Trading Corporation liable to pay tax, and not the assesses.

Entry 1 of the Second Schedule reads as follows :

"Goods in respect of which a single point purchase tax is leviable u/s 5(2)(b) :

------------------------------------------------------------------------ S. No. Description of goods Point of levy Rate of tax ------------------------------------------------------------------------ (1) (2) (3) (4) ------------------------------------------------------------------------ 1. Manganese (including At the point of 5 paise in manganese ore). (2001) purchase by the the rupee." last dealer who buys in the State. ------------------------------------------------------------------------

The opinion of the majority Members of the Tribunal is based upon the following reasoning : Manganese in its original form is rarely available; it is found compounded with other elements; manganese is used in many industries, but mostly in steel making industries; manganese in the form of "ferro Manganese" is used in steel making both in this country and abroad. According to the memo filed by the departmental representative, "to the knowledge of the department pure manganese is not assessed to tax". This shows that manganese in its pure, unadulterated form is not available, except perhaps in small quantities for testing and carrying out experiments in scientific laboratories. Mainly it is available either as "manganese ore" or as "ferro manganese", or as "silico manganese". It is difficult to believe that the legislature intended to subject an unavailable, or rarely available mineral like manganese, in the Second Schedule, to tax. The legislature''s intention obviously was to tax ferro manganese and silico manganese, which are merely different forms of manganese, or, in any event, are the forms in which manganese is generally dealt with in the market. Taking a contrary view would lead to absurd results.

On the other hand, the reasoning of the Departmental Member (minority view) runs thus : Pure manganese is not found in its natural state in the earth; only by a process of elimination of other elements is it possible to extract pure manganese; manganese ores are different from ferro manganese and silico manganese; ferro manganese is obtained when manganese ore is heated up in blast furnaces or electric furnaces with carbon or ferro silicon. In other words, a manufacturing process is employed to obtain ferro manganese which is different from pure manganese. Hence it is not correct to say that ferro manganese is "manganese", It is a different commodity; the assesses themselves have made a distinction between "manganese ore", "ferro manganese", and "ferro silicon", as would be evident from their books and particulars of turnover submitted by them. They have shown the turnover of each of these items separately. The intention of the legislature was to tax only "manganese" and "manganese ore" at a single point, but not the other products obtained from manganese. In commercial parlance, ferro manganese is understood as different from "manganese". Ferro manganese is, therefore, taxable as "general goods" u/s 5(1) of the Act.

A perusal of the Act and its Schedules would show that the object of the legislature in enacting the Andhra Pradesh General Sales Tax Act was not merely to raise the maximum revenue for the State. Raising revenue is, undoubtedly, an important objective; but not the only objective. The interests of the consumer, of commerce in particular goods, of economy, and of the dealers, all have been kept in view while enacting the Act. The idea is not to levy tax at each point of sale, which would ultimately mean more burden upon the consumer. The idea is to tax all the known goods, as far as possible, only at a single point, whether it is the point of sale, or purchase. A perusal of the First Schedule would show that in the case of several goods, not only the tax is confined to single point of sale, but it is lesser than the general rate of tax prevailing u/s 5(1), though generally speaking, the rate in the First, Second, Fifth and Sixth Schedules is higher than the rate u/s 5. By way of illustration, today the rate of tax obtaining u/s 5(1) is 5 paise is a rupee, but in the case of several goods mentioned in the First Schedule the rate of tax is less than that. For example, groundnut oil is taxed at single point of sale at 2 paise in a rupee; wheat bran is taxed at 1 paisa; bran and husk of rice at 3 paisa; poultry feed and cattle feed at 1 paisa and so on. Even in the Second Schedule there are certain goods which are taxed at a rate lower than the rate in section 5(1). For example, mica, wattle bark and other barks are taxed at 3 paisa; tamarind at 4 paise, and tapioca at 4 paise in the rupee. Fourth Schedule exempts several items of common consumption like slat, electrical energy, cotton fabrics, handloom cloth, sugar, tobacco, sugarcane, and school and college text books, from tax altogether. Third Schedule, of course, pertains to declared goods, which are declared by Parliament to be of special importance in inter-State trade and commerce and upon which tax is levied only at the first point of sale, at a rate not exceeding 4 paise in a rupee. Here also there are certain goods which are taxed at less than 4 paise. The idea appears to be to bring in as many known products as possible under one or the other item of one or the other Schedule. Attempt over the last several years has been towards expanding each of the Schedules by including more and more goods, and not the other way. Keeping the above considerations in view, we have to examine whether the legislature intended to exclude "ferro manganese" and "silico manganese" from the expression "manganese" while enacting entry 1 of the Second Schedule. Indeed, the entry as originally introduced read only as "manganese". It is only by an amendment that the words "including manganese ore" were brought in, probably because of the decision of this Court in State of Andhra Pradesh v. S. Kaithan [1967] 20 STC 409, where it was held that the expression "manganese" does not take within its fold "manganese ore" - no doubt, that was a decision dealing with an entry in the Madras General Sales Tax Act. Now it is clear from the memo filed before the Tribunal by the department itself that pure manganese is not generally sold or purchased and, that there has been no instance where the sale or purchase of pure manganese has been brought to tax. Manganese is purchased and sold in the market only in three forms, viz., "manganese ore", "ferro manganese", and "silico manganese". The entry expressly takes in only "manganese ore", but does not take in "ferro manganese" and "silico manganese". Could it be that the legislature intended to exclude ferro manganese and silico manganese, the turnover whereof is far more or at any rate, no less than the turnover relating to manganese ore, from the Second Schedule ? Since a large proportion of ferro manganese produced in this country is exported, the idea of the legislature evidently was to tax it only at one point, viz., the point of last purchase in the State. Subjecting it to multi-point tax is likely to make it less competitive in the world market. It would not be reasonable to say that while pure manganese, which is rarely sold and purchased in the market, was placed under entry 1, ferro manganese and silico manganese - which is the form in which it is mainly sold and purchased in the market - was left out. In this connection, we may refer to certain letters placed before us by the learned counsel for the assessees. The National Metallurgical Laboratory, Jamshedpur, in its letter dated 14th August, 1975 addressed to one of the assessees herein (Khandelwal) stated that manganese "is used in the iron and steel industries in the form of manganese ore, ferro manganese and silico manganese". Similarly, Visveswaraya Regional College of Engineering, Nagpur, has stated in its letter dated 18th September, 1976, addressed to Khandelwal, that "ferro manganese, silico manganese ore are different forms in which manganese additions are made in iron and steel making processes for improving the quality of the product". The letter also states that "manganese occurs in nature in forms of manganese ore, from which it is usually extracted in other useful forms, such as manganese metal, ferro manganese, silico manganese, etc. Manganese ore as well as its other useful forms described above are used in iron and steel industries, as well as in chemical industries ...........". Hindustan Steel Ltd., has stated in its letter dated 4th October, 1976, addressed to Khandelwal :

