Holding

Mild steel rods, bars and rounds are considered ‘iron and steel (metal)’ and eligible for the higher development rebate and s.80‑I relief.

Summary

The respondents, steel rolling mills manufacturing mild steel rods, bars and rounds, claimed a higher development rebate under s.33(1)(b)(B)(i)(a) and relief under s.80‑I of the Income‑Tax Act, 1961, arguing that their products fell within item 1 of the Fifth Schedule (“Iron and steel (metal)”). The Income‑Tax Officer rejected the claim, but the Appellate Assistant Commissioner, the Tribunal and the High Court allowed it. The Revenue appealed. The Supreme Court examined the legislative history of the concessions, the distinction between raw material and articles made of iron and steel, and the nature of the products. It held that the rods, bars and rounds are finished forms of the metal, i.e., raw material for further articles, and therefore qualify for the higher development rebate and s.80‑I relief. The Court dismissed the Revenue’s appeals.

Issues considered

Whether mild steel rods, bars and rounds manufactured by the assessee constitute ‘iron and steel (metal)’ under item 1 of the Fifth Schedule of the Income‑Tax Act.
Whether such products are to be treated as raw material or as articles made of iron and steel for the purpose of s.33(1)(b)(B)(i)(a) and s.80‑I.
Whether the Revenue’s departmental clarification excluding rolling‑mill machinery from the higher development rebate is valid.

Legislation cited

Income Tax Act, 1961s. 33(1)(b)(B)(i)(a), s. 80-I

Subjects

Income taxDevelopment rebateSection 33Section 80‑IFifth ScheduleIron and steel (metal)Raw material vs articleSteel rolling millsLegislative intentTax concession

Judgment

COMMISSIONER OF INCOME-TAX, HARYANA ETC. ETC. A
v.
KRISHNA COPPER STEEL ROLLING MILLS
JAGADHRI ETC. ETC.

NOVEMBER 12, 1991
B
[S.RAJilGANATHAN, V.RAMASWAMI AND N.D.OJHA, JJ.]
Income-tax Act, 1961-Sections 33(1)(b)(B)(i)(a), 80-I
-ConstrUction-Historical background-Relevance of----Legislative inten-
tion.
Income-tax, Act, 1961-Sections 33(1)(b)(B)(i)(a). 80-I, Fifth Sched-
c
ule, item 1-Manufacture of mild steel rods, bars or rounJs-Whether
entitled to a higher rate of development rebate and relief under-"Semi-
finished Steel" and "Finished Steel"-Constrnction "Forging and cast-
, ings" whether articles made of iron and steel.
The respondents-assessees were engaged in the manufacture of D
~ild 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-I of the Income-Tax Act, 1961.
E
The Income-Tax Officer rejected the claim of the assessees,
whereas the Appellate Assistant Commissioner, the Tribunal and
High Court accepted their claim. Hence the Revenue filed appeals
before this Court.

Th~ contentions of the appellant-Revenue were that iron and F
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 mater,ials were
converted into a different form or shape; that the expression "iron
and steel (metal)" meant the iron and steel as it emerged in the G
form of billets, blooms and slabs from the steel mill and that all
subsequent 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. H

187
188 SUPREME COURT REPORTS (1991) SUPP. 2 S.C.R.

A On the other hand, the respondents-assessees 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
B a finished form, were used to manufacture the products of iron and
steel by various processes, sucl1 as, rolling, cutting, shearing, forg-
ing, hammering, etc. and that the products of iron and steel were
different from that of iron and steel (metal).

