1975 (1) TMI 66 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of the proper formula for estimating turnover liable to purchase tax under section 14(1) of the Bombay Sales Tax Act, 1959.
2. Applicability of the burden of proof under section 14(3) of the Bombay Sales Tax Act, 1959.
3. Validity of the pro rata method used by the Assistant Commissioner for calculating purchase tax liability.

Issue-wise Detailed Analysis:

1. Determination of the proper formula for estimating turnover liable to purchase tax under section 14(1) of the Bombay Sales Tax Act, 1959:
The respondents, registered as a dealer under the Bombay Sales Tax Act, 1959, engaged in manufacturing hydrogenated vegetable oil and other products. They made purchases of raw materials, some with certificates in form 15 and others without. The main issue was how much of the purchase price of the goods purchased should be included in their turnover of purchases and made liable to purchase tax under section 14(1). The Sales Tax Officer initially applied a formula presuming that the raw materials purchased against certificates in form 15 were used in the manufacture of products sold in accordance with the declaration in such certificates, resulting in a 3% purchase tax liability. However, the Assistant Commissioner revised this and applied a pro rata method, determining a 26% purchase tax liability, which was later contested and led to the Tribunal favoring the Sales Tax Officer's method.

2. Applicability of the burden of proof under section 14(3) of the Bombay Sales Tax Act, 1959:
Section 14(3) of the Act places the burden of proof on the dealer to show that the purchase price of goods purchased under a certificate is not liable to be included in the turnover of purchases. The Assistant Commissioner emphasized this statutory burden, arguing that the respondents failed to prove the specific use of goods purchased against certificates in form 15 in the manufacture of products sold in conformity with the declarations. The Tribunal's decision to favor the respondents' method was challenged as it effectively nullified the statutory burden of proof.

3. Validity of the pro rata method used by the Assistant Commissioner for calculating purchase tax liability:
The Assistant Commissioner adopted a pro rata formula, considering the ratio of "non-qualifying sales" to total sales and the ratio of purchases made against certificates in form 15 to total purchases. This method was deemed logical and fair as it avoided the harsh result of including the entire purchase price of goods in the taxable turnover when the dealer fails to prove specific use. The pro rata method was also seen as consistent with the statutory burden of proof, ensuring that the dealer's failure to maintain separate accounts or prove specific use did not result in an undue advantage.

Conclusion:
The Court concluded that the pro rata formula adopted by the Assistant Commissioner was the appropriate method for estimating the turnover of purchases liable to purchase tax under section 14(1) in cases where the dealer fails to discharge the burden of proof under section 14(3). The Tribunal's decision to favor the Sales Tax Officer's method was incorrect, and the reference was answered in the negative, with no order as to costs.