1. The question for decision in this application in the nature of a writ petition, filed under Section 8 of the West Bengal Taxation Tribunal Act, 1987, is whether cold rolled steel strips (CR strips) made out of hot rolled steel strips (HR strips) involves a manufacturing process within the meaning of the West Bengal Incentive Scheme, 1993, Section 10G of the Bengal Finance (Sales Tax) Act, 1941 and Section 41 of the West Bengal Sales Tax Act, 1994 so as to produce a different commercial commodity.
2. The case of the applicant-company is that it set up an industrial unit at Jangalpur, P.O. Andul in the district of Howrah in September, 1993 as an extension of its existing industrial unit at Liluah, also within the same district. It manufactures CR strips by using HR strips as raw materials in the said extended unit. The first sale of the product of the extended unit was effected on October 30, 1993. The applicant-company obtained licence under the Central Excises and Salt Act, 1944 as a manufacturer of CR strips and the Central excise authorities have been treating it as a manufacturer of that product.
Total value added to the finished product is about 20 per cent over the value of the inputs, namely, HR strips. HR strips and CR strips are completely different commercial commodities with different uses and character. HR strips can be used by tube and pipe manufacturers and cold reducers. CR strips are used for manufacturing steel furniture, automobile bodies, refrigerators, casings, cooking range, drums, barrels, etc. The two items do not serve the same purpose. The Indian Standards Institution has given separate specifications for HR strips and CR strips, namely, IS 10748 and IS 153 respectively. The applicant prayed for amendment of registration certificate under the Bengal Finance (Sales Tax) Act, 1941 (in short, "the 1941 Act") for addition of manufacture of CR strips out of HR strips used as raw materials by purchasing the latter at a concessional rate of tax. From the fact that the sales tax authorities issued declaration forms to the applicant for purchase of HR strips, it is presumed that the amendment prayed for was granted, though the amended registration certificate was not sent to the applicant. As a manufacturer of CR strips, the applicant filed an application before respondent No. 2, Assistant Commissioner, Commercial Taxes, Special Cell for remission of tax under Section 10G of the aforesaid Act of 1941. On being satisfied after examining the applicant's activities in the extended unit, respondent No. 2, issued eligibility certificate (E.C.) to the applicant on January 20, 1994 making it valid for the period from October 30, 1993 to October 29, 1994. By virtue of that E.C. applicant became eligible for remission of tax to the extent of 60 per cent of the gross value of the additional fixed assets of Rs. 2,89,80,807. The E.C. was renewed for a further period of one year up to October 29, 1995 under Section 10G of the Act of 1941, treating the applicant as a manufacturer of CR sheets or strips. Since the applicant was entitled to the E.C. for remission of tax over a period of four years, it made an application for further renewal of E.C. for the period from October 30, 1995 to October 29, 1996. That application is still pending. On 20th June, 1996 the applicant received a notice in form 55 issued under rules 245 and 249 of the West Bengal Sales Tax Rules, 1995 (in short, "the 1995 Rules"), by which respondent No. 1 directed the applicant to show cause why an order should not be passed cancelling the E.C. granted to it with effect from October 30, 1993, since no new product was manufactured.
The applicant appeared before respondent No. 1 and after taking some adjournments, argued on the basis of the judgment of this Tribunal in the case of Hindusthan Wires Limited, reported in [1995] 97 STC 652 ; (1994) 27 STA 190 that HR strips and CR strips are two commercially different commodities having different use and character but are treated as same goods for the limited purpose of Section 15(a) of the Central Sales Tax Act, 1956 (in short, "the 1956 Act"). It was also contended that according to the ratio of that judgment, the applicant should be held to be a manufacturer of CR strips, but no tax can be charged on the sales thereof despite grant of E.C. under Section 10G of the Act of 1941, because HR strips are purchased on payment of tax and both HR strips and CR strips fall under the same sub-clause of Section 14(iv) of the 1956 Act. The judgment of this Tribunal in the case of Precision Strips Private Limited [1996] 102 STC 82 was also cited by the applicant. The respondent No. 1 reserved the order, but informed Mr. B.N. Saraf, applicant's advocate, that he would cancel the E.C. on the instructions of its superior officers. However, no written order has been communicated to the applicant.
