1970 (11) TMI 100 - HC - VAT and Sales Tax

Issues Involved:
1. Ultra vires nature of proviso (a) to rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954.
2. Effect of the deletion of the proviso to section 18B(2) of the Bombay Sales Tax Act, 1953.
3. Classification of items such as electric motors, tools, drills, switches, iron plates, angles, springs, etc., as "processing materials" or "raw materials."
4. Entitlement to set-off for sales tax paid on purchases of machinery and goods and spare parts under the Bombay Sales Tax Act, 1953.

Detailed Analysis:

Issue 1: Ultra Vires Nature of Proviso (a) to Rule 11(1A)
The main question was whether proviso (a) attached to rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, is ultra vires the provisions contained in section 18B(2) of the Bombay Sales Tax Act, 1953. The court found that the proviso restricting the right to set-off to goods used as "raw materials or processing materials" is inconsistent with the amended sub-section (2) of section 18B, which does not contain any such restriction. Therefore, the part of the proviso limiting the set-off to "raw materials, processing materials, fuel, lubricants, containers or packing materials" is ultra vires and beyond the scope of sub-section (2) of section 18B.

Issue 2: Effect of the Deletion of the Proviso to Section 18B(2)
The deletion of the proviso to section 18B(2) by the amendment effective from 1st July 1957, extended the right to set-off not to all classes of goods but only to those used in the manufacture or processing of goods specified in entries 19 to 80 of Schedule B for sale. The amended sub-section (2) mandates a set-off without prescribing any manner in which the goods should be used, indicating the Legislature's intent to remove any such restriction.

Issue 3: Classification of Items as "Processing Materials" or "Raw Materials"
The court held that items such as electric motors, tools, drills, switches, iron plates, angles, springs, etc., form part of the machinery used in manufacturing or processing finished goods and cannot be classified as "processing materials" or "raw materials" within the meaning of the proviso to rule 11(1A). These items are essential for the manufacturing process but do not merge into the finished product.

Issue 4: Entitlement to Set-off for Sales Tax Paid on Purchases of Machinery and Goods and Spare Parts
The court concluded that the applicant is entitled to a set-off for sales tax paid on purchases of machinery and goods and spare parts if these items are used in the manufacture or processing of goods specified in entries 19 to 80 of Schedule B for sale. This entitlement is consistent with the amended sub-section (2) of section 18B, which does not impose any specific conditions on the types of goods eligible for set-off, other than their use in manufacturing or processing specified goods for sale.

Conclusion:
1. Proviso (a) to rule 11(1A) is partially ultra vires, specifically the condition limiting set-off to "raw materials, processing materials, fuel, lubricants, containers or packing materials."
2. The deletion of the proviso to section 18B(2) extended the right to set-off to goods used in manufacturing or processing specified goods for sale.
3. Items like electric motors, tools, drills, switches, iron plates, angles, springs, etc., are not "processing materials" or "raw materials."
4. The applicant is entitled to a set-off for sales tax paid on machinery and goods used in manufacturing specified goods for sale.

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