*THE HON’BLE SRI JUSTICE V.V.S.RAO AND * THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN + T.R.C.Nos.198, 201 & 205 OF 1988 AND 15 & 133 OF 1998 T.R.C.Nos.198 of 1988: % Dated 23-02-2011 # M/s. Nuclear Fuel Complex, Hyderabad …. Petitioner Vs. $ State of Andhra Pradesh rep., by the State rep., before the Sales Tax Appellate Tribunal, Hyderabad. …. Respondent ! Counsel for the Petitioner: Sri R.S. Murthy ^ Counsel for the Respondent: Govt. Pleader for Taxes <GIST: > HEAD NOTE: [1] (1983) 54 STC 88 2 1993(88) STC 374 3 1992 (86) STC 1 4 1992(193) ITR 281 (SC) 5 (2008) 3 SCC 582 6 (2008) 8 SCC 369 7 (2005) 2 SCC 460 8 (1994) Supp(3) SCC 122 9 (1981)2 SCC 528 10 (1992) Supp(1) SCC 298 11 (1971) 3 SCC 550 12 (1988) 2 SCC 470 13 (1986)1 SCC 23 14 (1979)1 SCC 82 15 (1986) 3 SCC 480 16 (1985) 22 ELT 3 17 (1996)2 SCC 449 18 (1961) Vol. 12 STC 590 19 (1976) 37 STC 319(SC) 20 AIR 2000 SC 1578 21 (2005) 3 SCC 30 22 AIR 1946 Bom 216 23 AIR 1993 SC 406 24 AIR 1977 SC 988 25 (2010) 32 VST 533 (All) 26 (1966) 17 STC 170 (SC) 27 [1958] 9 STC 353 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN T.R.C.Nos.198, 201 & 205 OF 1988 AND 15 & 133 OF 1998 COMMON ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) TRC. No.198 of 1988 & BATCH: TRC Nos.198, 201 and 205 of 1988 are filed by M/s Nuclear Fuel Complex, Hyderabad, (hereinafter called “NFC”), against the order of the Sales Tax Appellate Tribunal (STAT) in T.A.Nos.1054, 1064 and 1060 of 1987. They arise under the APGST Act, and relate to the assessment years 1981-82; 1982-83 and 1980-81 respectively. The questions which arose for consideration, before the STAT, included “whether stainless steel tubes, seamless stainless steel tubes, stainless steel ball bearing tubes and stainless steel scrap fell under item 54 of the First Schedule or item 2 of the III Schedule to the APGST Act”. The petitioner, a unit of the Department of Atomic Energy, Government of India, manufactures and sells special material plant products of stainless steel, ball bearings steel tubes, etc. For the aforesaid assessment years, they were assessed to tax at 6% under Section 5(2) of the APGST Act, (hereinafter called the “Act”), read with Entry 54 of the First Schedule thereto. The petitioner contended that the stainless steel tubes, seamless stainless steel tubes, stainless steel ball bearing tubes and stainless steel scrap sold by them fell under item 2 of the III Schedule, and levy of tax at 6% was illegal. In its order, impugned before us, the STAT noted that the goods, specified in the III Schedule to the Act, were goods of special importance in inter-state trade or commerce as declared under Section 14 of the CST Act; the rate of tax, prescribed under item 2 of the III Schedule of the Act, was 4% in view of the restrictions imposed under Section 15 of the CST Act; the Government had clarified, in its communication dated 12.05.1958, that stainless steel came under the category of ‘tool alloy’; Sri K. Chaturvedi in his book “Central Sales Tax Laws”, had stated that, ordinarily, tool alloys were steel mixed with other metals from which tools were, generally, made; in the “Dictionary of Technical terms, by Fredric Swing, stainless steel was described as “an alloy steel containing a high percentage of chromium with the addition some times of nickel and copper”; the Government of India had again clarified, in its circular dated 17.11.1976, that stainless steel sheet was a type of alloy steel and was covered by sub-item (ix) of Section 14(4) of the CST Act; thereafter Entry 54 of the First Schedule to the Act was amended deleting the words “stainless steel” and, subsequent to the amendment, the said Entry read “Articles of stainless steel”; Entry 2(ix), therefore, took within its fold “Stainless Steel”; stainless steel, in its raw form, fell within item 2(ix) of the III Schedule; stainless steel tubes, seamless stainless steel tubes and stainless steel ball bearing tubes were products made out of stainless steel; the description of Entry 2(ix) of the III Schedule did not take within its fold products made out of stainless steel; the goods in question were products made out of stainless steel, and did not fall within Entry 2(ix) of the III Schedule; Entry 2 of the III Schedule, mainly, dealt with “iron and steel”, and what was included in sub-item (xi) were “steel tubes”; seamless