TATA ENGINEERING AND LOCOMOTIVE COMPANY LTD.versusTHE STATE OF BIHAR AND ANR.

A     TATA ENGINEERING AND LOCOMOTIVE COMPANY LTD.
                                         v.
                     THE STATE OF BIHAR AND ANR.

                                OCTOBER 7, 1994

B                     (R.M. SAHAI AND N.P. SINGH, JJ.]

         Bihar Finance Act, 1981:

          Section 13(J)(b )--Levy of tax on concessional rate-Notification
C   regarding-Expression 'Industrial Raw Material (Inputs)'-Construction of.

          Manufacturer of Motor Vehicles, truck and bus chassis-Purchase of
    items such as tyres, tubes, batteries and use in vehicles-Held entitled to
    purchase goods at concessional rate of tax.

          Words and Phrases : 'Raw Material'-Meaning of.
D
         Section 13(l)(b) of the Bihar Finance Act, 1981 provides for special
    rate of tax on sale and purchase of goods used for manufacture or
    processing by a registered dealer in the State. In exercise of the power
    conferred by the said section, the State of Bihar issued a notification No.
E   S 0-604 dated 12.4.82 directing that the sales tax on Industrial raw
    material (inputs) payable under section 13(1)(b) shall be at the rate of one
    percentum.

          The appellant-company was manufacturing motor-vehicles, trucks,
    bus chassis, excavators and other engineering products. For this purpose,
F   it was purchasing commodities such as tyres, tubes, batteries and various
    other items which were used in producing the vehicles. The company
    claimed that the aforesaid goods purchased by It being raw material
    having been required directly for use in manufacturing goods for sale in
    the State or in the course of inter-state trade, it was entitled to conces-
G   sional rate of tax of 1% on such goods. The Deputy Commissioner, Sales
    Tax rejected the claim holding that items of inputs were in a finished state
    and were just to be fitted in the chassis without any further modification
    etc. Therefore, the purchase of such fittings was not covered by the notifica-
    tion.

H         The appellant filed a writ petition before the High Court which was
                                        410
           TATAENGG.&LOCOMOTIVECO. LTD.v. STATE                          411

 dismissed by the Division B;nch holding that the words 'industrial raw A
 material (inputs)' could not be given such a wide meaning as to result in
 widening the scope of concessional rate even to finished products. Against
 the order of the High Court, the appellant preferred appeal in this court.

       Allowing the appeal and setting aside the order of the High Court,
 this Court                                                                     B

       HELD : 1. The appellant is entitled to concessional rate of tax at 1%
 for such items as tyres, tubes and batteries which were used in the
 manufacture of the vehicle etc., as raw- material. [415-D]

       2. The word 'raw-material' has no fixed meaning. It may vary with
                                                                                c
the use to which it is put. An item may be raw-material for manufacturing
goods 'A' and the goods so prodnced may itself be raw-material for goods
'B'. For instance, batteries, tyres and tnbes are by themselves finished
products. They on their own cannot be considered to be raw-material. But
when it is used for manufacture of a vehicle then it becomes raw-material       D
for it as it is essential and necessary for producing the good in which it
has been used. No vehicle can operate or work nor can it be said tu have
been produced unless tyres, tubes and batteries are fixed to it. Use of these
items is integrally connected with the ultimate production. They retain
their identity in the end- product. But that could not exclude it from being
                                                                                E
treated as raw- material. The special rate of tax could be levied on any
goods used in the manufacture. But the Government restricted it to raw
materials. Yet the notification having been issued under Section 13(1)(b)
the benefit would extend to every raw-material used in the manufacture of
goods. In other words the concessional rate was available not only to
raw-material but such raw-material as was used in the manufacture of            F
goods. [415-E, 415-H, 416-A-C-E]

