S. Rajendra Babu, J.
1. The petitioner, a registered dealer under the Karnataka Sales Tax Act (referred to as 'the Act' for brevity), purchases iron scrap from dealers inside and outside the State for the purpose of manufacture of iron ingots, steel rounds and to steel which are sold mostly within the State. The Commercial Tax Officer for the assessment years 1972-73 to 1974-75, exempted the sales turnover on the ground that they have been manufactured out of tax-suffered iron scrap. The Deputy Commissioner in exercise of his powers under section 21 of the Act revised the assessment orders and restricted the exemption by his order dated May 11, 1979, passed in S.M.R. 198 to 200/78-79 for years 1972-73 to 1974-75. The Commissioner of Commercial Taxes called for the records and issued notice initiating proceedings for revision under section 22A of the Act, of the said order of the Deputy Commissioner dated May 11, 1979, on the ground that the Deputy Commissioner had allowed exemption in respect of sales turnover of mild steel rounds, to steel manufactured out of tax-suffered iron scrap without verifying the same placing reliance on explanation II to Schedule IV of the Act. The petitioner has filed the above petitions challenging, inter alia, the constitutional validity of section 5(4) of the Act in so far as it pertains to item 2 of the Fourth Schedule to the Act read with explanation II to the Fourth Schedule for the period prior to April 1, 1978, as violative of article 304(a) of the Constitution.
2. It is relevant to state that for the period subsequent to April 1, 1978, the said provisions with explanation II to the Fourth Schedule of the Act which is worded differently have been upheld by this Court in Mangalore Metal House v. State of Karnataka [1986] 63 STC 482. The view taken therein was approved [See [1987] 64 STC Frsc 7] by the Supreme Court while dismissing the special leave petitions filed against that decision. As one of us (Rajendra Babu, J.) had appeared for the Revenue in that case we expressed a doubt as to the propriety of hearing these matters. However, the learned counsel for the petitioners and the Revenue, in the highest traditions of the bar, assured as that there would be no impropriety as the period covered and the provisions that fall for consideration in the earlier case are different and as the role of advocate and of a judge is entirely different and they had complete confidence in us that we would deal with matters unbiased and in an impartial manner. With this assurance from the Bar we have heard the matters and proceeded to decide the same. At the time of hearing, the learned counsel for the petitioner asked us to confine our attention only to the challenge to constitutional validity to section 5(4) of the Act in so far as it relates to item 2 of the Fourth Schedule and explanation II thereto and leave open the other questions raised including the validity of the notices to be agitated later after exhausting their remedies before respective authorities. Hence, we will deal only with law and facts as to the validity of the said provisions of the Act and decide the same.
3. For the relevant period the entry 2 of the Fourth Schedule read as follows :
FOURTH SCHEDULEDeclared goods in respect of which a single point tax is leviableunder section 5(4).------------------------------------------------------------------------Sl. Description of the goods Point of levy Rate ofNo. tax------------------------------------------------------------------------1 2 3 4------------------------------------------------------------------------1 .................2 Iron and steel, that is to say, -(i) pig iron and cast iron including Sale by theingot moulds, bottom plates, first or earliestiron scrap, cast iron scrap, of successiverunner scrap and iron skull scrap; dealers in theState, liable to(ii) steel semis (ingots, slabs, tax under this Act.blooms and billets of allqualities, 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, plainand ribbed or twisted, in coil formas well as straight lengths);(v) steel structurals (angles, joists, 4 per centchannels, tees, sheet pilingsections, Z sections or any otherrolled sections);(vi) sheets, hoops, strips and skelp,both black and galvanised, hot andcold rolled, plain and corrugated, inall qualities, in straight lengths andin coil form, as rolled and in rivetedcondition;(vii) plates both plain and chequered in all 3 per centqualities;(viii) discs, rings, forgings and steel castings;(ix) tool, alloy and special steels of anyof the above categories;(x) steel melting scrap in all forms including steelskull, turnings and borings;(xi) steel tubes, both welded and seamless of alldiameters and lengths, including tube fittings;(xii) tin-plates, both hot dipped and electrolyticand tin free plates;(xiii) fish plate bars, bearing plate bars,crossing sleeper bars, fish plates,bearing plates, crossing sleepers andpressed steel sleepers, rails - heavyand light crane rails;(xiv) wheels, tyres, axles and wheel sets;(xv) wire rods and wires rolled, drawn galvanised,aluminised, tinned or coated such as by copper;(xvi) defectives, rejects, cuttings or endpieces of any of the above categories. 3 per cent------------------------------------------------------------------------
Act 13 of 1982 (1-10-1957 to 31-3-1978).
