R.R. Industries vs State of U.P. and Others

Heard learned senior counsel for the Petitioner Sri Kunwar Saksena and the learned standing counsel for the Respondents.

Pleadings have been exchanged and therefore the matter is being disposed of finally at the stage of admission itself.

By means of this petition, the Petitioner has sought the following relief:

(i)to issue a writ, order or direction in the nature of certiorari quashing the authorization orders dated 28.3.08 passed by Respondent No. 2 for the assessment year 2001-02 (U.P. & Central) (Annexure-4 to the writ petition).

(ii) to issue a writ, order or direction in the nature of certiorari quashing the notices dated 28.3.08 issued by Respondent No. 3 for the assessment year 2001-02 (U.P. & Central) (Annexure 5 to the writ petition).

(iii) to issue a writ, order or direction in the nature of mandamus directing the Respondent No. 3 to refrain from proceeding to reassess the Petitioner u/s 21(2) of the Act for the year 2001-02 (U.P. & Central).

(iv) to issue a writ, order or direction in the nature of mandamus directing the Respondent No. 3 to refrain from recovering any tax in respect of re-assessment u/s 21(2) of U.P. Trade Tax Act for the assessment year 2001-02 (U.P. & Central).

(v) to issue any other writ or order which this Hon''ble Court may deem fit and proper in the circumstances of the case.

The facts of the case are that the Petitioner is engaged in the business of manufacturing and supply of elastic rail clips, which are supplied by it exclusively to the Indian Railways. The business of the Petitioner has therefore registered u/s 8A of the U.P. Trade Tax Act (hereinafter referred to as Act) and also u/s 7(1) and 7(2) of the Central Sales Tax Act (hereinafter referred as Central Act).

For the relevant assessment year i.e. 2001-02, the Petitioner disclosed sale of elastic rail clips in the State of U.P. at Rs. 1,91,141/-and inter-State sale at Rs. 98,18,670/-.

The case of the Petitioner is that elastic rail clips manufactured by it are made of iron and steel and are used as fastening/fitting device for purpose of conjoining the rails in position on P.S.C. Sleepers.

According to the Petitioner, the clips are manufactured by the process of forging iron and steel and therefore are covered under declared goods falling u/s 14 (iv) and (viii) in the category of ''discs, rings, forgings and steel casting''. These forged goods were liable to tax at the rate of 4% for the purpose of assessment under the Act and also under the Central Act against Form ''C'' and ''D'' as the case may be.

For the year 2000-01, Petitioner''s business was assessed and the product was taxed at the rate of 4% and this is apparent from the assessment orders, which were passed for the Petitioner both under Central Act and Act. These assessment orders have been placed by the Petitioner as Annexure 1 to the writ petition.

As it was provided u/s 4-BB of the Act, the Petitioner also claimed a set off for the tax paid on the purchase of raw-material under a notification No. 1223 dated 22.5.1998 as a result of this, a sum of Rs. 1,34,279/-was reduced from the liability of tax created in respect of the assessment for the year in question.

After a gap of several years, the Addl. Commissioner (Commercial Tax), Meerut issued a notice u/s 21(2) of the Act on 17.3.2008 wherein he stated that elastic rail clips were not declared goods and were therefore not entitled to any set off u/s 4-BB of the Act and in fact elastic rail clips manufactured by the Petitioner is an unclassified item and was liable to tax at the rate of 10% for both U.P. Trade Tax Act and Central Sales Tax Act.

Two notices were issued on 17.3.2008 which are also on record of the case. The Petitioner filed reply to these two notices and placed before the authority the decision of the Hon''ble Apex Court in the case of Vee Kay Industries v. Collector, Central Excise, New Delhi reported in 1997 ELT 94-95, wherein the Hon''ble Apex Court approved the decision of CEGAT, Special Bench, in the case of Sikka Heat Treatment Centre v. Collector of C. Ex. wherein the elastic rail clips have been classified as forgings and therefore liable to be taxed at the rate of 4%.

In response of the reply, the Addl. Commissioner (Commercial Tax) authorised the assessing authority to reopen the Petitioner''s case for re-assessment u/s 21(2) of the Act by an order dated 28.3.2008. By this order of authorisation, the Petitioner is mainly aggrieved and is seeking the relief of certiorari for setting aside the aforesaid order. The Petitioner has also prayed for quashing of notices u/s 21(1) of the Act issued by the Assessing authority after the approval order passed by the Addl. Commissioner.

Learned Counsel for the Petitioner has referred to the manufacturing process under which iron and steel is cut into small pieces in desired size and thereafter pressed into loose shape and just after, it is dipped into oil to produce uniform hardening. This process, he states, conforms to the method of forging as described in Standard Text Book on forging products.