stainless steel tubes did not fall within the ambit of that Entry; the Madras High Court, in R.R. Manufacturers v. Board of Revenue[1], had held that wires made out of stainless steel should be treated as “articles of stainless steel”; and, therefore, seamless stainless steel tubes and stainless steel ball bearing tubes were also articles of stainless steel within the meaning of Entry 54 of the First Schedule to the Act. T.R.C. Nos.133 AND 15 OF 1998: T.R.C. Nos.133 and 15 of 1998 are preferred by the Revenue against the order of the STAT in T.A.Nos.279 and 280 of 1994 respectively. A similar question, as in T.A. No.1054 of 1987 and batch, arose for consideration in T.A. No.279 and 280 of 1994. The other question was whether supply of goods, to various units of the Department of Atomic Energy in other States, amounted to inter-state sales or stock transfers. On the question of supply of goods to other units of the Department of Atomic Energy, the STAT noted that NFC was one of the units of the Department of Atomic Energy, Government of India under the control of the Prime Minister; those units, to which NFC supplied goods, were units of the Department of Atomic Energy engaged in different kinds of activities in research and other works; NFC effected supply of goods to other units as per the requirements specified in the letter addressed to them from time to time; NFC was a registered dealer engaged in effecting sale of similar goods to others also, and was paying tax under the CST Act as well as under the Act; such sales were effected accepting quotations and issuing invoices; while effecting stock transfers to other units of the Department of Atomic Energy also, NFC had inadvertently utilized the same proforma for issuing invoices and delivery challans etc; these invoices, in the prescribed proforma, were prepared only for the purpose of recording entries in the books, and there was no payment made by other units for the stock transfer of such goods; the proceeds were credited to the Consolidated Fund of India by way of book adjustment under the relevant head; and such a procedure was followed only for the purpose of evaluating production in each unit. The STAT held that, on account of issuing such invoices in such proformas, the transactions could not be treated as sales; and there was no relationship of seller and buyer as there was no element of “sale” between different units of the same department. The STAT relied on a Division bench judgment of this Court in K.C.P. Limited (Ramakrishna Cements) v. State of Andhra Pradesh[2], and the judgments of other High Courts, to hold that transfer of goods effected by NFC to other units of the Department of Atomic Energy could not be treated as “sale”; the disputed transactions were only stock transfers to other units; and such transactions could not be treated as inter-state sales for being assessed to tax under the CST Act. On the question, whether sale of seamless stainless steel tubes and stainless steel ball bearing tubes within the State fell within the ambit of Entry 2(xi) of the III Schedule or Entry 54 of the I Schedule to the Act, the STAT held that the Deputy Commissioner had treated the goods as falling under Entry 54 of the first Schedule mainly in view of the earlier decision of the STAT in T.A. No.1054 of 1987 and batch dated 21.01.1988, and in view of the decision of the Madras High Court in R.R. Manufacturers1; the said decision of the Madras High Court in R.R. Manufacturers1 was held to be no longer good law by the Madras High Court in Hindustan Wires Limited v. State of Tamilnadu[3] in the light of the judgment of the Supreme Court in Commissioner of Income-tax v. Krishna Copper and Steel Rolling Mills[4]; the Madras High Court, in Hindustan Wires Ltd3, had held that the words “iron and steel” mentioned in the main item included all kinds of steel, like alloy steel etc., and, if “iron and steel” occurring in the main item included non-alloy steel and alloy steel including stainless steel, the same construction should be placed on sub-items (xi) and (xv) also. The STAT, while noting the contention of the Revenue, that in view of sub-item (ix) the expression “alloy and special steel” applied only to sub-item (i) to (viii) and not to sub-item (x) to (xvi), observed that the Madras High Court, in Hindustan Wires Ltd3, had rejected a