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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 198 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 199 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