1965 (11) TMI 103 - SC - VAT and Sales Tax

GOODS USED FOR THE PURPOSE OF PRODUCING OTHER GOODS FOR SALE PURCHASE OF UNGINNED COTTON USER OF GINNED COTTON IN TEXTILE MANUFACTURE AND SALE OF COTTON SEEDS REFUND OF PURCHASE TAX

Summary

Issues:
1. Interpretation of rule 6 and rule 12 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954.
2. Entitlement to a refund of purchase tax paid on unginned cotton.
3. Relevance of the intention at the time of purchase in determining eligibility for a refund under rule 12.

Analysis:
The Supreme Court of India heard an appeal against the judgment of the Gujarat High Court regarding a Sales Tax Reference made to it by the Gujarat Sales Tax Tribunal. The case involved two questions referred by the Tribunal, primarily focusing on the purchase of raw cotton and the entitlement to a refund of purchase tax paid. The respondent, a manufacturer of cotton textiles, purchased unginned cotton and paid purchase tax on it. The dispute arose when the respondent sought a refund of the purchase tax under the Bombay Sales Tax Rules, which was denied by the Sales Tax Authorities. The respondent appealed through various stages until the matter reached the High Court.

The main contention before the Supreme Court was the interpretation of rules 6 and 12 of the Bombay Sales Tax Rules. The appellant argued that the purpose specified in rule 12 must be the production of goods for sale, including unginned cotton, ginned or pressed cotton, or cotton seeds. On the other hand, the respondent contended that the purpose specified in the rule only pertains to the production of goods without the requirement of sale. The Court sided with the appellant's interpretation, emphasizing that the purpose must be the production of goods for sale, and the words "for sale" must be given effect to.

However, even with the requirement of production for sale, the Court found that the respondent was still entitled to a refund under rule 12(1). The Court clarified that while rule 6 considers the intention at the time of purchase, rule 12 does not incorporate that intention. Rule 12 focuses on the actual use of the goods for the specified purpose, which in this case was the production of cotton seeds from unginned cotton. As the conditions for a refund were met, the respondent was deemed eligible for the refund, and the High Court's decision in favor of the respondent was upheld.

In conclusion, the Supreme Court dismissed the appeal and affirmed the High Court's decision, stating that the respondent was entitled to a refund of the purchase tax paid on unginned cotton. The Court highlighted the importance of the purpose of production for sale in determining eligibility for a refund under the relevant rules, ultimately resolving the dispute in favor of the respondent.