similar contention, and had held that one sub-item could not be construed with the aid of another sub-item to restrict the scope of a sub-item; the main item should be looked into for understanding the sub-items; and, when it was so done, there was no difficulty in holding that the “goods” fell under Entry 4 of the II Schedule to the Tamilnadu General Sales Tax Act, which was similar to Entry 2 of the III Schedule to the Act. In view of the decision of the Madras High Court, in Hindustan Wires Ltd3, the STAT held that the view expressed by it, in its earlier decision in T.A. No.1054 of 1987 and batch dated 21.01.1988, and the view expressed in the earlier decision of the Madras High Court in R.R. Manufacturers1 could not be followed as the view did not represent the correct position of law. The STAT further held that stainless steel tubes and stainless steel ball bearing tubes were sold in lengths, and such tubes were used for other stainless steel articles which alone should be considered as falling under Entry 54 of the First Schedule, but not the tubes which were sold by NFC; and such view also found favour with the Madras High Court in Hindustan Wires Ltd3. The STAT concluded that seamless stainless steel tubes, and stainless steel ball bearing tubes, were to be considered only as falling under Entry 2(xi) of the III Schedule, and not as “articles of stainless steel” falling under Entry 54 of the First Schedule to the Act. Sri R.S. Murthy, Learned Counsel for NFC, would submit that “stainless steel” is an alloy of iron and steel and would fall within the main item “iron and steel”; steel tubes, referred to in sub-item (xi) of Entry 2 of the III Schedule included stainless steel tubes and seamless stainless steel tubes also; and, as such, the goods sold by NFC ie., “stainless steel tubes, seamless stainless steel tubes, stainless steel ball bearing tubes and stainless steel scrap” fell under Entry 2 (xi) of the Third Schedule to the Act. On the other hand, Sri A.V.Krishna Koundinya, Learned Special Standing Counsel for Commercial Taxes, would submit that Entry 2(xi) of the Third Schedule is not the relevant Entry, and it is under Entry 54 of the First Schedule that the goods, sold by NFC, should be classified. It is necessary, therefore, to first examine whether or not the goods in question fall within Entry 2 (xi) of the Third Schedule to the Act. Interpretation of an Entry, under the Tax Laws, is a quasi- judicial function. (State of Kerala v. Kurian Abraham (P) Ltd.[5]). While interpreting an Entry, the Court’s role is to consider its effect after examining it from different angles. (Ponds India Ltd. v. CTT[6]). Neither can one single universal test be applied nor can there be a static parameter for proper classification. Functional utility, design, shape and predominant usage have also to be taken into account while determining the classification of an item. (O.K. Play (India) Ltd. v. CCE[7]; A. Nagaraju Bros. v. State of A.P[8]). Different tests are laid down for interpretation of an entry in a taxing statute namely, dictionary meaning, technical meaning, user’s point of view, popular meaning, etc. (Ponds India Ltd.6). In interpreting Entries in a Sales Tax Act, resort should be had not to the scientific and technical meaning of the terms or expressions used, but to their popular meaning i.e., the meaning attached to them by those dealing in them. (Indo International Industries v. CST[9]; Shri Bharuch Coconut Trading Co. v. Municipal Corpn., Ahmedabad[10]; Ponds India Ltd.6). Where the definition of a word has not been given, it must be construed in its popular sense, that sense which people conversant with the subject- matter, with which the statute is dealing, would attribute to it. (CIT v. Taj Mahal Hotel[11]; Asian Paints India Ltd. v. CCE[12]; Ponds India Ltd.6). The test commonly applied to such cases is: How is the product identified by the class or section of people dealing with or using the product? That is a test which is attracted whenever the Statute does not contain any definition. It is, generally, by its functional character that a product is so identified. (CST, U.P. v. Macneill & Barry Ltd.