Declared Goods Vis-à-Vis Steel Structural

Introduction

Classification of goods under particular entry of Fiscal Laws
like VAT is always a debatable issue. Till date there are several judgments
determining classification and also laying down principles of classification.

“Declared good” is given special importance under the Central
Sales Tax Act (CST Act) and State VAT laws. One of the conditions about
taxation of declared goods, under VAT laws, is that the rate should not exceed
prescribed limit i.e., 5% at present.

If goods go out of the category of declared goods, they could
be taxable at a higher rate.    

Iron and Steel

Iron and Steel is one of the items of declared goods. Under
Maharashtra VAT Act (MVAT Act) the entry reads as under:

Entry C-55 under MVAT Act

The scope of above entry is being decided from time to time.

“Steel Structurals”

This item is covered at sub-entry (v) above. There was debate
about scope of above mentioned sub-entry. 

As per Revenue the scope of ‘steel structural’ is limited up
to items mentioned in bracketed portion. However, as per assessee, steel
structural is a separate item and cannot be controlled by bracket.

The above controversy was resolved recently by Hon. Bombay
High Court in case of Zamil Steel Buildings India Pvt. Ltd. vs. The State of
Maharashtra (MVXA Tax Appeal No.1 of 2016 dated 23.12.2016).

Facts

The facts as narrated in the judgment are as under:

“(b) The Appellant is inter alia a manufacturer of various
structural steel components such as rigid frame columns, rafters, sheets,
angles, etc. in their factory in Pune. The Appellant has been engaged in
the supply of the said structural steel components since 2007. The Appellant
has regularly been filing returns and discharging its liability under the MVAT
Act.

(c) According to the Appellant, these structural steel
components are fabricated/manufactured based on customers’ as well as
geographical requirements etc.

According to the Appellant, these individual components are
then sold to the customers. The customers may subsequently optionally choose to
avail the service of installation and erection by a sister concern of the
Appellant or by a third party. Thus, according to the Appellant, the so-called pre-engineered
buildings only emerge at the site of the customer after erection and after the
completed sale of different components by the Appellant.

(d) Until the year 2011, the Appellant had been collecting
VAT from its customers at the rate of 12.5% on account of RFCs (Rigid Frame
Columns) and Rafters and remitting the same to the revenue. Thereafter,
sometime in 2011, pursuant to a legal opinion obtained by the Appellant, the
Appellant started collecting tax at the rate of 5% and not 12.5% specifically on
rafters and RFCs and started remitting the same to the revenue.

The opinion obtained by the Appellant was based, inter alia,
on a judgment of the Rajasthan High Court in the case of Prateek Technocom
vs. State of Rajasthan [(2006) 6 VAT Reporter 9 (Rajasthan)].
Simultaneously, the Appellant invoked the procedure for determination of
disputed questions (DDQ) under the provisions of the MVAT Act for one of the
products supplied by it i.e. RFCs. The invoice number referred to in the said
DDQ Application (i.e. ZSB-0023/2010-2011 dated 6th April, 2010) describes the
goods sold as “Supply of Pre-Fabricated Building Components (AS PER PACKING
SLIP)”. In turn, the said packing slip describes the commodities sold as “Rigid
Frame Columns and Interior Columns”. Accordingly, under the said DDQ
Application, the Appellant applied to Respondent No.2 to determine as to
whether the RFCs supplied to its customers would fall under Schedule Entry
C-55(v) of the MVAT Act. We must mention here that Schedule Entry C-55(v) attracts
sales tax at the rate of 5%.”

The assessee submitted that the steel structural, (RFC)
though made by welding and not structural as covered by items mentioned in
bracket, is still covered by plain language as given in sub-entry. It was
submitted that the rule of “ejusdem generis” cannot apply on reverse
basis, i.e. prior words cannot be controlled by subsequent words though
subsequent words can be controlled by prior words. It was submitted that the
bracketed items are by way of illustration. Supporting judgments were cited.

On behalf of Revenue, the main plank of argument was that
only items mentioned in bracket will be covered. It was also argued that Iron
and Steel entry intends to cover iron and steel in raw form and not made ups
from iron and steel. Therefore, it was argued that the steel structural in
present case, which is made ups by welding etc., cannot be covered.

The Hon. High Court concurred with the assessee, after giving
elaborate reasoning.

The Hon. High Court held as under:

“27. Looking to these authoritative pronouncements, it is
clear that the utility of a bracket is only as an illustration, explanation or
extra information. It is thus clarificatory. It is not always exhaustive of the
terms outside the bracket. It cannot curtail or limit the scope of the terms
employed outside the bracket. Eventually, no general rule can be laid down. As
held by the Supreme Court, ordinarily, words appearing in brackets are
illustrative and not exhaustive. Therefore, everything would depend upon the
context and purpose with which in an individual statute the words in the
bracket are inserted by the Competent Legislature. Applying these principles,
we are unable to agree with Mr. Sonpal that though the goods of the Appellant
may be “steel structurals”, but if they do not fall within the
description of the terms as set out in the brackets viz. “(angles, joints,
channels, tees, sheet piling sections, Z sections or any other rolled sections)”,
then they would not be covered either u/s. 14(iv)(v) of CST Act or Schedule
Entry C-55(v) of the MVAT Act. We are unable to agree with Mr. Sonpal that
enumeration of the six items in the bracketed portion are with a specific
purpose of restricting the meaning of the words “steel structurals” preceding
and outside the brackets. In fact, we find that the six items appearing in the
bracketed portion of section 14(iv)(v) of the CST Act and Schedule Entry
C-55(v) of the MVAT Act are clearly not exhaustive, but descriptive of the
words “steel structurals”.”

The High Court further observed as under:

“29. Equally, we are also unable to agree with the argument
of Mr. Sonpal as well as the finding of the MSTT that because the goods sold by
the Appellant are brought into being by a process of welding and not rolling,
the same cannot be classified under Schedule Entry C-55(v) of the MVAT Act. We
find this argument totally without any merit. As mentioned earlier, the items
mentioned in section 14(iv)(v) of the CST Act read with Schedule Entry C-55(v)
of the MVAT Act are goods of special importance in inter-state trade or
commerce. It would be ludicrous to suggest that “steel structurals” that
are manufactured from rolled sections are goods of special importance, whereas
“steel structurals” that are brought into being by a welding process are
not goods of special importance. We see nothing in the Statute to make this
distinction. Even otherwise, we find that the authorities below erred in
concluding that even the specific terms namely “angles, joints, channels,
tees, sheet piling sections, Z sections” should all be “rolled sections”.
As mentioned earlier, section 14(iv)(v) of the CST Act and Schedule Entry
C-55(v) of the MVAT Act deals with “steel structurals (angles, joints,
channels, tees, sheet piling sections, Z sections or any other rolled sections)”.
According to the authorities below, the words “or any other rolled sections”
would apply to all the other items including “steel structurals”. In
other words, according to the Revenue, only rolled steel structurals such as
rolled angles, rolled joists, rolled channels, rolled tees, rolled sheet piling
sections, rolled Z sections or any other rolled sections are covered u/s.
14(iv)(v) of the CST Act and Schedule Entry C-55(v) of the MVAT Act and nothing
else. To put it differently, only goods manufactured by the process of rolling
would be covered under the said provisions. We are unable to agree with this
interpretation for the simple reason that the authorities below have applied
the rule of ‘ejusdem generis’ in reverse. This, and as rightly submitted
by Mr. Sridharan, is impermissible.”

With the above observations the Hon. Bombay High Court
classified the given item, RFC, as steel structural duly covered by entry
C-55(v) as declared goods.

Conclusion