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Bombay Sales Tax Act, 1959/Bombay Sales Tax Rules, 1959: Section 42/Rules 41 and 41-A-Sales tax--Right to claim set-off-Sales tax paid on purchase of raw material used in manufacture of non-taxable goods and taxable by-products for sale-Whether set-off would be available on the entire amount of tax paid on purchase of raw material -Whether principle of appointment on basis of turnover of taxable and non-taxable goods could be invoked- Whether raw material purchased by manufacturer -dealer should be used for manufacturing taxable goods only and sale of manufactured goods should be made by manufacturer-dealer himself- Byproduct yielded in the process of manufacture of main product-Whether manufacturer of main product-manufacturer of by-product also. The assessee-Oil refinery, predecessor-in-interest to the respondent Corporation in one of the appeals had registered itself as a dealer under the Bombay Sales Tax Act, 1959. During the Calendar year 1961, it had purchased sulphuric acid from a chemical company for processing and refining crude oil and manufacturing kerosene for a marketing company. On the sulphuric acid so purchased sales tax was recovered from it by the chemical company. While the refined kerosene which was not taxable upto 31.3.1961 was sold by the marketing company, the acid sludge yielded in the purification process was sold by the refinery. The refinery paid sales tax on the acid sludge sold by it, and claimed a set off (and a refund, if need be) of the sales tax paid by it on its purchase of sulphuric acid, on the ground that all the conditions set out in clause (e) of Rule 41 of the Bombay Sales Tax Rules, 1959 were fulfilled, viz., it was manufacturer within the meaning of Section 2 (17) of the Act, that it was also a registered dealer, that it manufactured taxable goods for sale, that while acid sludge was taxable throughout the year, kerosene was taxable with effect from 1.4.1961 onwards and that tax was recovered on the raw material purhased by it by the chemical company.The Sales Tax Officer allowed the set off only partly. On appeal, the Appellate Assistant Commissioner held that the assessee was entitled to no set off at all under Rule 41 since what was manufactured by the assessee was kerosene and not acid sludge, and the kerosene was sold not by the assessee-manufacturer, but by some other company. The Appellate Tribunal, however, allowed the assessee's claim in full and on reference this was upheld by the High Court. The respondent Cotton Mill in the other appeals purchased raw unginned cotton from agriculturists and unregistered dealers during periods 1.7.73 to 30.6.74 and 1.7.74 to 30.6.75 and paid sales tax on the raw cotton so purchased. The cotton was ginned yielding place to ginned cotton and cotton seed. The respondent manufactured yarn and cloth from the ginned cotton. The cotton waste and yarn waste obtained in the course of manufacture were also sold by the assessee. It paid sales tax on the yarn and cotton waste sold by it and claimed a set off, under 41-A of the Rules, or the sales tax paid on the purchase value or the entire raw cotton purchased by it. The Sales Tax Officer allowed a set off or only part of the purchase tax paid on the raw cotton purchased by the assessee proportionate to the extent or yarn sales. On appeal, the Appellate Tribunal allowed a set off or the entire purchase tax paid on the raw cotton, machinery and other purchases, which had been used in the process or manufacture or cotton waste. It, however, directed that the deductions should be so allowed as not to result in a double deduction of the same amount of purchase tax. In the appeals, by Special leave, before this Court, on behalf or the State Government, it was contended that Rules 41 and 41-A were intended to give relief to a dealer in respect of purchase of goods which were used in the manufacture of taxable goods for sale, that the manufactured goods, viz., pure kerosene was neither sold by the respondent so as to attract sales tax in his hands nor, was it liable to sales tax at all for the first three months, and the cotton purchased on payment of tax was used for the manufacture of cloth which was not liable to sales tax, and that a set off could not be allowed merely because a by-product or waste product, viz., acid sludge and cotton waste was sold for a nominal turn-over, which was subject to tax, and that the set off should be split up proportionately and allowed only to a proportionate extent, on the basis of the respective turnover of the taxable and non-taxable goods, and an apportionment of such nature was implicit in a tax law and was also in consonance with the object and purpose of the rules. On behalf of one of the respondents it was contended that under Rule 41 it was not a requirement that the manufactured goods had to be sold by the manufacturing dealer himself and that the sulphuric acid purchased was wholly used in the manufacture of two items -kerosene and acid sludge- one of which, viz., the sludge, was taxable and also subjected to tax, and the amount of set off was specified in the rule itself as the amount of purchase tax paid on the goods so used, and could not be scaled down proportionately merely because the turnover of the taxable goods was insignificant. The other respondent adopted these contentions. |