3. The contention of the applicant is that it is a manufacturer of CR strips, although CR strips manufactured out of HR strips cannot be subjected to tax by the State Revenue in terms of Section 15(a) of the 1956 Act because the two commodities fall under the same sub-clause of Section 14(iv) of the 1956 Act and because sales tax was paid on purchases of HR strips which are used as raw materials. A manufacturing process is involved for production of CR strips out of HR strips. The two are commercially different commodities. The applicant contends that the extended unit in which CR strips are produced was set up with the particular object of manufacture of that item, and for that purpose plant and machinery consisting of skin pass mill, flying shear, electric furnace, rewinding machine, oil fired furnace, slitting machine, pickling plant, cold rolling mill and overhead cranes were installed. It also contends that the manufacturing process consists of longitudinally slitting HR coils, then pickling or removing oil or greasy substances and sealing in the HR slits, rinsing in water in order to remove any acid residue, giving anti-corrosive treatment, then cold rolling for reducing thickness and for elongation in length for use in manufacturing different types of commodities, then annealing, or reducing hardness of strips during cold rolling operation and processing for bringing glaze in CR strips with anti-corrosive coating thereon and finally slitting the product for obtaining strips of the required width for despatch and marketing.
4. The application has been resisted by the respondents. Their case in the affidavit-in-opposition is that the licence granted under the Central Excises and Salt Act, 1944, is no conclusive proof that the applicant is a manufacturer. CR strips processed out of HR strips are the same commodities and in no way different. In common parlance, CR strips and HR strips are treated as one and the same commodity, namely, iron and steel strips. Use of character of the commodities is no criterion for deciding whether those are different commercial commodities. Similarly, ISI specifications are no indications as to whether the commodities are commercially different. The ISI specifications only indicate that HR strips and CR strips undergo different processings, but do not indicate that those are commercially different commodities. The specifications are technical in character and do not indicate how the two commodities are treated in the trade parlance. Respondents further contend that remission of tax under Section 10G of the Act of 1941 was granted to the applicant under a wrong conception of law. That mistake is intended to be rectified by issuing the impugned notice in form 55, It is repeated that under the provisions of law the process undertaken by the applicant does not amount to manufacture. No order has been passed on the basis of the impugned notice in form 55, since the applicant has challenged it before this Tribunal. The decisions in the cases of Hindusthan Wires Limited [1995] 97 STC 652 (WBTT) ; [1994] 27 STA 190 and Precision Strips Private Limited [1996] 102 STC 82 (WBTT) are distinguishable.
Every processing does not amount to manufacture. Although by processing CR strips acquire some qualitative change, the activity does not amount to manufacture within the meaning of Section 2(dd) of the Act of 1941 or Section 2(17) of the 1994 Act. The applicant is, therefore, not entitled to benefit of remission under Section 1OG of the Act of 1941 or Section 41 of 1994 Act.
5. The applicant-company has used an affidavit-in-reply, mainly reiterating its case and refuting the position taken by respondents.
Along with the reply, applicant has filed views of several experts to the effect that HR strips and CR strips are two different commercial products catering to different industries. HR strips is a structural item generally used in construction and fabrication industry. CR strips is an engineering product mainly used in automobile, white goods, consumer products and furniture industry. The two are covered by different ISI specifications. Such views have been given by Grey Engineering Consultants, Shalimar Paints Limited, Calcutta Steel Chamber, Steel Authority of India Limited and Organisation of Indian Engineering Industry.
6. The point in dispute is whether HR strips and CR strips are different commercial commodities. This point necessarily involves the question whether the process through which HR strips have to pass to become CR strips is a manufacturing one. The benefit which the applicant wants to. enjoy is under the West Bengal Incentive Scheme, 1993 (in short, "the Scheme"). Annexure 'D' to the main application is the certificate of registration with the Directorate of Industries, West Bengal under the scheme. It mentions that the registration was given for "manufacture" of flat cold rolled product of non-alloy steel.