[13]; Porritts and Spencer (Asia) Ltd. v. State of Haryana[14]; Atul Glass Industries (P) Ltd. v. CCE[15]). In determining the meaning or connotation of words and expressions describing an article or commodity, the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well settled it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it, and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted. (Geep Flashlight Industries Ltd. v. Union of India[16]; Atul Glass Industries (P) Ltd.15; Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan[17]). Entry 54 of the First Schedule to the Act, as it stood at the relevant time, read as “Articles of Stainless Steel”. Likewise Entry -2 of the third Schedule to the Act, (i.e., declared goods in respect of which a single point tax only is leviable under Section 6 of the Act), read as under: S.No. Description of goods Point of levy Rate of tax 2 Iron and steel, that is to say:- (i) Pig iron (Sponge Iron) and cast iron including ingot moulds, and bottom plates; (ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes); (iii) skelp bars, tin bars, sheet bars, hoe-bars and sleeper bars; (iv) steel bars (rounds, rods, squares, flats, octagons and hexagons; plain and ribbed or twisted, in coil form as well as straight length); (v) steel structurals (angles, joists, channels, tees, sheet pilling sections, Z sections or any other rolled sections) (vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated in all qualities, in straight lengths and in coil form as rolled and in revitted condition; (vii) plates, both plain and chequered in all qualities; (viii) discs, rings, forgings and steel castings; (ix) tool, alloy and special steels of any of the above categories; (x) Omitted (xi) steel tubes, both welded and seamless, of all diameters and lengths including tube fittings; (xii) tin-plates, both hot dipped and electrolytic and tin free plats; (xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing At every point o f sale in the State 4 paise in the rupee plates, crossing sleepers and pressed steel sleepers, rails- heavy and light crane rails; (xiv) wheels, tyres, axles and wheel sets; (xv) wire rods and wires rolled, drawn, galvanised, aluminized, tinned or coated such as by copper; (xvi) …omitted… Entry 2 of the Third Schedule to the Act is similar to Section 14 (iv) of the Central Sales Tax Act, (CST Act for short), after its amendment by Act 61/1972 with effect from 1.4.1973. Before its amendment by Act 61/1972, Section 14(iv) of the CST Act read as under: “(iv) iron and steel, that is to say- (a) Pig iron and iron scrap; (b) Iron plates sold in the same from in which they are directly produced by the rolling mill; (c) Steel scrap, steel ingots, steel billets, steel bars and rods; (d) (i) steel plates (ii) steel sheets (iii) sheet bars and tin bars, (iv) rolled steel sections (v) tool alloy steel Sold in the same form which they are directly produced by the rolling mill” The scope of the pre-amended Section 14(iv) of the CST Act fell for consideration before the Punjab and Haryana High Court in Devgun Iron and Steel Rolling Mills, Gobindgarh v. The State of Punjab[18]. The petitioners therein purchased steel and rolled it into rolled steel sections. They claimed that the process of rolling steel into rolled steel sections was not a process of manufacture; this process amounted to no more than making the steel to be a more marketable commodity as such; and the nature and character of the commodity did not undergo any alteration. It is in this context that the Division Bench held:- “......In Section 14 of the Central Sales Tax Act, (No. 74 of 1956) Clause (iv) deals with "iron and steel" as one of the goods declared of special importance in inter-State trade or commerce, and under this clause there are four heads, of which head (a) relates to pig iron and iron scrap, head (c) to steel scrap, steel ingots, steel billets, steel bars and rods, and head (d) (iv) to rolled steel sections sold in the same form in which they are directly produced by the rolling mills. It is clear that rolled steel sections are treated as a separate commodity as against the raw material dealt with in heads (a) and (c) of this clause. At the hearing what was stated was that the petitioners purchased iron scrap or steel scrap and then rolled the same into rolled steel sections. In the petitions it is not made so clear. It is obvious that when the raw material of iron or steel that the petitioners purchase and rolling the same turn into rolled steel sections, the