Explanation II. - Where tax has been paid in respect of the sale or purchase of -
(i) iron scrap, cast iron scrap, runner scrap and iron skull scrap referred to in entry (i) of serial number 2 or in respect of steel melting scrap in all forms including steel skull turnings and borings referred to in entry (x) of serial number 2, and out of the said scrap, steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) referred to in entry (ii) of serial number 2 are manufactured and sold; or
(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) referred to in entry (ii) of serial number 2, and out of the said steel semis any rerolled products of iron and steel referred to in any one or more of the entries at (iii), (iv), (v), (vi), (vii) and (xv) of serial number 2 are manufactured and sold, no tax shall be leviable on the sale of the said steel semis or the rerolled products as the case may be :
Provided that the dealer claiming exemption of tax under this explanation furnishes before the assessing authority concerned proof of levy and payment of tax by the previous or earliest of successive dealers on the said scrap or steel semis used in the manufacture of the steel semis rerolled products, as the case may be :
Provided further that in respect of the said steel semis or the said rerolled products of iron and steel, no amount was collected by the dealer from his customers by way of tax or purporting to be by way of tax.
4. Explanation II to the Fourth Schedule was added by Act 13 of 1982 with retrospective effect from the inception of the Act to be effective till March 31, 1978. It is not disputed that under this entry some sub-items of iron and steel can be manufactured from other sub-items of iron and steel. It was held in the case of State of Tamil Nadu v. Pyare Lal Malhotra : 1983(13)ELT1582(SC) , that each sub-item under the entry is a different commercial article and in a single point levy scheme of taxation, even when other sub-items are manufactured out of certain other sub-items, they are to be treated as different commodities for purposes of taxation. Hence, in order to reduce the rigour of this interpretation, the State took various steps and in this context enacted explanation II to the Fourth Schedule.
5. The contentions of the petitioners in these cases are as follows :
(1) Explanation II to the Fourth Schedule of the Act is not in the nature of exemption clause, but is a proviso to charging section 5(4) in so far as item 2 in the Fourth Schedule is concerned. There is no charge on the finished product of tax if tax had been paid on the raw materials. Such a provision is violative of article 304(a) of the Constitution, as such levy will result in discrimination between the manufactured goods (sub-items in item 2 of the Fourth Schedule) out of raw material (also sub-items in item 2 of the Fourth Schedule) imported from outside the State and those goods manufactured out of raw materials locally purchased. The sale of the finished products of iron and steel is not subjected to tax if raw material out of which the finished products are manufactured had been subjected to tax. In case of imported raw materials iron and steel used in the manufacture of finished product of iron and steel, no tax would have been levied under the Act.
(2) A dealer who brings items of iron and steel from outside the State and manufactures other items locally was taxed on the amount of sale for such finished goods whereas the locally purchased iron and steel items used for manufacturing of other items were taxed on the amount of purchase of raw material. It was, therefore, discriminatory against those bringing items of iron and steel as raw material from outside the State for manufacture of goods within the State and offended article 304(a) of the Constitution. The finished goods when made out of imported goods and local goods will not make a qualitative difference merely because the latter has suffered tax locally and, therefore, the levy is discriminatory and hence violative of article 304(a) of the Constitution. Sri K. Srinivasan placed strong reliance on the decisions in Firm A. T. B. Mehtab Majid & Company v. State of Madras : AIR1963SC928 and Hajee Abdul Shukoor and Co. v. State of Madras : [1964]8SCR217 .
6. The effect of the explanation of the Fourth Schedule on the taxing entry is that if tax had been paid on the items of iron and steel used as raw material on its sale or purchase, no tax shall be payable on the sale of goods manufactured out of these items. Tax is leviable on items of iron and steel if the raw material was not subjected to tax. Though every item of iron and steel under entry 2 of the Fourth Schedule is different commodity for purposes of taxation at single point, there is nexus between each of the item out of which next item is manufactured and both are declared goods. A provision providing for not levying tax if at an earlier stage tax has been paid is only in the nature of exemption. The exemption arises only on proof that tax had been paid at an earlier stage on the goods out of which the goods in question were manufactured. Thus, the scheme of taxation under the Act, is that there is nexus between the finished goods and the raw material used for manufacturing the same and if at an earlier stage tax had been paid on the raw material, it need not be paid on the finished goods. It is not as though the goods manufactured in the State out of local raw material do not suffer tax at all, for the tax would have been paid on the raw material when purchased locally. Hence, to contend the tax is not payable at all on the finished goods of iron and steel manufactured out of local raw material, is devoid of merit. Discrimination, if at all, would arise only in the quantum of tax payable, for the tax on finished goods will be definitely higher than on the raw material. The effect of the two decisions cited will be considered later.