Annexure E at pages 45 to 47 of the main application is the B.C. under the scheme for the said "manufacturing" project, issued by West Bengal Industrial Development Corporation Limited, a Government of West Bengal Undertaking. The E.C. was issued for the purpose of remission of sales tax on sales of finished goods. It also mentioned that it related to "manufacture" of the aforesaid items. The remission is available under Section 10G of the 1941 Act. Sub-section (1) of Section 10G starts with the following words : "Where a registered dealer manufactures any goods, other than such goods as may be prescribed, in a newly set up industrial unit established by him, or in an existing industrial unit expanded by him, in West Bengal, the tax payable under the Act by such dealer according to his return referred to in Sub-section (2) of Section 10 in respect of such goods in such unit shall, subject to such conditions and restrictions as may be prescribed, be remitted or continue to be remitted..........." 7. The expression "manufacture" is defined in Section 2(dd) of the 1941 Act in the following words : " 'manufacture', with all its grammatical variations and cognate expressions, means producing, making, extracting, or blending any goods ; but does not include such manufactures or manufacturing processes as may be prescribed." In Black's "Law Dictionary" (1979 Edition) the meaning of "manufacture" is given as : "The process or operation of making goods or any material produced by hand, by machinery or by other agency ; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand, labour or machine". It was held in the case of South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922, that the word "manufacture" implies a change but every change in the raw material is not manufacture ; there must be such a transformation that a new and different article must emerge having a distinctive name, character and use.
8. It is undisputed that in terms of Section 2(dd) no manufacture or manufacturing process has yet been prescribed so as to exclude the same from the ambit of the definition of "manufacture". Therefore, the expression means producing, making, extracting or blending any goods.
The abovequoted meaning from Black's Law Dictionary and the abovementioned reference to the decision reported in AIR 1968 SC 922 (South Bihar Sugar Mills Ltd. v. Union of India), make it clear that it will be a manufacture, if the end-product is a different commercial commodity and the process of manufacture is such that the end-product takes the character of a new and distinct commodity with reference to the raw material which may either be in the raw form or in a prepared form.
9. In the present case, there is no dispute that the applicant uses HR strips which are themselves a commercial commodity as raw materials, that the end-product is CR strips which by themselves are a commercial commodity, that the applicant installed the plant and machinery mentioned in the application, that it was registered and also given E.C. under the scheme for "manufacture" of CR strips, and that HR strips are passed through the processes stated in the application to turn out to be CR strips. There is also no dispute that, as claimed by the applicant, value is added to CR strips. In other words, the price of HR strips is less than that of CR strips. Further, there is no dispute also that the two goods are covered by two different ISI specifications and uses of the two commodities are different. CR strips are specially required for manufacture of white goods and consumer goods like automobile bodies, refrigerators and the like. It is claimed by respondents in their affidavit-in-opposition that HR strips and CR strips are understood in common parlance, namely, by those who deal in them, as the same or identical goods. Mr. K.K. Saha argued on those lines on behalf of respondents. This contention has been strongly opposed by the learned advocate for the applicant. It was argued by Mr.
Bajoria that respondents have failed to produce any material to establish the claim that HR and CR strips both are treated in trade parlance as the same goods. Moreover, he contended that materials have been adduced by the applicant to show that these are two different commercial commodities. According to Mr. Bajoria, a manufacturer of refrigerator requiring CR strips cannot obviously buy HR strips. He is bound to settle only for CR strips. As regards the processes of manufacture and the changes effected in the material, Mr. Bajoria drew our attention to the processes stated in the application and he referred to a technical book called "Techno-Commercial Handbook on Cold Rolled Steel Flat Products" published by Spark Steel and Economy Research Centre (Pvt.) Ltd., of BE-274, Salt Lake, Calcutta-700 064. He referred to the following passage at page 49 of the said book : "A piece of metal when subjected to an external force, compression or tension, undergoes permanent deformation which is retained even after the force is withdrawn. This is known as Plastic Deformation.
This deformation is associated with slippages taking place along the crystallographic planes (planes with maximum number of atoms packed together) of grains. When such deformation is caused in a metal body at room temperature (below the recrystallisation temperature) it is said to have undergone cold working.
