1962 (3) TMI 60 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of provisions of Bombay Sales Tax Act, 1953 regarding set-off claim by a partnership firm for purchase tax paid on raw skins, validity of rule 11(1)(II) of Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, and whether the rule indirectly levies tax on sales exempted under section 46 of the Act.

Analysis:
The case involved a partnership firm registered under the Bombay Sales Tax Act, 1953, engaged in tanning skins and selling them to purchasers outside India. The firm purchased raw skins from a slaughterhouse, separated wool from skin, and then sold the leather. The firm claimed a set-off for the purchase tax paid on raw skin against its tax liability under section 10 or rule 11(1) of the Exemptions, Set-off, and Composition Rules. The Sales Tax Officer rejected the claim, stating the goods sold were not identical to those purchased, and rule 11(1)(II) was valid, wiping off the set-off. The firm appealed to higher authorities and eventually to the Sales Tax Tribunal, which held rule 11 had no application to the case.

The Tribunal referred two questions to the High Court, focusing on the applicability and procedure of rule 11(1). The respondent conceded to the assumption that rule 11(1) applied to the case, shifting the focus to the procedure for ascertaining set-off. The Court analyzed the provisions of rule 11(1)(I) and (II), emphasizing the set-off calculation based on purchase tax paid and sale prices of goods sold outside the state. The Court explained the interplay between section 10, rule 11, and the entitlement to set-off for taxes paid on purchased goods against tax liabilities on sales to purchasers outside the state.

The Court concluded that the firm was entitled to relief under rule 11(1) due to sales to purchasers outside the state being exempt from tax under section 46. The contention that rule 11(1)(II) indirectly levied tax on tax-exempt sales was dismissed. The Court highlighted the rule-making authority's power under section 18B to provide for set-offs and refunds, affirming the validity of rule 11(1)(II) within the statutory framework. The Court answered the second question in the negative, rejecting the challenge to the validity of the rule.

In conclusion, the High Court upheld the validity of rule 11(1)(II) under the Bombay Sales Tax Act, dismissing the firm's claim for a refund or adjustment of the entire purchase tax paid. The Court emphasized the statutory provisions allowing for set-offs and refunds and ruled in favor of the tax authority. No costs were awarded, and the reference was answered accordingly.