Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Delhi Iron And Steel Co. Private Limited on 11 January, 1995
Author: D.K. Trivedi
Bench: D.K. Trivedi
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference made under section 61(1) of the Bombay Sales Tax Act, 1959 at the instance of the Commissioner of Sales Tax, the Maharashtra Sales Tax Tribunal has referred the following two questions of law to this Court for opinion :
"1. Whether, on a true interpretation of the contract of purchase dated August 23, 1973, documents produced and the correspondence exchanged, was the Tribunal justified in law in holding that the respondent had purchased iron scrap and not ship named 'M. V. State of Andhra' ?
2. If the answer to the above question is in the affirmative, whether the Tribunal was correct in law in holding, that purchase tax under section 13 is not attracted because there was resale of the scrap as per the meaning given to the "resale" in section 2(26) of the Bombay Sales Tax Act, 1959 ?"
2. The assessee, M/s. Delhi Iron & Steel Co. Pvt. Ltd., who is a dealer registered under the Bombay Sales Tax Act, 1959 ("the Act"), carries on the business of purchasing and selling old machinery, electric motors, iron and steel in the form of scrap, angles, bars, plates, etc., and scrap of non-ferrous metals. It also carries on the business of purchasing condemned unserviceable ships, dismantling the same, taking out parts and selling the same as iron and steel in the form of plates, etc. On August 23, 1973, the assessee entered into an agreement with M/s. Shipping Corporation of India Ltd. for purchase of a condemned and unserviceable cargo vessel named "State of Andhra" for a sum of Rs. 22,27,500. The purchase was subject to the terms and conditions of the said agreement of purchase. After purchase of the above ship, the assessee dismantled the same. The scrap obtained from dismantling the ship was sold mostly as scrap to re-rolling mills for manufacture of iron and steel. The timber obtained from the ship was sold as timber. Certain other items, such as boilers and generating sets which were in the ship were also sold by the assessee. The assessee paid tax on all the sales so effected by it. The assessee was assessed under the Act for the period April 1, 1973 to March 31, 1974, by the Sales Tax Officer by order of assessment dated November 15, 1974. In the said order of assessment, in addition to sales tax on sales of goods effected by the assessee, the Sales Tax Officer also levied purchase tax under section 13 of the Act on the purchase price of the condemned ship amounting to Rs. 22,27,500, as in his opinion, the breaking of ship amounted to manufacture.
Aggrieved by the levy of purchase tax under section 13 of the Act, the assessee appealed to the Assistant Commissioner of Sales Tax. The contention of the assessee before the Assistant Commissioner was that the Sales Tax Officer was wrong in holding that what was purchased by the assessee was a ship. According to the assessee, the ship in question being unserviceable and condemned, was not a ship but scrap. It was further contended by the assessee that the articles obtained from the ship were sold without doing anything on them which could be termed as "manufacture". According to the assessee, it did not manufacture anything but merely resold the articles obtained from the discarded or condemned ship and hence no purchase tax was leviable under section 13 of the Act. It was also pointed out by the assessee that the material obtained by the assessee from the unserviceable ship in question also included materials on board like boilers, life boats, life jackets, pans, propellers, mattresses, etc., valued at Rs. 3,24,785 to which in any event, section 13 cannot be attracted. The Assistant Commissioner accepted the assessee's contention in regard to the loose items found on ship and held that no purchase tax could be levied under section 13 of the Act on the value thereof. He, therefore, deleted a sum of Rs. 3,24,785 from the purchase price of the condemned ship. As regards levy of purchase tax on the balance of the purchase price, the Assistant Commissioner did not accept the contention of the assessee that what was purchased by it was not a ship but scrap and held that the purchase price represented price of the ship. The Assistant Commissioner further held that the process of dismantling the ship amounted to manufacture. He, therefore, upheld the levy of purchase tax under section 13 of the Act on the balance of the purchase price amounting to Rs. 19,02,715.
Against the above order of the Assistant Commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal ("Tribunal") and reiterated its contention that unserviceable ship was not a ship but scrap. The attention of the Tribunal was drawn by the assessee to the recitals in the tender invited by the Shipping Corporation of India, the agreement dated August 23, 1973, between the assessee and the Shipping Corporation of India and various other documents to show that what was purchased by the assessee was a condemned unserviceable ship which was no more a ship but was merely scrap. The Tribunal accepted the contention of the assessee and held that the assessee had in fact purchased re-rollable scrap in the form of old ship. The Tribunal observed that the assessee had proved before it from relevant documents that what had been purchased by it was scrap and not a ship. The Tribunal, therefore, held that the assessee purchased iron scrap in the form of condemned and unserviceable ship and sold the same, and hence section 13 of the Act was not attracted. Aggrieved by the above decision of the Tribunal, the Revenue is before us by way of this reference.
3. We have heard the counsel for the parties and perused the order of the Tribunal and the relevant documents. There is no controversy that the assessee purchased unserviceable and discarded ship, dismantled the same, and sold the material obtained on such dismantling. The question is whether section 13 would be attracted in such a case. Section 13 of the Act, as stood at the material time (April 1, 1973 to March 31, 1974), reads :
"13. Purchase tax payable on certain purchases of goods from an unregistered dealer. - Where a dealer who is liable to pay tax under this Act purchases any goods specified in Schedule B, C, D or E from a person or a Government who or which is not a registered dealer, and -
(a) uses them within the State in the manufacture of goods, or in the packing of goods (whether manufactured by him or not), or
(b) transports them to any place in India outside the State, otherwise than as a result of the resale thereof in the course of inter-State trade or commerce or in the course of export of the goods outside the territory of India, then, there shall be levied, subject to the provisions of sub-section (3) of section 7, a purchase tax on the turnover of such purchases at the rate set out against each of such goods in the aforesaid Schedule."
