Indian Copper Corporation Limited vs Commissioner Of Commercial Taxes

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 19 October, 1964

Coram: J.C. Shah, K. Subba Rao, S.M. Sikri

In this matter, the Court recorded that Indian Copper Corporation Limited was a company formed under United Kingdom law, with its Indian registered office situated at Ghatsila in the Singhbhum district of Bihar. The corporation owned and operated its own copper and iron‑ore mines, extracted the ore, conveyed it to its factory, and produced finished metal products for sale. To support its manufacturing activities, the corporation regularly purchased a wide variety of goods from markets outside Bihar. Some of these items were employed directly in the manufacturing process and in the copper and kyanite mines, while others were bought for use in the corporation’s offices, factory premises, mining sites, and in hospitals that the corporation maintained to provide medical care for its employees.

The corporation submitted an application on 30 April 1957 to the Superintendent of Sales Tax at Jamshedpur, seeking registration as a dealer under the Central Sales Tax Act of 1956 (Act 74 of 1956). In its application, the corporation listed various items that it desired to be specifically mentioned in the registration certificate pursuant to section 8 of the Act. The superintendent issued a registration certificate but omitted certain categories of goods that the corporation claimed should have been specified under section 8(3)(b). Consequently, the corporation approached the Patna High Court invoking Articles 226 and 227 of the Constitution, asking the court to direct the superintendent to include the omitted items in the registration certificate and to restrain the tax authority from levying or collecting tax on the corporation at a rate higher than one per cent under section 8(1). The corporation identified the goods it wanted specified as follows: (i) locomotives and motor‑vehicles; (ii) accessories and spare parts for motor‑vehicles and locomotives; (iii) household, laboratory, hospital and general furnishings and fittings; (iv) medical supplies; (v) stationery; (vi) tyres and tubes for motor‑vehicles; and (vii) cane baskets. The High Court examined the request and held that the following categories fell within the ambit of section 8(3)(b) and could be listed in the certificate: (i) locomotives and motor‑vehicles actually used for transporting raw materials during manufacturing; (ii) locomotives and motor‑vehicles employed both underground and on the surface in mining operations; (iii) accessories and spare parts for those locomotives and motor‑vehicles; (iv) tyres and tubes for those motor‑vehicles; and (v) laboratory fittings employed for sampling and analysing ores and other raw materials in the early stages of mining and manufacturing.

In this matter, the petition of the Corporation seeking specification of the remaining categories of goods was dismissed by the High Court. The Corporation, after obtaining special leave, lodged an appeal against that order before this Court. The appeal turns on several material provisions of the Central Sales Tax Act, which are reproduced for the record. Section 6 of the Act empowers the Central Government to recover tax on every sale effected by a dealer in the course of inter‑State trade or commerce during any given year. Section 7 deals with the registration of dealers. The first sub‑section of Section 7 states that every dealer liable to pay tax under the Act shall, within the prescribed time, apply for registration to the authority in the appropriate State as specified by the Central Government, and the application must contain particulars as prescribed. Sub‑section (3) of Section 7 provides that if the authority receiving the application is satisfied that the application complies with the Act and the rules made thereunder, it shall register the applicant and issue a certificate of registration in the prescribed form, which shall specify the class or classes of goods for the purposes of sub‑section (1) of Section 8.

Section 8, as it stood on the date of the petition, reads as follows: “(1) Every dealer, who in the course of inter‑State trade or commerce—(a) sells to the Government any goods; or (b) sells to a registered dealer other than the Government goods of the description referred to in sub‑section (3), shall be liable to pay tax under this Act, which shall be one per cent of his turnover. Sub‑sections (2) and (2A) are omitted. (3) The goods referred to in clause (b) of sub‑section (1)—(a) … (b) in the case of goods other than declared goods are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power; (c) … (d) … (4) …”. Section 13 authorises the Central Government to make rules, among other things, for “the enumeration of goods or class of goods used in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power.” These provisions form the statutory framework within which the present appeal is to be decided.