       3. Raw material has been fnrther explained by using the word
 'inputs', which dictionarily means, 'what is put in', 'enter', 'enter system'.
 The tyres, tubes and batteries were purchased for being put in the vehicle,
 which could not be operative without it. They were thns 'input'. The u_se of G
 this word was indicative that the benefit was intended for every item which
 was raw-material in the widest sense made wider by using the expression
·'input'. The purpose was for broadening the meaning of raw-material by
 inclndlng in it even those item which conld be placed in the vehicle, to make
 it marketable as vehicles. The concessional rate of tax is thus applicable H
     412                     SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A to that raw material that is put in the manufacture or use of the goods.
                                                              (416-F, 416-H, 417-A)
             !.K. Cotton Spinning and Weaving Mills Co. Ltd. v. S. T. Officer, Kanpur
     & Anr., (1965) 1 S.C.R. 900; Indian Copper Cmporation Ltd. v. 17ie Com·
     missoner of Commercial Taxes Bihai; Patna and Ors., A.I.R. (1965) SC 891;
B    Collector of Central Excise, New Delhi v. Ballmpur Industries Ltd., (1989) I
     S.C.R. 323 and Collector of Central Excise, Calcutta v.Jay Engineering Works
     Ltd., (1988) Supp. 3 S.C.R. 998, referred to.

             CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4497 of
     1985.
c
           From the Judgment and Order dated 9.7.84 of the Patna High Court
     in C.W. Case No. 1339 of 1982(R).

             R.F. Nariman, S. Sukumaran for JED & Co. for the Appellant.

 D           D. Goburdhan for the Respondents.

             The Judgment of the Court was delivered by

            R.M. SAHAI, J. The short question of law that arises for considera·
     tion in this appeal is whether any raw-material including those which were
'E
     otherwise finished products used by the appellant in manufacture or
     processing of commercial vehicles, spare parts and other engineering
     products were, 'industrial raw-material (inputs)' within the meaning of the
     expression used in the Notification issued by the State Government on I.2th
     April, 1982 in exercise of its power under Section 13(1)(b) of the Bihar
 F   Finance Act, 1981.

           The appellant, a registered dealer, under the Central Sales Tax Act,
     1956 and the Bihar Finance Act, 1981 for purpose of manufacturing and
     processing its products, namely, motor vehicles, trucks and bus chassis,
     excavators and other engineering products, purchased commodities includ-
 G   ing such commodities as tyres, tubes, batteries and various other items
     which are used for producing the goods and making them saleable com·
     modities. The appellant claimed that such goods being raw-material having
     been required directly for use in the manufacturing of goods for sale in the
     State or in course of inter-State tradethe appellant was entitled to conces-
 H   sional rate of tax at 1% on such goods. It made an application on '.'.7th
     TATA ENGG. & LOCOMOTIVE CO. LTD. v. STATE [SAHA!, J.]                413

April, 1982 before the Deputy Commissioner for issuing certificate to A
enable the appellant to purchase the goods at concessional rate on which
the order was passed to the following effect :

        "Only industrial raw material purchases will be subject to tax at
        1%. Consumables, machinery, equipments etc., will still be subject
                                                                                 B

Since, according to appellant, the order was vague, it filed another applica-
tion on 16th August, 1982 in which the details of the industries raw material
that the appellant intended to purchase were mentioned. To this the reply
given by the Deputy Commissioner was that complaints were received that          C
the appellant was paying tax of 1%, only, on all kinds of purchases
irrespective of whether materials were raw material or not. In pursuance
of this letter, the appellant submitted its reply and on 26th November, 1982,
the Deputy Commissioner rejected the claim of the appellant and observed
as under:-
                                                                                 D
        "In my opinion the term Industrial raw materials (input) means
        those inputs to the extent they are raw materials. To be very clear
        items of inputs which are in a finished state and are just to loe
        fitted in the chassis without any furtrer modifications etc., which
        are not undergoing any further process of manufacture are not            E
        Industrial raw materials and are merely fitting. The purchases of
        such fittings to bring a chassis in saleable condition are not covered
        by the aforesaid notification no. SO 604 dated 12.4.82".