Disl,Jlissing the appeals filed by the Revenue, this court,
c
HELD: 1. In interpreting the provisions in S.33(1)(b)(B)(i)(a),
S.80-1 of the Income-Tax Act, 1961, the Court would do well to keep
in mind the background in which concessions to certain basic indus-
tries were introduced in the Income-Tax Act. The historical back-
ground reflects the intention of the legislature to grant progres-
D sively certain exemptions, reliefs and concessions for certain types
of industries, which were considered important for national devel-
opment. The industry in iron and steel and other metals figured in
all the lists. (199 C, 200 BJ

2. The incentive concession or relief granted under the provi-
E sions bas to be construed 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
F therefrom. Pig iron and iron scrap are fed into furnaces to produce
ingots, billets and blooms. But both are fron and steel in different
forms, the latter being referred t'1> 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 tb(nattif~1;•na· ·weight of the metal, it has to
G be "finished·" to assume the'ie'forms before manufacturers of iron
and steel· at(ieles can take o~er and proceed to manufacture articles
from them bf drawing wires or converting them into rails or shap-
ing them into tees, zees, pipes, tubes and the like. (200 C-EJ

3. Whether the article produced is the raw material ot an
H article .made of iron and steel has to be decided on the basis of the
C.I.T. v. STEEL ROLLING MILLS 189

nature of the article and not the kind of mill which turns it out. It is A
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 re- B
bate 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 C
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. [200 G-201 B]

S. In considering the issue, the court should not be carried D
away be classifications of stages of manufacture that may be rel-
evant 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 manu-
facture of other articles made of the metal or is it itself an article E
made of the metal. [201 B-C]

6. The goods in the present case fall in the former category.
The mild steel rods, bars or rounds which are manufactured by the
assessees are·only finished forms of the metal and not articles made
of iron and steel. They only constitute raw material for putting up F
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 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 G
articles made of iron and steel but that since the legislature defi-
nitely 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
fall u-nder the category of "forgings and castings" referred to in
item 11. [201 G-H] H
190 SUPREME COURT REPORTS (1991) SUPP. 2 S.C.R.

,A 8. The conclusion drawn by the High Court that the assessee
was entitled to the higher development rebate, though, it produced
articles only from iron scrap, does not call for any interference.
[202 C, DJ

C.l.T. v. Mittal Steel Re-rolling and Allied Industries (P) Ltd., (1977)
B 108 ITR 207 (Kerala); C./. T. v. West India Steel Co. Ltd., (1977) 108,
ITR 601 (F.B.) (Kerala); Addi. Commissioner of Income Tax v. Trichy
Steel Rolling Mills Ltd., (1979) 118 ITR 39 (Madras); C./. T. v. Krishna
Copper Steel Rolling Mills, (1979) 119 ITR 256 (Punjab & Haryana);
C.l.T. v. Ludhiana Steel Rolling Mills, (1989) 180 ITR 155 (Punjab &
Haryana) and Singh Engineering Works Pvt. Ltd. v. C./.T., (1979) 119
C ITR 891 (Allahabad), approved. ·

Indian Steel and Wire Products Ltd 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.

D State ofMadhya Bharat v. Hira Lal, (1966) 17 STC 313 (S.C.) Devi
Dass Gopal Krishnan v. State ofPunjab, (1967) 20 STC 430 (SC); Hindustan
Aluminium 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.l T. v. Rashtriya Metal Industries Co.Ltd., (1983) 142 ITR 306 (Cal);
Indian Aluminium Co. Ltd v. CfT, (1980) 122 ITR 660 Cal. and (1983)
E 140 I.T.R 114 Cal; Jeewanlal v. C.l T., (1983) 142 ITR 460 (Cal); C.LT
v. Fitwell Caps-P.Ltd., (1986) 159 I.T.R. 454; Hindustan Wire Products
v. C.l.T 1 (1986) 161 ITR 749; Indian Steel and Wire Products Ltd v.
C.I.T. (1977) 108 I.T.R. 802; C.I.T. v. Tensile Steel Ltd, (1983) 141 ITR
223 (Guj) and C./. T. v. Ludhiana Steel Rolling Mills, (1989) 180 ITR 155
(P & H)-referred to.
F Specification and Glossary-By Expert Products Sectional Commit-
tee of Bureau of India Standards, New Encyclopedia Brittanica Macropaedia,
15th Edn. Vol.21; Websters, Third New International Dictionary; Ency-
clopaedia of Chemical Technolog~B'y Kirk Otbmer, 3rd. Edn. Vol.21; A
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
G
[Statutes] 57 and 122-referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 104[NT] of
1979.