Cold rolling is a process of cold working, generally applied to reduce the size of a metal Section from its earlier size attained through hot rolling. It is a genetic term applied to the operation of passing an unheated metal through a set of rolls for the purpose of reducing thickness, producing a smooth surface and improving mechanical properties. Hot rolled coils/strips and sheets are required to undergo pickling, washing, drying and oiling operations before cold rolling. The oil on the steel surface serves as lubricant during cold reduction besides protecting the product from rusting. Unlike hot rolling, one has to apply much higher pressure and driving force to effect any reduction in section in cold stage.
During cold rolling, the steel is kept under tension between the pay off reel-work rolls-recoil reel and simultaneously under compression due to pressure applied on rolls. For any given pass (i.e., one time passing of the steel through a set of work rolls) in the cold rolling process, the resultant of the compressive force and the tensional force must exceed the elastic limit of the steel under rolling to produce plastic deformation in the material, mainly along its length." We may refer in this connection to the well-known text book, "Elements of Workshop Technology--volume I" by Hajra Choudhury and Hajra Choudhury. This is a standard text book in several engineering colleges. It is clearly indicated in this book (pages 152-154) that cold rolling is one of the principal methods of cold working of metals.
The working of metal, at temperatures below their re-crystallization temperature is defined as cold working. Cold working is employed chiefly as a finishing operation, following the shaping of the metal by hot working. It also controls the mechanical properties of steel in a large measure. It increases the tensile strength, yield strength and hardness of steel, but lowers its ductility. Two main reasons for cold rolling metals are to get smooth bright surface finish and improved physical properties. If the object is only to give a clean, smooth finish to the metal only a superficial amount of rolling would be needed. On the other hand, where it's desirable that the tensile strength, stiffness and hardness be increased substantially and that the section thickness be appreciably reduced, than higher roll pressures and deeper kneading are necessary. Cold rolling also improves machinability by conferring the property of brittleness, a condition which is conducive to smooth tool finishes and well broken chips. At pages 78 and 406 of the book, "Materials and Processes in Manufacturing", Seventh Edition, by Degarmo, Black & Kohser, Macmillan Publishing Company, the following passages occur : "When metals are plastically deformed below their recrystallization temperature, the process is called cold working. The metal strain hardens and the structure consists of distorted grains. When deformation takes place above the recrystallization temperature, the process is called hot working." "From a manufacturing viewpoint, cold working has a number of distinct advantages,.................... In comparison with hot working, the advantages of cold-working include : 3. Superior dimensional control is achieved ; therefore little, if any, secondary machining is required.
10. From the above discussion it is clear that although HR strips, and CR strips both are strips and therefore fall within the same sub-item (vi) of Section 14(iv) of the 1956 Act, and although no sales tax can be levied under the State's sales tax laws on CR strips processed out of HR strips, if sales tax was paid at the time of purchases of HR strips, the two are in every other respect and for all other purposes different commodities as well as different commercial commodities.
Respondents have failed to establish that HR strip, and CR strips are considered as the same goods in common parlance, and they have adduced no such material. On the contrary, from the materials produced by applicant and the technical books available to us, we have no manner of doubt that the two are different commercial commodities. The ISI specifications which support the claim of applicant, cannot be so easily brushed aside, as contended by respondents. The procedure of finalising ISI specifications clearly indicates that it takes into account the requirements of trade and industry. Mr. Saha for respondents contended that no estoppel can arise against statute and also against issuance of Registration Certificate in which applicant was described as a manufacturer. Mr. Bajoria replied on behalf of the applicant that though there is no estoppel against statute, the same principle does not apply to the finding recorded in the R.C. We are inclined to agree with Mr. Bajoria when he argued that the R.C. is an evidence as to what the authorities found as regards the applicant's activity.
