1964 (11) TMI 96 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the proviso to rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, is ultra vires of section 18B of the Bombay Sales Tax Act, 1953.
2. Whether set-off is admissible to the applicant-mill for the general sales tax and purchase tax paid on groundnut purchases under rule 11(1A) read with section 18B(2) of the Bombay Sales Tax Act, 1953.

Issue-wise Detailed Analysis:

Issue 1: Ultra Vires of Rule 11(1A)
The applicants contended that the proviso to rule 11(1A) was in conflict with section 18B(2) and exceeded the rule-making power of the State Government under section 18B(1). The argument was that section 18B(2) mandated the State Government to provide for set-off in the rules without any restrictions on the type of goods manufactured. The court analyzed the scheme of the Act, particularly section 18B, noting that while sub-section (1) was an enabling provision, sub-section (2) was mandatory, requiring set-off against the sales tax payable under section 8. The court observed that the proviso to rule 11(1A) restricted set-off to goods specified in entries 19 to 80 of Schedule B, which seemed to conflict with the unrestricted right of set-off under section 18B(2).

However, the court concluded that the object of section 18B(2) was to provide relief against double taxation, not to grant a total exemption from tax. Since no sales tax was payable on goods under entries 1 to 18 of Schedule B, including edible oil (entry 14), there was nothing against which set-off could be claimed. Therefore, the proviso to rule 11(1A) was consistent with the scheme of section 18B(2) and did not exceed the rule-making power.

Issue 2: Admissibility of Set-off
The applicants claimed set-off for the general sales tax and purchase tax paid on groundnut purchases, arguing that section 18B(2) provided an absolute right to set-off. The Sales Tax Officer, Assistant Commissioner, Deputy Commissioner, and Sales Tax Tribunal all rejected this claim, stating that set-off could only be granted if the manufactured goods were covered by entries 19 to 80 of Schedule B. The court agreed with this interpretation, noting that section 18B(2) provided for set-off against the sales tax payable under section 8. Since no sales tax was payable on edible oil, the applicants could not claim set-off.

The court further explained that the right to set-off under section 18B(2) was not independent or unconditional but was conditioned on the dealer having to pay sales tax under section 8. Allowing set-off in cases where no sales tax was payable would effectively grant a refund, which was not the intention of section 18B(2).

The court also rejected the argument that the amended section 18B(2), which omitted the proviso restricting set-off to goods under entries 19 to 80, granted an unconditional right to set-off. The court held that the omission of the proviso did not change the requirement that set-off could only be claimed against sales tax payable under section 8.

Conclusion
The court answered the second question in the negative, stating that set-off was not admissible to the applicant-mill for the general sales tax and purchase tax paid on groundnut purchases. As the second question was answered in the negative, it was unnecessary to answer the first question regarding the vires of rule 11(1A). The applicants were ordered to pay the costs of the reference.