From the Judgment and Order dated 3. I 0.1978 of the Punjab and
H Haryana High Court in I.T. Reference No. 61) of 1974.
C.I.T. v. STEEL ROLLING MILLS [RANGANATHAN, J.] 191

WITH A
Civil Appeal Nos. 1801to1804/89 & 6254 (NT)/90
Dr. V.Gauri Shankar, S.Rajappa, Ms. A. Subhashini and Manoj Arora
for the Appellants.
T.A.Ramachandran and Ms. Janki Ramachandran for the Respond- B
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 respondent assessees
are steel rolling mills engaged in the manufacture of M.S. (Mild Steel) c
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. D
They claim that the articles manufactured by them fall under item l 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 E
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 difference of judicial
opinion on this issue among the High Courts. The Calcutta Hight Court in
Indian Steel and Wire Products Ltd. v. Commissioner of Income-Tax, F
(1977) 108 1.T.R. 802, and the Allahabad High Court in Commissioner of
Income-Tax v. !fay Charan Pvt. Ltd., (1991) 190 l.T.R. 190 have an-
swered 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 (P) Ltd. (1977) 108 l.T.R. 207 and CIT v. West India Steel Co.
Ltd. (1977) 108 I.T.R. 601, F.B. The Madras High Court in the judgment
under appeal, reported as Addi. Commissioner of Income-tax v. Trichy
G
Steel Rollling Mills Ltd., (1979) 118 l.T.R. 39, the Punjab & Haryana
High Court in C./.Tv. Krishna Copper and Steel Rolling Mills, (1979) 119
l.T.R. 256; (hereunder appeal) C.l T. v. Ludhiana Steel Rolling Mills,
(1989) 180 I.T.R. 155; and the Allahabad High Court in Singh Engineer-
ing Works Pvt. Ltd. v. C.I.T., (1979) 1191.T.R. 891 have taken a view in
favour of the assessee. This controversy needs to be resolved.
H
192 SUPREME COURT REPORTS (1991) SUPP. 2 S.C.R.

A 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
Courts:

(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.
B Under section 5 of the said Act, two notifications had been issued. The
first notification exempted from sales tax certain listed goods, one of
which was "iron and steel'', while the second notification specified the
rates and stages for 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
c imported iron plates from outside and, after converting them into bars,
flats and plates in his mills, sold them in the market. He claimed exemp-
tion 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 para-
graph of which reads as follows:

D "Learned courosel 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 plates. In
our view, this contention is not sound. A comparison of the
said two Notifications brings out the distinction between raw
materials of iron and steel and the goods prepared from iron
E and steel; while the former is exempted from tax, the latter is
taxed. Therefore, iron and steel used as raw material for manu-
facturing other goods are exempted from taxation. So long as
iron and steel continue to be raw materiats, they enjoy the
exemption. Scrap iron purchased by the respondent was merely
re-rolled into bars, flats and plates. They were processed for
F convenience 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, there-
fore, hold that the bars, flats and plates sold by the assessee
G are iron and steel exempted under the Notification. The con-
clusion 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
H scrap and steel ingots and converted them into rolled steel sections. They
C.I.T. v. STEEL ROLLING MILLS [RANGANATHAN, J.) 193

contended
I
that the levy of a purchase tax on the steel scrap and ingots side A
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 B
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 C
rates of tax at which certain goods were taxable. Item no.6 in the notifica-
tion of 1973 described the goods as:
· "Ail kinds of min_erals and ores and alloys except copper, tin,
zinc, nickel or alloy of these metals only."
Item no. I of the second notification read: D