11. Mr. K.K. Saha appearing for the respondents relied on Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons [1968] 21 STC 17 (SC) in which it was held that if the goods to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of manufacture. Mr. Saha also relied on three other cases. In S.K. Nataraja Mudaliar and Co. v. State of Tamil Nadu [1982] 51 STC 55 (Mad.) it was held that as a result of parching or frying of grams, moisture, if any, is removed and the gram is split, but no new commercial commodity conies into existence within the meaning of Section 14 of 1956 Act. In Universal Chemicals & Industries Pvt. Ltd. v. Commissioner of Sales Tax, M.P. [1986] 62 STC 197 (MP) it was held that cleaning and washing waste fibre with chemicals and cutting to pieces for sale as staple fibre base do not amount to manufacture under the Madhya Pradesh General Sales Tax Act, 1958. In Govindji Jamunadas v. Commissioner of Sales Tax, M.P. [1983] 53 STC 120 (MP) [FB] it was held that change in form within the meaning of Section 14(iv)(d)(iv) of the 1956 Act will occur where a new commercial commodity comes into existence. The principle underlying these cases is well-settled, but upon applying it to different facts the same conclusion may not be arrived at.
12. Reference was made to the case of Telangana Steel Industries v.State of Andhra Pradesh [1994] 93 STC 187 (SC) by both sides. It was held in that case with reference to sub-item (xv) of Section 14(iv) of the 1956 Act that the Legislature did not want wires, even if the same be a separate commercial commodity, to be taken as a commodity different from the rods for the purpose of permitting imposition of sales tax once again on wires despite rods having been subjected to sales tax. This case was followed by this Tribunal in the case of Precision Strips Pvt. Ltd. [1996] 102 STC 82 in respect of HR strips and CR strips. It was held therein that where the applicant purchased cold rolled steel strips paying sales tax and furnishing declarations, then hardened and tempered the same and sold them, what was produced was certainly a different commodity for the purpose of use in specified industries for specified purposes, but they remained "strips" as understood within the meaning of sub-item (vi) of Section 14(iv) of the 1956 Act, Mr. Bajoria also relied on the decision of this Tribunal in the case of Hindusthan Wires Limited [1995] 97 STC 652 ; [1994] 27 STA 190 in which it was held that the sales tax laws deal with commercial character of goods. The different sub-items of Section 14(iv) of the 1956 Act make special types of enumeration in order to indicate that, departing from the general principles of sales tax laws for treating certain goods as the same or different, the declared goods enumerated in a particular sub-item should be treated as the same goods for the purpose of the 1956 Act, despite the fact that a manufacturing process had been gone through and in the ordinary legal sense, the finished product would be construed as a different commercial commodity. What is clear from the above decisions is that for the purpose of Section 14(iv) read with Section 15(a) of the 1956 Act, certain commercially different goods are treated as the same goods, but such treatment under those provisions of 1956 Act do not alter or affect their different commercial character. Simply because two goods are treated as the same goods under Sections 14 and 15 of the 1956 Act because they fall within the same sub-item of Section 14(iv), they cannot be said to be the same goods, or not different from each other for other purposes. In this case also, HR strips and CR strips are the same goods within the meaning of Section 14(iv) of the 1956 Act. But that does not affect or alter the otherwise difference in their characters as commercial commodities. We hold that CR strips produced by the applicant go through a manufacturing process and the raw materials (HR strips) and the end-products (CR strips) are different commercial commodities involving processes which amount to manufacture. In our opinion, CR strips undergo a clear transformation through the process of manufacture. It is to be noted that in the affidavit-in-opposition, respondents conceded that by processing HR strips for converting them into CR strips the finished product acquires some qualitative change.
13. That being according to us the correct position, we hold that the applicant is entitled to the benefits under the scheme and the remission under Section 10G of the 1941 Act. Therefore, the applicant is a manufacturer of CR strips for the purpose of Section 10G of the 1941 Act and consequently for the purpose of Section 41 of the West Bengal Sales Tax Act, 1994.
14. In the result, the application is allowed. The impugned notice at annexure C bearing Memo No. 674CT/S.C. dated June 13, 1996 proposing cancellation of E.C. already granted to the applicant is quashed. If any order was passed by respondent No. 1 on the basis of the said notice, that also stands quashed. The interim order stands vacated. The main application is thus disposed of without any order for costs.
After the judgment is delivered Mr. K.K. Saha, learned advocate for the respondents, prays for stay of operation of the judgment and order for 12 weeks. Mr. S.K. Chakraborty, learned advocate for the applicant opposes the prayer on the ground that the present judgment follows decision of the Supreme Court of India and several other judgments of this Tribunal. Haying considered the submissions of both sides, the prayer for stay of operation of the judgment and order is rejected.