Learned Counsel has submitted that elastic rail clips manufactured by the Petitioner cannot be manufactured by any other process other than by forging.

The main plank of the argument of the Petitioner''s counsel is that the Petitioner had placed before the Addl. Commissioner the decision of the Hon''ble Apex Court in the case of Vee Kay Industries v. Collector, Central Excise, New Delhi, reported in 1997 (94) ELT 5 (SC) wherein the Hon''ble Apex Court had upheld the decision of CEGAT in the case of 1998 (77) ECR 606 wherein the Tribunal had held that elastic rail clips were classifiable under item 26-AA (ie)/25 (8) of the erstwhile Central Excise Tariff and not under item 68 i.e. it was accepted to be "forging". We quote from the judgment as under:

Learned Counsel for the Appellant M/s. Vee Kay Industries submitted that a Special Bench of five members of Central Excise & Gold (Control Appellate Tribunal (CEGAT) has considered the same question and taken the view in favour of the Assessee that elastic rail clips are classifiable under Item 26AA (ia)/25(8) of the erstwhile Central Excise Tariff and not under Item 68....

Apart from the fact that the Department itself has accepted the Tribunal''s view taken in Sikka Heat Treatment Centre (supra), we also find that this is the more appropriate view to take in the facts of the case. These appeals have, therefore, to be allowed.

The contention of the learned Counsel for the Petitioner is that clearly the Supreme Court in the case of Vee Kay Industries (supra) had accepted that elastic clips were forging and had endorsed the view taken by the CEGAT bench in the case of Sikka Heat (supra).

Learned Counsel for the Petitioner has also contended that the Respondent No. 2 while authorising the Respondent No. 3 to reopen the Petitioner''s case has wrongly relied upon the decision of Hon''ble Madras High Court in the case of Opera Arts Industries v. Registrar, Tamilnadu Taxation Special Tribunal reported in 142 STR 113, in which the Hon''ble Madras High Court has simply stated that it is not in agreement with the view taken by CEGAT in the decision of Sikka Heat.

Learned Counsel has contended that Madras High Court has not taken into consideration the fact that the Apex Court in the case of Vee Kay Industries had accepted the decision of CEGAT and also on its own taken a view that such elastic rail clips manufactured are nothing but forgings.

For the reasons as stated above, the learned Counsel for the Petitioner has contended that in view of the decision of this Court in the case of S.K. Traders v. Addl. Commissioner, 2007 NTN vol. 34-345, it cannot be said that the authorisation made in the present case for reopening is either rationale, genuine or relevant and there is no justification at all for reopening the case of the Petitioner that too after such a long time.

In reply to the contentions made by the Petitioner, learned standing counsel has stated that the department has relied on the decision of Madras High Court in the case of Opera Arts Industries (supra) wherein it has been held that the elastic rail clips did not come in the category of forging and therefore cannot be declared goods u/s 14 of the Central Sales Tax Act.

This stand has been adopted by the learned standing counsel in para 5 of the counter affidavit also. There is no reply by the learned standing counsel to the contentions made by the learned Counsel for the Petitioner that the Supreme Court had in fact in the case of Vee Kay Industries (supra) approved the decision of CEGAT in the case of Sikka Heat (supra) and also of its own opinion that the elastic rail clips are nothing but forging.

Having heard learned Counsel for the parties and having perused the material on record, we are of the opinion that the arguments as raised by the learned Counsel for the Petitioner have substance. However from the facts, it clearly emerge that the decision of CEGAT in the case of Sikka Heat, which relates to the classification of the same i.e. elastic rail clips has been conformed and approved by the Hon''ble Supreme Court in the case of Vee Kay Industries. The Supreme Court has clearly stated that the elastic rail clips are forgings. In this view of the matter, we are of the view that elastic rail clips are classified items u/s 14 of the Central Act.

Upon reading of the Madras High Court decision, it appears that this factum has not been noticed by the Madras High Court. However since it is clear from the decision of the Apex Court that the elastic rail clips had not only been accepted by the department to be under the classification of forging but the same classification has also been approved by the Hon''ble Apex Court. We also come to the conclusion that elastic rail clips are in the nature of "forgings". Therefore the notices issued u/s 21(2) of the U.P. Act for reassessment are not justified as there is no doubt about classification of the item. The authorisation made for the authority concerned for reopening the case is also not justified in the facts and circumstances of the present case and therefore both the notices dated 17.3.2008 as well as authorisation dated 28.3.2008 i.e. Annexure 2, 4 and 5,are set aside by this Court.

The writ petition is allowed as above. No costs.