The appellant challenged this order by way of a writ petition in the High
Court which was dismissed by the Division Bench and it was held that the         F
claim of the appellant that the Notification should be so read as to extend
to all the goods required for use in manufacture or processitig as con-
templated by Section 13(1)(b) and not only to raw material as mentioned
in the Notification, was not correct as the Section itself permitted the
appellant, a manufacturer, to avail of the benefit subject to the conditions     G
and restrictions to be prescribed; Since there was no unconditional right
to pay concessional rate of tax and it depended on satisfying the conditions
mentioned in the Notification, the appellant could not claim that the
Notification suffered from any infirmity or that the appellant was not liable
to be subjected to tax on what was raw-material eveh though used as
finished products for the manufacture of the vehicles. The High Court held       H
    414                  SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A that the words 'industrial raw material (input)' could not be given such a
    wide meaning as to result in widening the scope of concessional rate even
    to finished products nor did it find any merit in the submission of the
    appellant that the Deputy Commissioner had passed the order, mechani-
    cally, without applying his mind.

B         Section 13(1)(b) of the Bihar Finance Act, 1981, atthe relevant time,
    read as under:-

            "S.13.-Special rate of tax on certain sales or purchases - (1) Not-
            withstanding anything contained in this part but subject to such
c           conditions and restrictions as may be prescribed :-

            (b) sales to or purchases by a registered dealer of goods required
            by him directly for use in the manufacture or processing of any
            goods for sale in Bihar or in course of inter-State trade or com-
            merce".
D
    This Section provided for special rate of tax on sale or purchase of goods
    used for manufacture or processing by a registered dealer in the State. The
    expression used was of wide import. Similar expressions used in taxing
    statutes have been construed to be of expansive nature. In J.K Cotton
    Spinning & Weaving Mills Co. Ltd. v. S. T. Officer, Kanpur & Anr., (1965] 1
E   SCR 900 it was held that the expression, "in the manufacture of goods"
    would normally encompass the entire process carried on by the dealer of
    converting raw materials into finished products. The Court observed that
    where any particular process was so integrally connected with the ultimate
    production of goods that but for that process, manufacture or processing
F   of.goods would be impossible or commercially inexpedient then the goods
    reqnired in. that process would fall within the expression, "in the manufac-
    ture of goods'. In Indian Copper Corporation Ltd. v. The Commissioner of
    Commercial Taxes, Bihar, Patna & Ors., AIR (1965) SC 891, the vehicles
    used for removing goods to the factory after mining operations were held
    to be covered in the expression, "goods intended for use in the manufac-
G   turing or processing of goods for such sale'. On such wide interpretation
    any good used by the appellant which was integrally connected with
    manufacture or processing of vehicles would be covered in the Section. But
    the concessional rate of tax in the relevant year was for use of any goods
    under the notification issued in exercise of power under Section 13(1)(b)
H   which read as under:
    TATA ENGG. & LOCOMOTIVE CO. LID. v. STATE (SAHAI, J.)                415

                                   "NOTIFICATION                                A

             Dated 12th April, 1982.

        S.O. 604 - In exercise of the power conferred by sub-section (1)
        of section 13 of Part I of the Bihar Finance Act, 1981 (Bihar Act
        No. 5 of 1981) and in partial modification of the notification issued   B
        from time to time on the subject, the Governor of Bihar is pleased
        to direct that the Sales Tax on industrial raw materials (inputs)
        payable under the said section 13(1)(b) of the Act shall be at the
        rate of one percentum.

        (2) .................. .
                                                                                c
        (3) ..................."