7. We will now take up the second point. On this aspect of the matter, the question is no longer res integra but fully covered by the decision of the Supreme Court in Associated Tanners v. Commercial Tax Officer [1986] 62 STC 1. Their Lordships had to deal with a similar point arising under the Andhra Pradesh General Sales Tax Act. Item 9(b) of the Third Schedule read as follows :
'THIRD SCHEDULE(Declared goods in respect of which a single point tax only is leviableunder section 6.)------------------------------------------------------------------------Description of goods Point of levy Rate of tax------------------------------------------------------------------------9. (b) Tanned hides and When purchased by a 2 paise inskins (which were not manufacturer in the the rupee.'subjected to tax as State at the point ofuntanned hides and purchase by theskins). manufacturer and in allother cases at the pointof purchase by the lastdealer who brings theminto the State.------------------------------------------------------------------------
8. It was therein contended that the taxation scheme was that dealer who brought raw hides and skins from outside the State and tanned them locally was taxed on the amount of the sale of such tanned hides and skins, whereas the locally purchased raw hides and skins and tanned were taxed on the amount of the purchase of the raw hides and skins the price of which compared to the price of tanned hides and skins would be very insignificant, and therefore, discriminated against the import of raw hides and skins and thus offended article 304(a) of the Constitution inasmuch as locally manufactured goods get a preferential treatment over the imported goods from other States and it was held that the rate of tax was the same both for goods brought from outside the State as well as local goods and could not be said to be higher in respect of imported goods. The effect of imposition might work differently upon different dealers, between those who imported raw hides and skins, and those who locally purchased and tanned them locally and such an effect cannot be said to arise directly or as an immediate effect of imposition of the tax. Therefore, there was no question of violation of article 304(a). Even in Firm A. T. B. Mehtab Majid's case : AIR1963SC928 , a provision of similar nature was understood as affecting only the quantum of tax. A comparison between item of taxation in the Andhra Act considered in Associated Tanners v. Commercial Tax Officer [1986] 62 STC 1 (SC) and item 2 of the Fourth Schedule of the Act read with explanation II may be made. Instead of providing a separate explanation as has been done in the Act, the Andhra Act incorporates the exemption in the taxation entry itself. The Supreme Court understood that the provisions as has been made in explanation II will not result in not taxing the tanned hides and skins if subjected to tax on raw hides and skins but would only affect the quantum and would only result in discrimination in operation, but on examination of scheme of taxation upheld the validity of the same.
9. In the present case, there is no discrimination in the rate of tax between the imported items and the local items of finished goods of iron and steel as such. If goods are manufactured out of goods locally purchased and if the same had not suffered tax (as in case of the same having been purchased from a small dealer not liable to tax) the levy on the finished goods is attracted just as in case of goods manufactured out of imported goods. Therefore, there is no discrimination in rate at all. The variation in the quantum of tax as already stated is on account of the scheme of taxation working differently on different dealers those who import raw material and manufacture and those who locally purchase and manufacture and hence, such an effect is only an indirect result and not having direct or immediate impact.
10. Now we shall deal with the two decisions cited at the bar. The true effect of both decisions in Firm Mehtab Majid's case : AIR1963SC928 and Abdul Shukoor's case : [1964]8SCR217 , has been repeatedly considered by the Supreme Court starting with State of Madras v. Nataraja Mudaliar : [1968]3SCR829 , right up to Associated Tanners v. Commercial Tax Officer [1986] 62 STC 1. It was observed in the latest case that 'as these two cases have been specifically dealt with in earlier cases, it is no longer necessary to discuss in detail the said two decisions'. We cannot do any better.
11. Thus, there is no substance in either of the contentions of Mr. Srinivasan and in the result, we dismiss the writ petitions.
12. We have decided only the questions raised before us in relation to the constitutional validity of the provisions. However, the petitioners have also sought for certain other reliefs; but those questions cannot be gone into unless the authorities also examine the matters. The petitioners are also aggrieved by the show cause notice issued by the Commissioner of Commercial Taxes in revision proceedings under section 22A of the Act and it is at that stage, the petitioners filed the writ petitions before this Court. The petitioners are at liberty to file the objections, if they have not yet filed it already, within a period of 30 days from today to the said notices and shall also appear before the Commissioner of Commercial Taxes on July 15, 1988 and take further date of hearing.
13. Writ petitions dismissed.