Introduction
The Commissions of Sales Tax, Maharashtra, has recently issued a Circular bearing No. 11T of 2014 dated 04-04-2014, by which it is informed that the sale of stainless steel wires will be liable to tax as non-declared goods i.e., at 12.5% in residual category, due to the judgment of the Supreme Court in the case of M/s. Bansal Wire Industries Ltd. (42 VST 372). The declared goods are covered by entry C-55 of the MVAT Act, 2002. If the goods are so covered, the tax is 5%. However, if they get excluded from above entry, the rate becomes 12.5%. Therefore, it is necessary to see the implication of above judgment and circular.
Background
The facts in this case are that the issue arose under the UP Trade Tax Act, 1948. Originally, the dealer was assessed to tax at 4% on the sale of stainless steel wires on the grounds that it is declared goods. However, the said assessment was revised, so as to levy tax on the sale of stainless steel wires at a higher rate, considering that it is not sale of declared goods.
The Hon’ble Allahabad High Court confirmed the view of the department. Therefore, the issue was raised before the Hon’ble Supreme Court.
The question which was referred to the Hon’ble Supreme Court is reproduced in the judgment as under:
“Whether stainless steel wire, a product of the appellant, on a proper reading of section 14 of the Central Sales Tax Act along with the qualifying words ’that is to say’ would fall under the category ’tool, alloy and special steels of any of the above categories’ enumerated in entry (ix) of Clause (iv) or under entry (xv) of same Clause (iv)?”
Consideration by Supreme Court
Hon’ble Supreme Court has analysed the position about declared goods. The Hon’ble Supreme Court has reproduced section 14(iv) of the CST Act, 1956 which enumerates declared goods. The said section is reproduced below for ready reference.
“14. Certain goods to be of special importance in inter-State trade or commerce.—It is hereby declared that the following goods are of special importance in inter-State trade or commerce,—
. . .
(iv) iron and steel, that is to say,—
(i) pig iron and cast iron including ingot moulds, bottom, plates, iron scrap, cast iron scrap, runner scrap and iron skull scrap;
(ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes);
(iii) skull bars, tin bars, sheet bars, hoe-bars and sleeper bars;
(iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths);
(v) Steel structurals (angels, joists, channels, tees, sheet piling sections, Z sections or any other rolled sections);
(vi) sheets, hoops, stripe and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition;
(vii) plates both plain and chequered in all qualities; (viii) discs, rings, forgings, and steel castings;
(ix) tool, alloy and special steels of any of the above categories;
(x) steel melting scrap in all forms including steel skull, turnings and borings;
(xi) steel tubes, both welded and seamless, of all diameters and lengths, including tube fittings;
(xii) tin-plates, both hot dipped and electrolytic and tin-free plates;
(xiii) fish plates bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy and 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 end pieces of any of the above categories.”
The Hon’ble Supreme Court has discussed the back ground of the above entry. The Supreme Court held that each sub-group in above section 14(iv) exhaustively enumerates the kinds of goods covered by each sub-group. In this respect, the Hon’ble Supreme Court referred to its earlier judgment viz; State of Tamil Nadu vs. M/s. Pyare Lal Mehrotra (1976)(1 SCC 834).
The Hon’ble Supreme Court observed that the stainless steel can be covered by sub-entry (ix) and therefore the items covered by (i) to (viii), if of stainless steel, they can be covered. However, the wires are mentioned in sub-entry (xv) and said entry is separate. The sub-entry (ix) being not applicable to entry (xv), the stainless steel wires cannot be covered by any of the entries in section 14(iv). The reasoning of the the Hon’ble Supreme Court is contained in para-28 of the judgment and further elaborated in para-33. Both paras are reproduced below for ready reference.
“28. The expression “of any of the above categories” appearing in entry Nos.
(ix) and (xvi) of Clause (iv) of section 14 of the Central Act would indicate that they would each be items referred in the preceding items. Therefore, even the expression “of any of the above categories” in entry No. (ix) of Clause (iv) would only relate to steel and alloy produced for any of the materials mentioned in item Nos. (i) to (viii). Thus, “stainless steel wire” produced by the appellant cannot be read into item No. (xv) which reads as “wire rods and wires-rolled, drawn, galvanised, aluminised, tinned or coated such as by copper”.
33. It is thus clear, that the language used in entry No. (ix) is plain and unambiguous and that the items which are mentioned there are “tool, alloy and special steels”. By using the words “of any of the above categories” in entry No. (ix) would refer to entries (i) to (viii) and it cannot and does not refer to entry No. (xv). However, entry (xvi) of Clause (iv) would be included in entry (xvi) particularly within the expression now therein any of the aforesaid categories. Therefore, the specific entry “tool, alloy and special steels” being not applicable to entry (xv), the contention of the counsel for the appellant has to be rejected. It is, therefore, held that the stainless steel wire is not covered within entry (ix) of Clause (iv) of section 14 of the Central Sales Tax Act.”
Conclusion
The above referred circular has taken into account above mentioned observations of the Hon’ble Supreme Court. Accordingly, it is clarified that the items made from stainless steel mentioned in subentries (x) to (xv) will not be covered u/s. 14(iv) of CST Act, 1956 i.e., they will not be considered as ‘declared goods’ and will also not be covered by entry-C-55 of the MVAT Act, 2002.Thus, the same are liable to tax at 12.5%. Some of the items affected by the above interpretation are melting scrap, skull, turnings, borings, specified tubes and tube fittings etc., if they are of the stainless steel. The stainless steel pipes will also get excluded from entry C-55 but they will be eligible to be covered by entry C-72 which is regarding pipes of all varieties. Therefore, for stainless steel pipes, the rate will still remain 5%. However, for stainless steel tubes, the rate will be 12.5%.
The judgment of the Hon’ble Supreme Court is binding. However, an issue still remains about interpretation of the scope of the main heading of section 14(iv) i.e., ‘iron & steel’, whether it covers stainless steel itself? Steel is not qualified by any particular quality. Therefore, it can be argued that the above heading itself covers stainless steel also. This issue is not considered in the above judgment. Therefore, the dealer community will be required to wait till some more light is thrown on the above aspect from none other than the Supreme Court itself in some future judgment. Till then, the law will be guided by the above judgment of the Supreme Court and the circular issued by the Commissioner of Sales Tax of Maharashtra State.
In the circular the position as per the above judg- ment in the case of M/s. Bansal Wire Industries Ltd. (42 VST 372) is sought to be applied from the date of judgment i.e., 26-04-2011. Therefore, dealers will be liable to pay a higher rate from the said date, which may attract an unforeseen liability for the past period from 26-04-2011. In fact, the impact of the above judgment may be from the inception of the section 14(iv) and hence revised rate can apply even prior to 26-04- 2011. However, it is stated in the circular that the matter is referred to government for period prior to 26-04-2011. It is common experience that the dealers have collected tax at 4% and 5% in respective periods, considering the impugned goods as ‘declared goods’. They are also assessed accordingly. Therefore, it is genuinely felt that in spite of the above judgment, the government should give necessary relief by administrative measures or by introducing changes in the entries and should apply the law prospectively i.e., from the current date after giving sufficient time to the dealer com- munity to adjust to new tax rate. In fact, by looking at the importance of goods, the rate should be continued at 5% by introducing new entries as they are getting out of the entry C-55 only because of technical interpretation of the entry. We expect that the government will consider the above situation and grant necessary relief.