"......... Since manganese as such is not found in the natural form, it is added in the metallurgical processes in different forms. In iron making it is added in the form of manganese ore and in steel it is added in the form of ferro manganese and silico manganese. Thus, manganese ore, silico manganese and ferro manganese are the different forms of manganese addition in the metallurgical processes in iron and steel making ..........."

The above material would show that ferro manganese is only one form of "manganese".

We do not propose to say that, as a matter of law, when a particular material is mentioned in the Schedule, all its forms will automatically be included. No such generalisation can, or need be made. We are saying so in this case because manganese in its pure form is rarely sold or purchased in the market, and the legislature could not have intended to include only such a commodity as entry 1 in the Second Schedule. In this connection, it is equally relevant to notice that one of the rules of interpretation adopted by courts in interpreting such entries is to understand them in commercial parlance. In State of Andhra Pradesh v. Sri Durga Hardware Stores [1973] 32 STC 322, this Court said :

"In interpreting items contained in those entries, resort should be had not to the scientific, geological or botanical sense, but to their popular meaning, or the meaning that is attributed to them by those who are dealing in those commodities, and the meaning in which their consumers or buyers understand them......"

It is unnecessary to multiply decisions to this score. It would be sufficient to refer to the decision of the Supreme Court in Indo International Industries v. Commissioner of Sales Tax, U.P. [1981] 47 STC 359, where it was observed :

"It is well-settled that in interpreting items in statutes like the Excise Tax Acts or Sales Tax Acts, whose primary object is to raise revenue and for which purpose they classify diverse products, articles and substances, resort should be had not to the scientific and technical meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. If any term or expression has been defined in the enactment then it must be understood in the sense in which it is defined, but in the absence of any definition being given in the enactment the meaning of the term in common parlance or commercial parlance has to be adopted......"

This principle is particularly relevant in this case, where manganese in its pure or unadulterated form is hardly ever dealt with commercially. In commercial world it is dealt with either as "manganese ore", or "ferro manganese", or "silico manganese".

The learned Government Pleader for Commercial Taxes placed before us certain material on the basis of which he contended that ferro manganese, or for that matter, silico manganese is a distinct product, obtained by mixing manganese with other minerals. In Encyclopaedia Britannica, Vol. VI, at page 563, the following statement occurs under the heading "Manganese" :

"......... chemical element; gray-white, hard, brittle metal of transition Group VIIb of the periodic table, essential to steel-making ...... More than 95 per cent of the manganese produced is used in the form of ferro alloys by the metal industries, chiefly for steel manufacture. Manganese ores together with iron ores are first reduced in blast furnaces or electric furnaces with carbon or ferro silicon to yield ferro manganese, which in turn is the additive used in steel making ......... Manganese (99.9 per cent pure) produced electrolytically is used mostly in steel making but also in the preparation of non-ferrous alloys of copper, aluminium, magnesium, and the nickel-base alloys and in the production of high-purity chemicals ..........."