From a plain reading of the above section, it is clear that the levy of purchase tax is attracted if the goods purchased by a dealer are used by him in the manufacture of goods. Therefore, the question that arises for consideration is whether, in the instant case, dismantling of condemned and unserviceable ship amounts to manufacture of scrap. If the answer is in the affirmative, purchase tax would be leviable on the turnover of purchase thereof, otherwise not.
4. There is no dispute in the case before us about the fact that the ship in question was a condemned and unserviceable ship and it was sold as such for breaking and scrapping purposes. The tender itself was "for purchasing the cargo vessel 'M.V. State of Andhra' belonging to the Shipping Corporation of India Ltd. for breaking and scrapping purposes". Clause (10) of the terms and conditions of the tender specifically provides that "The hull of the vessel shall be completely scrapped, dismantled, dismembered or destroyed within the period allowed to the buyer by the concerned Government authorities from time to time". The Shipping Corporation of India had also obtained approval of the Director-General of Shipping, Ministry of Shipping and Transport, Government of India to the sale of the said vessel for scrapping purpose to the assessee. The certificates issued by the Manufacturers' Association, Iron and Steel Scrap Association of Andhra, etc., produced by the assessee before the authorities also go to show that old condemned ships which are not sea-worthy and are sold by shipping companies for scrapping purposes, are treated as re-rollable scrap as per the Import Policy [item No. 15(b)]. So far as the ship purchased by the assessee is concerned, the Shipping Corporation of India has itself categorically stated in its certificate dated July 25, 1978, that the ship "State of Andhra" was an old and condemned ship and was sold for scrapping after obtaining the requisite approval of the Government of India, Ministry of Shipping and Transport, Director-General of Shipping. There seems to be no controversy about the fact that old ship for dismantling is treated as a form of re-rollable scrap in the import policy. This is evident from the preamble to the memorandum of agreement dated August 23, 1973, between the Shipping Corporation of India and the assessee for the sale of the ship in question. The material portion thereof reads :
"Whereas the import of re-rollable scrap in the form of old ships for dismantling, as provided for against Sr. No. 15(b), Schedule B, appendix 41 of the current ITC policy, has been canalised through Metal Scrap Trade Corporation Ltd. and it would be responsibility of the buyers to apply for CCp with letter of authority through Metal Scrap Trade Corporation Ltd."
5. In the light of the above factual position, we do not find any force in the submission of the learned counsel for the Revenue that the ship purchased by the assessee from the Shipping Corporation of India has to be regarded as a "ship" notwithstanding the fact that it was condemned and unserviceable at the time of sale and was sold for breaking and scrapping purposes. We are of the clear opinion that the condemned and unserviceable ship purchased by the assessee was not a ship but re-rollable scrap in the form of old ship for dismantling. In fact, from the purchase of such ship, the assessee acquired only the old materials and articles contained therein which were sold by it in the form in which they were acquired. No process whatsoever was applied to the said goods, not to speak of any process of manufacture. He was only a second seller.
6. We are supported in our above conclusion by the decision of the Madras High Court in State of Madras v. Roman & Co. [1974] 33 STC 1. In that case, the assessee who was a dealer in scrap iron had purchased in auction condemned railway coaches sold by the railway department and also components of Nissen huts sold by the Director of Supplies and Disposal. The assessee later dismantled the condemned railway coaches as also the Nissen huts and sold the resultant timber and iron materials in bulk. The question for consideration before the High Court was whether the sale of scrap by the assessee was the first sale taxable under the provisions of the Madras General Sales Tax Act as contended by the Revenue or it was a second sale exempted from tax as contended by the assessee. The High Court held that though the sales by the railways and the Director of Supplies and Disposals were not sales of scrap iron as such, the intention of the sellers and buyers could be taken to be to sell or buy condemned articles only for the purpose of acquiring the property in the old materials contained in those condemned articles and, therefore, what the assessee purchased in the auction was scrap and when he sold the scrap later, he was only a second seller. This decision of the Madras High Court now stands approved by the Supreme Court in State of Tamil Nadu v. Roman & Co. [1994] 93 STC 185. The ratio of the above decision squarely applies to the facts of the present case. Here admittedly, the condemned and unserviceable ship was sold by the Shipping Corporation of India "for breaking and scrapping purposes". It was, in fact, made clear by the Shipping Corporation of India itself in the agreement that it was a sale of rerollable scrap in the form of old ship. What the assessee acquired from the purchase of the condemned and unserviceable ship was not a ship, but old materials and articles contained therein which were resold by it in the same form without undertaking any manufacturing activity in respect thereof. Question of using the goods purchased in the manufacture of other goods therefore cannot arise. In such a case, section 13 of the Act has no application.
7. Our attention was drawn by the counsel for the Revenue to the decision of this Court in Shree Ram Steel Rolling Mills v. State of Maharashtra [1983] 53 STC 202. On perusal of the same, we find that it has no application to the facts of the present case. The controversy is squarely covered by the decision of the Supreme Court in State of Tamil Nadu v. Roman & Co. [1994] 93 STC 185 which has affirmed the decision of the Madras High Court in State of Madras v. Roman & Co. 11974] 33 STC 1.
8. In view of the above, we are of the clear opinion that the Tribunal was justified in holding that by the purchase of condemned and unserviceable ship the assessee had purchased scrap and not ship. We, therefore, answer both the questions referred to us in the affirmative and in favour of the assessee.
9. In the facts and circumstances of the case, we make no order as to costs.
10. Reference answered in the affirmative.