What requires consideration, therefore, is whether items such as tyres,
tubes, batteries etc. purchased by the appellant for use in the manufacture D
of vehicles which are otherwise finished products could avail of conces-
sional rate of tax at 1%. That would depend on the construction and
understanding of the expression 'industrial raw-material (inputs)' used in
the Notification. The word 'raw-material' has not been defined in the Act.
It has, therefore, to be understood in the ordinary and well accepted
connotation of it in the common parlance of the persons who deal with it. E
According to dictionary, it means 'something which is used for manufac-
turing or producing the good'. The ordinary common sense understanding
of it is that it is something from which another new or distinct commodity
can be produced. When it is used in a taxing statute it may have related
meaning depending on the context in which it has been used. In Collector F
of Central Excise, New Delhi v. Bal/arpur Industries Ltd., (1989) 1 SCR 323,
a question arose whether every ingredient used in the manufacture of
goods which retain their dominant individual identity throughout and those
which are burnt up or consumed.are raw material. It was held that an item
to satisfy the test of raw-material .must.be such as should coalesce with the G
requirement that its utilisation is in the manufacturing process. And an
ingredient which retained its ·identity as end-product was as much raw
material as that which was consumed in manufacture. The word 'raw-
material' has no fixed meaning. It may vary with the use to which it is put.
An item may be raw-material for manufacturing goods 'A' and the goods
so produced may itself be raw-material for goods 'B'. For instance, bat- H
    416                   SUPREME COURT REPORTS [1994] SUPP. 4 S.C.R.

A   teries, tyres and tubes are by themselves finished products. They on their
    own cannot be considered to be raw-material. But when it is used for
    manufacture of a vehicle then it becomes raw-material for it as it is
    essential and necessary for producing the good in which it has been used.
    No vehicle can operate or work nor can it be said to have been produced
    unless tyres, tubes and batteries are fixed to it. Use of these items is
B   integrally connected with the ultimate production. They retain their identity
    in the end-product. But that could not exclude it from being treated as
    raw-material. Since the Notification was issued under Section 13(1)(b) any
    good which could be included in the expression 'raw-material' would be
    entitled to concessional rate of tax provided it was useable in manufacture
c   or processing of goods. Reading of the Notification in any other manner
    would not be in harmony with the Section. The effort of the learned counsel
    for the State to argue that the concessional rate of tax under the Notifica-
    tion was available to raw-material commonly understood and it could not
    extend to such items which were otherwise finished products, proceeded
D   on misconception. The special rate of tax could be levied on any goods
    used in the manufacture. But the Government restricted it to raw materials.
    Yet the Notification having been issued under Section 13(1)(b) the benefit
    would extend to every raw-material used in the manufacture of goods. In
    other words the concessional rate was available not only to raw-material
    but such raw-material as was used in the manufacture of goods.
E
          Raw material has been further explained by using the word 'inputs'
    which dictionarily means, 'what is put in', 'enter', 'enter system'. The
    concessional rate of tax is thus applicable to that raw material that is put
    in the manufacture or use of the goods. In Collector of Central Excise,
F   Calcutta v. Jay Engineering Works Ltd., [1988] Supp. 3 SCR 998 a question
    arose whether name plates used by manufacturer of fans being, 'input' were
    exempt from payment of excise duty which provided that duty of excise
    leviable on such goods falling under Item 1-A of Serial No.68 as used
    'inputs' would be exempt. It was held that name plate affixed on the fan
    was not a piece of decoration and the fan without nameplate could not be
G   marketed, therefore, it was exempt as provided in the notification and the
    assessee was entitled to exemption. The tyres, tubes and batteries were
    purchased for being put in the vehicle, which could not be operative
    without it. They were thus 'input'. The use of this word was indicative that
    the benefit was intended for every item which was raw-mateial in the widest
H   sense made wider by using the expression, 'input'. The purpose was for
     TATAENGG. & LOCOMOTIVE CO. LID. v. STAIB [SAHAI, J.]                417

broadening the meaning of raw-mateials by including in it even those itemo      A
which could be placed in the vehicle, to make it marketable as vehicles.

      In the result, this appeal succeeds and is allowed. The order passed
by the High Court dismissing the writ petition of the appellant is set aside.
The appellant shall be entitled to concessional rate of tax at 1% for such
items as tyres, tubes and batteries which were used in the manufacture of       B
the vehicle etc., as raw-mnaterial.

         The parties in the circumstances of the case shall bear their own
costs.

T.N.A.                                                      Appeal allowed.     C