outcome, that is to say, the rolled steel sections, is a new commodity, the result of the process of manufacture by steel having been rolled into that commodity.........” (emphasis supplied). The aforesaid judgment of the Punjab and Haryana High Court was approved by the Supreme Court in State of Tamil Nadu v. Pyare Lal Malhotra[19]. Though the scope of the pre-amended Section 14(iv) of the CST Act arose for consideration before it, the amended Section 14(iv) of the CST Act, (which is similar to Entry 2 of the Third Schedule to the Act), was also noted by the Supreme Court in Pyare Lal Malhotra19. The question which fell for determination therein was whether manufactured goods, said to consist of “steel rounds, flats, angles, plates, bars” or similar goods in other forms and shapes, could be taxed again if the material out of which they were made had already been subjected to sales tax once as iron and steel scrap, as both goods were “iron and steel”. The Supreme Court observed:- “……..The ordinary meaning to be assigned to a taxable item in a list of specified items is that each item so specified is considered as a separately taxable item for purposes of single point taxation in a series of sales unless the contrary is shown. Some confusion has arisen because the separate items are all listed under one heading : "iron and steel"…….. ……..If the object was to make iron and steel taxable as a substance, the entry could have been: "Goods of iron and steel". Perhaps even this would not have been clear enough. The entry, to clearly have that meaning, would have to be: "Iron and steel irrespective of change of form or shape or character of goods made out of them". This is the very unusual meaning which the respondents would like us to adopt. If that was the meaning, sales tax law itself would undergo a change from being a law which normally taxes sales of "goods" to a law which taxes sales of substances out of which goods are made. We, however, prefer the more natural and normal interpretation which follows plainly from the fact of separate specification and numbering of each item. This means that each item so specified forms a separate species for each series of sales although they may all belong to the genus : "iron and steel". Hence, if iron and steel "plates" are melted and converted into "wire" and then sold in the market, such wire would only be taxable once so long as it retains its identity as commercial goods belonging to the category "wire" made of either iron or steel. The mere fact that the substance or raw material out of which it is made has also been taxed in some other form, when it was sold as a separate commercial commodity, would make no difference for purposes of the law of sales tax. The object appears to us to be to tax sales of goods of each variety and not the sale of the substance out of which they are made……….. As we all know, sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax. 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. ……..In the cases before us now, the object of single point taxation is the commercial commodities and not the substance out of which it is made. Each commercial commodity here becomes a separate object of taxation in a series of sales of that commercial commodity so long as it retains its identity as that commodity. ……..It is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new marketable commodity, is the decisive test in determining whether an excise duty is leviable or not on certain goods. No doubt, in the law dealing with the sales tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, so that its sale is a new taxable event, in the sales tax law, it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of sales tax is also concerned with "goods" of various descriptions. It, therefore, becomes necessary to determine when they ceased to be goods of one taxable description and become those of a commercially different category and description…….” (emphasis supplied). The ordinary meaning to be assigned to a taxable item, in a list of specified items, is that each item so specified is considered as a separate taxable item for the purpose of single point taxation in a series of sales, unless the contrary is shown. The interpretation of separate specification and numbering of each item is that each item so specified forms a separate species for each