In "Indian Minerals Year Book, 1983" published by the Indian Bureau of Mines, Ministry of Steel and Mines, Nagpur, the following statement occurs. At page 692, under the heading "Industry - Ferro manganese" it is stated :

"During the year, there were nine major ferro manganese units with a total licensed capacity of about 3,40,000 tpa .........."

In the table given below, the names of both the assesses concerned herein are also mentioned. Thereafter, it is stated :

"Iron and steel industry is the main consumer of manganese ore. It is used either directly as blast furnace feed or in the from of ferro manganese during the steel making stage ........"

At page 684 it is stated :

"Manganese ore is an important raw material in the iron and steel metallurgy wherein it is used both in the form of ore as such and as ferro manganese. About 90-95 per cent of the world production of manganese ore is used in the metallurgy of iron and steel ...."

At page 685 it is stated :

"For the manganese ore used in ferro manganese industry, besides the manganese content, the other important considerations are the high Mn to Fe ratio and very low content of deleterious phosphorus. The specifications of manganese ore for ferro manganese according to the Indian standards Specifications No. IS : 4793 = 1968 are as below :

------------------------------------------------------------------------ Grade-1 Grade-2 Grade-3 Grade-4 (i) 48% and 46-48% Mn 44-46% Mn 40-44% Mn above Mn (ii) 7% Fe (max.) 7.5% Fe (max.) 9% Fe 12% Fe (iii) 8% S102 (max.) 9% S102 (max.) 10% S102 12% S102 (iv) 0.12% P. 0.15% P. 0.15% P. 0.15% P. .......... ------------------------------------------------------------------------ Note. - In addition, the ratio of manganese and iron should be at least 7 : 1. ............"

On the basis of the above material and the meanings assigned to the word "manganese" in English Dictionaries, it is submitted by the learned Government Pleader that "manganese" or for that matter "manganese ore" is totally distinct and different from ferro manganese. He submits that the assessees herein are industries engaged in the manufacture of ferro manganese; they obtain manganese ore, and mix certain other elements, including ferro silicon, to obtain ferro manganese. The process, it is submitted, is that "manganese ores" together with "iron ores" are first reduced in blast furnace or electric furnace with carbon or ferro silicon which, in turn, yields ferro manganese. While it cannot be said that the contention of the learned Government Pleader is without any substance, it is relevant at the same time to notice that even according to the material relied upon by the learned Government Pleader, pure manganese is hardly ever used commercially. In the manufacturing of iron, "manganese ore" is used, while in the manufacture of steel, ferro manganese is used, and ferro manganese is obtained by mixing "manganese ore" with iron and ferro silicon. Hereinbefore we have referred to the memo filed by the department that, to the knowledge of the department, pure manganese is not assessed to tax so far, which can only mean that commercially it is not dealt with. If so, the entry becomes meaningful only if we understand the expression "manganese" as including ferro manganese and silico manganese. "Manganese ore" is, of course, expressly mentioned in the entry itself. It is only in these three forms that it is dealt with in the commercial world. We are, therefore, of the opinion that the majority Members of the Tribunal were right in coming to the conclusion they did.

In this connection, we may point out that the Departmental Member (minority view) relied upon the fact that according to the books of the assessees themselves, they have treated ferro manganese as different from "manganese". But, from the Table set out in paragraph 5 of his judgment, it is evident that the assessees have treated "manganese ore" and "ferro manganese" as different articles, and showed their respective turnover separately each year. This does not mean that "manganese" was treated as different from ferro manganese. We are quite conscious that according to our reasoning, "manganese ore" would also come within the expression "manganese", which is inconsistent with the Bench decision of this Court in State of Andhra Pradesh v. S. Kaithan [1967] 20 STC 409. It is, however, unnecessary for us to deal with the reasoning of the said decision, inasmuch as the legislature has made its intention clear by amending the entry and expressly including "iron ore" within the meaning of "manganese". "Manganese ore" and "ferro manganese" are merely different forms in which manganese is used in the iron and steel making industry. That is how it is understood in the commercial world, as would be evident from the material referred to above. Mr. T. Anantha Babu contended that ferro manganese is merely a purer form of manganese ore, wherein the content of manganese is enhanced, and the content of other unnecessary elements is reduced.

For the above reasons, we hold that ferro manganese is taxable at the last point of purchase as provided in entry 1 of the Second Schedule to the Andhra Pradesh General Sales Tax Act and, therefore, the assesses herein cannot be made liable u/s 5(1) of the Act. In view of the above opinion of ours, on other question arises.

Accordingly, T.R.C. Nos. 228, 229, 232, 235, 225 and 226 of 1987 are dismissed; but without costs. T.R.C. Nos. 176 to 181 of 1986 are also dismissed since it is unnecessary to consider the other contentions.

No costs. Advocate''s fee Rs. 1,500 consolidated.