1976 (3) TMI 200 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of clause (c) of sub-rule (2) of rule 11 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954 for set-off claim on general sales tax paid on purchases of electric meters given on rent.

Detailed Analysis:

The judgment by the Bombay High Court involved a reference under section 34(3) of the Bombay Sales Tax Act, 1953, initiated by the Commissioner of Sales Tax. The case revolved around the assessees' claim for a set-off in relation to the general sales tax paid on the purchase of electric meters, which were provided on rent to consumers receiving electricity from the assessees. The sales tax authorities initially disallowed the set-off, citing rule 11(2)(c) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954. However, the Sales Tax Tribunal overturned this decision, stating that electric meters were essential machinery for supplying electricity and fell within the scope of the rule. The Commissioner sought to raise questions of law, but the Tribunal declined to refer them to the High Court initially.

The High Court, upon directing the Tribunal to refer the questions of law, found the Tribunal's refusal to comply as judicial indiscipline. The Court proceeded to consider the questions raised, primarily focusing on the interpretation of clause (c) of sub-rule (2) of rule 11 of the said Rules. It was established that electric meters, being machinery or equipment, were crucial for measuring and selling electrical energy, which was considered goods for sales tax purposes. The Court drew parallels with a Supreme Court decision regarding goods used in the generation or distribution of electricity, supporting the view that equipment facilitating the sale of electricity qualifies as machinery used in processing goods for sale.

The Court rejected the argument that goods become "goods for sale" once fully manufactured, emphasizing the necessity of measuring electrical energy before sale. Consequently, the Court affirmed the Tribunal's decision, allowing the set-off claimed by the assessees under rule 11(2)(c) of the said Rules. The questions referred to the Court were answered in the negative, and the applicant was directed to pay the assessees' costs for the reference. The judgment concluded with the reference being answered in the negative, affirming the assessees' entitlement to the set-off.