All kinds of minerats, 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
~~~ E
The appellant Corporation, which carried on the business of manu-
facturing and dealing in aluminium metal and various aluminium prod~·
ucts, claimed the benefit of these notifications for its products. The High
Court heM that, while aluminium ingots, wire bars and billets would fall
in the category of "metals and alloys", r~lled products prepared by rolling F
ingots and extrusions manufactured fro~ billets must be regarded as dif-:
ferent commecial commodities from the ingots and billets and therefore
outside the category of "metals and allors". Such rolled products ~eluded
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 G
referred to the history of the notifications issued by the State Government
from time to time in this behalf and cameI to the conclusion that ,/the
inference was irresistible that when such a no,ification referred to a metal,
it referred to the metal in the primary or odginal form in which it ~
salealfle and not to any subsequently fab.ricated form'. The Court rej~cted
the contention that the word "all" used inlihe notification in r~ferring to .H
194 SUPREME COURT REPORTS {1991] SUfP. 2 S.C.R.

A "all kinds of minerals, ores, metals and alloys" should be given its fullest
ampljtude so as to include even subsequently 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
B
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 controversy before #

us."
After referring to its earlier decisions in State of MP. v. Hiralal,
c (1966) 17 S.T.C. 313, Devi Dass Gopal Krishnan v. The State of Punjab,
(1967) 20 S.T.C. 430 and State of Tamil Nadu v. Pyarelal Malhotra,
~--
(1976) 37 S.T.C. 319, the Court· concluded:_

"We are of the definite opinion that the only interpretation
possible is that aluminium rolled products and e~trusions are
D 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, l>ring out two points. t
E 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 fabricated
therefrom. This is also clear from the various entries in the relevant sched-
ules under the Income Tax Act itself. For instance, item 2 in the List is :
"Aluminium, copper, lead and zinc (Metal). While ingots and sheets manu-
F factured from scrap have been held to ~all under item 2, finished comercial
products like aluminium pigments, aluminium articles and aluminium caps
have been held to fall outside it. See C.l T. v. Rashtriya Metal Industries
Ltd., (1983) 142 l.T.R. 306 (Cal). a case under the Companies (Profits)
,
Surtax Act, 1964; Indian Aluminium Co. Ltd. v. C.lT., (1980) 122 l.T.R. ~
660 (Cal.); (1983) 140 I.T.R 114 (Cal); Jeewanlal. (1929) Ltd. v. C.I.T.
G (1983) 142 I.T.R. 460 {Cal.) and C.I.T. v. Fitwel/ Caps P.Ltd. [1986] 159
l.T.R. 454 (Kar). So also, item 7 refers, inter alia, to "cables" which I
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
H for the reliefs of the kind presently under consideration : See : Hindustan
C.I.T. v. STEEL ROLLING MILLS [RANGANATHAN, J.] 195

Wire Products v. C.LT., (1986) 161 l.T.R. 749. This decision is of no A
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 Sched-
ule 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 B
· mean, particularly when used in the plural, the articles produced by the
process (vide: Glossary ofTenns 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 C
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 thail 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 ac- D
ceptable 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 qualifying 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 E
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 i>roducts manufactured from the raw material but
only represented the raw material rolled out in attractive and acceptable F
forms. Per contra, in Devidass Gopal Krishnan, [1962) 20 S.T.C. 430
rolled steel sections were held to be products manufactured from street
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 G
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: H
196 SUPREME COURT REPORTS (1991] SUPP. 2 S.C.R.

A (a) A succinct summary of the processes involved, illustrated 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 unnecessary 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
B 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
steel:

(i) the first stage when ingots are obtained by tapping and then
teeming the molten steel into rectangular moulds;
c (ii) the second stage where semi-finished steel is cast in the form of
blooms, billets and slabs by reheating the ingots to an appropri-
ate 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
D finished steel products; bars, plates, structural shapes, rails, wire,
tubular products, coated and uncoated sheet steel etc. all in the
many fom1s 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
E
(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;
F (iii) Bar mills for producing bars which may be flat,
round, halfround, triangular, square,
haxagonal or octagonal;
(iv) Seamless pile mi.lls : for producing pipes and tubes and
skelp mills and other tubular products;
