1991 (11) TMI 1 - SC - Income Tax

Supreme Court affirms higher rate of development rebate for iron and steel products

The Supreme Court upheld the High Courts' decisions, ruling that the assessees' products (M.S. rods, bars, and rounds) are finished forms of iron and ... Development Rebate - whether an assessee manufacturing iron rods and girders out of iron scrap would be entitled to the higher development rebate - assessee cited a circular of the Board that, under item No. 2 of the Schedule, the higher development rebate would be available to an assessee who manufactured articles from aluminum scrap [vide Circular No. 25D (XIX-16) - though articles produced only from iron scrap, rebate is entitled to assessee Issues Involved:1. Entitlement to higher rate of development rebate under Section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961.2. Eligibility for relief under Section 80-I of the Income-tax Act, 1961.3. Interpretation of 'iron and steel (metal)' under the relevant Schedule of the Income-tax Act.Detailed Analysis:1. Entitlement to Higher Rate of Development Rebate:The primary issue is whether the respondent-assessees, who are steel-rolling mills manufacturing M.S. rods, bars, or rounds, are entitled to a higher rate of development rebate as specified in section 33(1)(b)(B)(i)(a) of the Income-tax Act, 1961. The determination hinges on whether these products fall under the category of 'iron and steel (metal)' as listed in the relevant Schedule of the Act.The Income-tax Officer initially rejected the assessees' claim, but this decision was overturned by the Appellate Assistant Commissioner, the Tribunal, and the High Court. The Supreme Court noted that there was a divergence of judicial opinion among various High Courts on this issue. Specifically, the Calcutta and Allahabad High Courts had ruled against the assessees, while the Kerala, Madras, Punjab and Haryana, and Allahabad High Courts had ruled in favor of the assessees.2. Eligibility for Relief under Section 80-I:The assessees also sought relief under Section 80-I of the Income-tax Act, which provides incentives to certain industries. The eligibility for this relief similarly depends on whether the products manufactured by the assessees are classified under 'iron and steel (metal)' in the relevant Schedule.3. Interpretation of 'Iron and Steel (Metal)':The Supreme Court examined previous decisions to interpret the term 'iron and steel (metal).' Three significant decisions were considered:- State of Madhya Bharat v. Hiralal [1966] 17 STC 313 (SC): The Court held that bars, flats, and plates produced from scrap iron retained their character as 'iron and steel' and were exempt from sales tax.- Devi Das Gopal Krishnan v. State of Punjab [1967] 20 STC 430 (SC): The Court ruled that converting steel scrap and ingots into rolled steel sections constituted manufacturing, thus subjecting the final product to sales tax.- Hindustan Aluminium Corporation Ltd. v. State of U.P. [1981] 48 STC 411 (SC): The Court concluded that aluminium rolled products and extrusions were distinct commercial items from aluminium ingots and billets, thus not covered by the term 'metals and alloys' in the relevant notifications.The Supreme Court emphasized the distinction between 'iron and steel (metal)' and products made from iron and steel. The Court noted that 'iron and steel (metal)' refers to the raw material used in manufacturing other goods, while the products made from iron and steel are distinct commercial items.The Court reviewed technical literature on the iron and steel industry, noting that the manufacturing process involves multiple stages, including the production of ingots, billets, blooms, and finished products like bars, rods, and rounds. The Court concluded that M.S. rods, bars, and rounds are finished forms of iron and steel, not articles made from iron and steel.Conclusion:The Supreme Court upheld the High Courts' decisions, ruling that the assessees' products (M.S. rods, bars, and rounds) are finished forms of iron and steel, thus qualifying for the higher rate of development rebate and relief under Section 80-I. The Court dismissed the appeals filed by the Revenue, confirming that the assessees are entitled to the claimed benefits. The Court made no order regarding costs.Appeals Dismissed.