Case: State of Tamil Nadu Vs. Pyare Lal Malhotra Etc

The two Civil Appeals Nos. 58-59 of 1971 arise out of a judgment of a Division Bench of the Madras High Court dismissing two Writ Petitions filed against notices issued by a Commercial Tax officer showing institution of Sales tax assessment proceedings in respect of certain iron and steel goods for the assessment year 1965-66 in Writ Petition No. 437 of 1967 and for the assessment year 1966-67 in Writ Petition No. 520 of 1968. The High Court of Madras had certified the cases a s fit for appeal to this Court under Article 132 and 133(1)(a) and (c) of the Constitution. Although, the Writ Petitions had been dismissed on the ground that they involve an investigation into the-question of fact whether the iron and steel scrap, out of which the manufactured goods, sought to be subjected to Sales tax, had been made, were already taxed or not, yet, the State of Tamil Nadu was aggrieved by the decision of the Madras High Court holding that the manufactured goods, said to consist of "steel rounds, flats, angles, plates, bars" or similar goods in other forms and shapes, could not be taxed again if the material out of which they were made had already been subjected to sales tax once an iron and steel scrap as both we re "Iron and steel". It was possible to leave the assessing authorities free to decide all the questions which they had jurisdiction to consider. But, it appears that the Madras High Court thought it proper to decide the question as the Sales tax authorities had already adopted the view, in other cases, that such goods, though covered by the broad genus "Iron and Steel", were separately taxable commodities because each kind of "Iron and Steel" goods was a commercially different and separately taxable species or category. Moreover, this very question was also before the High Court in regular revision petitions under the Tamil Nadu Sales Tax Act (hereinafter referred to as the Tamil Nadu Act).Civil Appeals Nos. 8 80-883 of 1971 arise out of four petitions for revision under the provisions of the Tamil Nadu Act for the years 1964-65 and 1965-66, which were allowed by the Madras High Court 4 setting aside assessment orders by following its judgment an d decision mentioned above given on 24-6-1970 on Writ Petitions Nos. 437 of 1967 and 520 of 1968. The Madras High Court had also granted Certificates of fitness for appeal to this Court under Article 132 read " with Article 133(1)(a)(c) in the four cases before it on revision petitions. Hence, six cases were connected and heard together by us. The same question of law, decided by the Madras High Court on grounds contained in one judgment, under appeal in Civil Appeals Nos. 58-59 of 1971 before this Court, arise in all of them.

Court's reasoning:
It is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new market able 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 sale tax is also concerned with "goods" of various descriptions. It, therefore, become s necessary to determine when they cease to be goods of one taxable description and become those of a commercially different category and description.It appears to us that the position has been simplified by the amendment of the law, as indicated above, so that each of the categories falling under "Iron and Steel" constitutes a new species of commercial commodity more clearly new. It follows that when one commercial commodity is transformed into another, it becomes a separate commodity for purposes of salesthink that the Madras High Court had committed an error in applying Hiralals case (supra) to the decision of cases now before us which turns really on a correct interpretation of Section 14 of the Central Act. On the question now before us, we approve of the reasoning adopted by a Division Bench of the Punjab High Court in Devgun Iron &Steel Rolling Mills v. State of Punjab((1961) 12 S.T. C. p.15 of the Central Act places certain restrictions and conditions upon State enactments imposing Sales4 of the second schedule specifies the rates of tax in accordance with the Central Act. It reproduces Section 14(iv) of the Central Act. On an amendment of Section 14(iv) of the Central Act, serial No. 4 of the second schedule of the Tamil Nadu Act was also correspondingly amended so as to reproduce the sixteen items found in Section 14(iv) of the Central Act. Hence, the decision of these cases really depends on an interpretation of Section 14 of the Central Act which we have already given above. Other provisions only fortify our conclusion.think that the Madras High Court had committed an error in applying Hiralals case (supra) to the decision of cases now before us which turns really on a correct interpretation of Section 14 of the Central Act. On the question now before us, we approve of the reasoning adopted by a Division Bench of the Punjab High Court in Devgun Iron &Steel Rolling Mills v. State of Punjab((1961) 12 S.T. C. p.is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new market able 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 sale tax is also concerned with "goods" of various descriptions. It, therefore, become s necessary to determine when they cease to be goods of one taxable description and become those of a commercially different category and description.It appears to us that the position has been simplified by the amendment of the law, as indicated above, so that each of the categories falling under "Iron and Steel" constitutes a new species of commercial commodity more clearly new. It follows that when one commercial commodity is transformed into another, it becomes a separate commodity for purposes of sales4 of the second schedule specifies the rates of tax in accordance with the Central Act. It reproduces Section 14(iv) of the Central Act. On an amendment of Section 14(iv) of the Central Act, serial No. 4 of the second schedule of the Tamil Nadu Act was also correspondingly amended so as to reproduce the sixteen items found in Section 14(iv) of the Central Act. Hence, the decision of these cases really depends on an interpretation of Section 14 of the Central Act which we have already given above. Other provisions only fortify our conclusion.