The Court noted that, under section 13, the Central Government had issued rule 13, which stipulated that the goods described in clause (b) of sub‑section (3) of section 8, and which a registered dealer was permitted to purchase, must be intended for use by that dealer as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants. These goods were to be employed in the manufacture or processing of goods for sale, in mining activities, or in the generation or distribution of electricity or any other form of power. The Corporation, in annexure B‑2 to its petition, set out the specific reasons why each class of goods sought to be specified in its certificate of registration was necessary. First, it listed locomotives and motor‑vehicles, explaining that these vehicles were used to transport raw materials and remove waste during the manufacturing process, and that they also operated both underground and on the surface in mining operations, carrying crude ore and stores needed for mining. Second, it identified accessories and spare parts for those locomotives and motor‑vehicles, asserting that such items were essential for maintaining the vehicles and ensuring their continuous operation. Third, it mentioned hospital equipment together with furnishings and fittings, stating that these were required for the hospitals run by the Corporation to preserve the health and fitness of persons employed in mining and manufacturing; it also referred to laboratory fittings, describing them as indispensable for sampling and analysing ore and other raw materials in both mining and manufacturing processes. Fourth, the Corporation listed medical supplies, contending that these were needed for the treatment of workers employed in ore mining and the manufacture of goods. Fifth, it cited stationery, noting that this was required for maintaining records, filing returns to various Government departments, preparing muster rolls, wage registers, and all necessary forms and schedules prescribed under the Mines and Factories Acts. Sixth, it pointed to tyres and tubes, explaining that these were necessary for the upkeep of the motor‑vehicles mentioned in the first item. Seventh, it named cane baskets, arguing that they were required for carrying ore and other materials during manufacturing and were also used by the sanitary department to collect refuse, thereby ensuring the health and cleanliness of the workers’ colony. The Corporation claimed that all these items were indispensable for its mining operations, for the production of copper, and for the welfare of the work‑men engaged in those activities. The High Court, however, held that the term “locomotives and motor‑vehicles” should not include those vehicles that the Corporation employed after the mining operations had ended and before the manufacturing process began, nor the vehicles used to transport finished products from the factory after manufacturing was completed. The Court reasoned that such excluded vehicles were not intended for use in the manufacture or processing of goods for sale, nor for mining operations. Consequently, the High Court also excluded from the certificate of registration the accessories and spare parts for the locomotives and motor‑vehicles, as well as the tyres and tubes for those motor‑vehicles.

In the lower court, the judges observed that laboratory fittings employed for sampling and analysis of ore and other raw materials at the early stages of the mining operation and during the manufacturing process should be included in the specification, whereas hospital equipment together with its furnishings and fittings should not be included. The judges reasoned that, despite the Corporation’s statutory obligation to provide hospital facilities for its workers, such hospital items were not liable to be listed in the certificate of registration. The court further held that stationery items and cane baskets used for carrying refuse in order to protect the health and cleanliness of the workers’ colony at the mines and the factory were also not to be incorporated in the specification. Moreover, the judges stated that even cane baskets employed for transporting ore and other materials did not fall within the definition provided by section 8(3)(b) read with rule 13. The Commissioner of Commercial Taxes for Bihar did not submit any affidavit in response to the Corporation’s petition. It appeared that the Commissioner was prepared to accept the Corporation’s claim on the basis that the statements made in the petition and in annexure B‑2, which described the intended use of the goods, were true. In these circumstances, the court found it difficult to understand the basis on which the High Court excluded from the category “locomotives and motor‑vehicles” those vehicles that the Corporation used after the mining operations had ended and before the manufacturing process began, as well as those used for transporting finished products. No allegation was made that the vehicles used for the excluded purposes differed from the vehicles employed for carrying and removing raw materials during manufacturing, nor from the vehicles used underground or on the surface in mining activities. The absence of such a distinction, the court noted, would itself be sufficient to reject the reservation made by the High Court. The court also expressed the view that where a dealer is engaged in both mining operations and manufacturing—two inter‑dependent processes—it would be impossible to exclude vehicles that move material from the point where mining ends to the factory where manufacturing starts. The court observed that the mining of ore and its subsequent conversion into copper goods constituted an integrated process, and therefore there was no justification for excluding from the specification those vehicles used to transport material to the factory after mining concluded. Likewise, there was no ground for excluding locomotives and motor‑vehicles that carried finished products from the factory. The expression “goods intended for use in the manufacturing or processing of goods for sale” could ordinarily be understood to include such vehicles that are intended to move processed goods from the factory to a storage location. If this interpretation were correct, the limitations imposed by the High Court concerning the vehicles, as well as their spare parts and tyres, would not be justified.