G 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 mHls
H
C.I.T. v. STEEL ROLLING MILLS [RANGANATHAN, J.) 197

(b) .The Explanatory Not to Chapter 72 (Iron and Steel) of the Har- A
monised Commodity Description and Coding Nomenclature (HCCN) are
also on the same lines. The chapter covers the ferrous metals (pig iron,
as
spilgeleisen, ferro-alloys and other materials) as well 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 stain-
less steel and of other alloy steel. It is pointed out that iron ore, waste, B
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 C
castings and the remainder are cost into the forms of pigs or blocks, in
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 sr.rap constitute the primary steel making materials. Steel mak-
ing processes are either pneumatic or hearth processes and the steel pro-
duced by these and other processes are classified in various ways. Al- D
though molten steel may be cast (in foundries) into its fmal shape in
moulds °{steel castings), most molten steel is cast into ingots in moulds. At
the casting, pouring and solidification stages, steel. is classifed as 'rim-
ming' 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, bil- E
lets, rounds, slabs, sheet bars) on primary cogging or roughing mills (bloom-
ing, slabbing etc.) or converted by drop hammer or on a forging press into
semi-finished forgings. Semi-finished products and, in certain cases, in-
gots are subsequently converted into fmished 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 F
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 grind-
ing or predsion turning. The chapter proceeds to classify the . var,i'ous
products in considerable detail. G •

(c) Reference has also been made to the tariff classification8 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 H
198 SUPREME COURT REPORTS [1991) SUPP. 2 S.C.R.

A 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 extracts and definitions as we do not think they can assist us in
coming to any conclusion on the issue before us.
B
Basically the argument of counsel proceed on the following lines:

Sri Ramachandran, learned counsel appearing for the assessee, con-
tends that, in the steel making industry, the manufacture of ingots, billets,
blooms, etc. represents only an intennediate stage at which the iron and
C steel metal becomes semi-finished steel. The semi-finished steel is con-
verted into plates, bars or rods which are described as "finished steel''.
According to him, the bars, rods and rounds continue to be iron and steel
in a finished fonn. It is only finished steel that is subsequently used to
manufacture, by .various proce&es such as rolling, cutting, shearing, forg-
ing, hammering and so on into various kinds of products, which can be
D 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) 1221.T.R. 550 where, while following the
earlier decision in Indian Steel and Wire Products Ltd. v. CTT, (1977)108
I. T.R. 802, the court observed that there is really no divergence in view
E between the Calcutta and Kerala views and that the real question for
consideration in each case is whether the articles in question constitute
finished p.roducts and represent articles of iron and steel or merely repre-
sent the raw material viz. iron and steel (metal) in a different form and
shape.

F On the other hand,. Dr. Gauri Shankar, learned counsel for the De-
partment, submits that iron and steel ceases to be a metal when it comes
out of the furnace in the primarf~~el mills in the form of ingots. At the
best, the next stage at which th~tngots become.semi-finished products in
the shape ofbillets, 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
G imagination can the next stage during which the billets, blooms and slabs
are heated and passed through various types of mills enumerated earlier be
cdnsidered as involving not any manufacture but only a conversion of the
rawmaterial into other fonns or other shapes. According to the learned
counsel, the expression "iron and steel (metal)" only comprehends the
iron and steel as it emerges in the fonn of billets, blooms and slabs from
H the ste~l mills and that ail subsequent products whether in the form of
C.l.T. v. STEEL RO~LING MILLS [RANGANATHAN, J.) 199

rails, rods (including wire rods), bars, angles, channels, tees, zees, pipes, A
tubes, sheets, strips, plates and coils turned out by the various other types
of mills would constitute 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 Chambers of Commerce and
Industry, ~hat "rolling mills making bars and rods are not covered by item
1 of the Fifth Schedule". B

We have considered the arguments addressed by both counsel. In
our opinion, Sri Ramachandran is right in contending that in interpreting
the provisions under consideration, 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 ~th the introduction of C
a rebate for exporters under the .Finance Act J.Vl963 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 Sched-
ule to the Industries (Development & Regulation) Act, 1951. Item l of the
said Schedule reads : D

"1. Metallur~cal Industries :
A. Ferrous:
(1) Iron and Steel (Metal)
(2) Ferro-alloys E
(3) Iron and Steel castings and forgings
(4) Iron and Steel structurals
(S) Iron and Steel pipes
"'-.
(6) Special Steels
(7) Other products of iron and steel F
B. Non-ferrous
(1) Precious metals including Gold and Silver, and their alloys;
(lA) Other non-ferrous metals and their alloys;
(2) ·Semi-manufactures and manufactures.
Again, in 1964, when the Finance Act of 1964 decided to grant a G
rebate in the corporation tax payable by companies in order to encourage
developent of certain industries which occupy an important place in our
economy~ the list of industries named in the Finance Act was similar to
and included many of the items, including items 1 to 3, of the list we are
CQncemed with now. The reliefs were given to strengthen the reserves and H
augment the capacity of the corporate sector to develop. This process was ·
200 SUPREME COURT REPORTS [1991 ]' SUPP. 2 S.C.R.

A continued under the Finance Act of 1965 : Vide, (1965) 55 I.T.R. (St.) 57
and 122 which introduced a higher development rebate for machinery or
plant installed for the purposes of construction, manufacture or production
of any one 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 coummunity.
H This historical background reflects the intention of the legislature to grant
progressively certain exemptions, reliefs or concessions for certain types
of industries which were considered important for national 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
C these provisions has to be construed 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 J and 2 are concerned, as
earlier pointed out, the wording points to a distinction between the metal '
which is used as the base and other articles manufactured therefrom. We >
D 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". Like-
wise, we think, 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 "fin-
E ished" to assum~ these forms before manufacturers of iron and steel arti- (
cles 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 C.lT. v. Tensile Steel Ltd.• (1983) 141
I.T.R. 223 (Guj) or, again, producing articles of iron like ploughs, shovels, /
l
pickaxes, lathes, blowers, surface guiders and drills as in Cl T. v. Ludhiana l

F 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
G 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.
Gaurisbankar, that the machinery and plant in "rolling mills" will not be
eligible for the higher development rebate would not, therefore, 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
H industry. If machinery and plant installed in steel mills where the process
C.l.T. v. STEEL ROLLING MILLS [RANGANATHAN, J.] 201

includes not merely the production of ingots, billets and the like but also A
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,
t() 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 by classifications of stages of manufacture that may be B
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 con-
sidered 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, C
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 fmished 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 D
cutting or turning. The rod or the wire rods (with which some of the
decisions were concerned) are likewise not product-; of iron and steel but
only certain finished or refined fonns of the metal itself.

' We do not think much assistance can be derived for the interpreta-
tion of the provision before us from the Central Excise & Salt Act or the E
various classifications statutorily or commercially drawn up for that pur-
pose. They are ptore 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 interpretation of
item I to the schedule can be derived from item no. I I, which refers to F
"forgings and castings". These expressions obviously refer to articles ob-
tained 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. I
should be interpreted strictly because of the existence of item no. I I seems
to proceed on an erroneous basis. It would be more appropriate to say that
forging and castings are not covered by item I being articles made of iron G
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 intro-
\ duced. 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 atiy H
202 SUPREME COURT REPORTS . (1991) SUPP. 2 S.C.R.

A concluded opinion on this aspect because item no. I I 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 princi-
B pally to have turned on the question whether an a5sessee manufacturing
these articles out of iron scrap would be entitled to the higher develop-
ment rebate. The assessee cited a circular of the Board that, under item 2
of the schedule, the higher development rebate would be available to an
assessee who manufactured articles from aluminium scrap [vide, circular
no.25 D (XIX-16) dated 10th October, 1966]. The High Court, on this
c 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.

D 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 inter-
ference. The appeals, therefore, fail and are dismissed. But in the circum-
stances we make no order regarding.costs.

V.P.R. Appeals dismissed.