The Court observed that extending the specification to include pipes and tubes would lack justification under the applicable legal principles. Consequently, the Court held that the Corporation was entitled to the specification set out in the petition and detailed in annexure B‑2 for items (i), (ii) and (vi). Statutes governing factories and mines impose on the owner of a factory or mine a duty to maintain effective health services for the benefit of the workmen. However, the Court said that this duty does not transform hospital‑related purchases such as equipment, furnishings and fittings into goods intended for use in manufacturing, processing or mining. The mere existence of a statutory requirement that the owner provide hospital facilities does not create a sufficient link between those goods and the manufacturing or mining processes. Consequently, they cannot be classified as goods intended for use in manufacturing, processing, or mining activities as required by the relevant provision. The Corporation argued that the term “equipment” in rule 13 was sufficiently wide to encompass hospital equipment, furnishings and fittings, especially because statutes made their maintenance mandatory. The Court noted that rule 13 specifically requires that the goods, including equipment, be intended for use by the owner as equipment in the manufacture or processing of goods for sale or in mining operations. Consequently, when the equipment is not intended for use in manufacturing, processing or mining, rule 13 is not attracted. Because of these considerations, the Court was unable to accept that hospital equipment, furnishings and fittings fall within the description of equipment intended for use in manufacturing, processing or mining. Accordingly, the High Court was correct in refusing to specify hospital equipment, furnishings and fittings under the registration certificate. The Court applied the same reasoning to medical supplies, identified as item (iv), and concluded that they also could not be specified. With regard to household furnishings and fittings, the Court observed that no statutory duty requiring the Corporation to provide such items had been pointed out. Accordingly, they could not be included in the specification under section eight three sub‑paragraph b read together with rule thirteen. The term “stationery” was also found not to be intended for use in manufacturing, processing or mining, despite its usefulness in facilitating business operations. The Court clarified that “intended to be used” cannot be equated with merely “likely to facilitate” the conduct of manufacturing, processing or mining activities. The cane baskets used by the sanitary department to collect refuse for preserving health and cleanliness of the colony and of workmen employed in manufacturing were not, under earlier test, specifiable in the registration certificate. However, the Court could not agree with the High Court that the same cane baskets required for carrying ore and other materials in mining were not intended for use in the mining process. Likewise, the Court found that those baskets used in manufacturing should be considered intended for use in the manufacturing process.

The Court observed that it could not understand the reasoning adopted by the High Court in limiting the specification of laboratory fittings to those employed solely for analysis and sampling of ore and other raw materials during the initial phases of mining operations and during the manufacturing process. The judgment of the High Court did not contain any discussion or justification supporting such a narrow interpretation, and the Court found no basis in the record for imposing a reservation that would restrict the inclusion of laboratory fittings to the early stages only. Consequently, the Court concluded that the restriction imposed by the High Court was unwarranted and could not be sustained.

Accordingly, the Court ordered that the High Court’s decree be altered. It held that items (i), (ii) and (vi) together with those laboratory fittings falling under item (iii) that are used for sampling and analysis of ore and other raw materials in both mining operations and the manufacturing process for sale, as well as the cane baskets classified under item (vii) that are employed for transporting ore and other materials during the course of manufacture, shall be incorporated in the certificate of registration. In contrast, household and hospital equipment along with their furnishings and fittings that form part of item (iii), medical supplies categorized under item (iv), stationery listed as item (v), and the cane baskets used for the collection of waste to preserve health and cleanliness in the workers’ colony, which form a portion of item (vii), shall be excluded from the certificate of registration. The Court therefore allowed the appeal in part and, because the parties each achieved a partial victory, it declined to award any order as to costs.