1976 (2) TMI 160 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Interpretation of Section 18B(2) of the Bombay Sales Tax Act, 1953.
2. Interpretation of Rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954.
3. Validity of the Tribunal's decision on the calculation of one percent deduction for set-off.

Detailed Analysis:

1. Interpretation of Section 18B(2) of the Bombay Sales Tax Act, 1953:

The central issue revolves around the interpretation of Section 18B(2), which was amended by Bombay Act 16 of 1957. The section provides rules for granting drawbacks, set-offs, and refunds. Specifically, it mandates that in the case of a registered dealer who manufactures or processes goods for sale, there should be a set-off against the sales tax payable by him, after deducting one percent of the sale price of any goods manufactured or processed, where the sale of the goods takes place outside the pre-reorganisation State of Bombay, excluding the transferred territories.

The court emphasized the mandatory nature of this deduction, as indicated by the language "shall provide that," contrasting it with the permissive nature of the rules under sub-section (1). The deduction of one percent is mandatory for sales outside the State, and this deduction must be from the sale price of the finished product, not the raw materials or packing materials.

2. Interpretation of Rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954:

Rule 11(1A) was scrutinized to determine the correct basis for the one percent deduction. The rule provides for a grant of drawback, set-off, or refund to a registered dealer who manufactures or processes goods for sale, after deducting one percent of the sale price of any goods manufactured or processed, where the sale occurs outside the State of Bombay.

The court noted that the phrase "the sale price of any goods manufactured or processed" refers to the finished product and not the raw materials or packing materials. The court rejected the Tribunal's interpretation that the deduction should be based on the proportionate sale price of the raw materials and packing materials. The court clarified that the deduction should be from the sale price of the finished product transported and sold outside the State.

3. Validity of the Tribunal's Decision:

The Tribunal had held that the one percent deduction should be calculated on the proportionate sale price of the goods sold outside the State, attributable to the locally purchased raw material on which the respondent was claiming set-off. The court found this interpretation erroneous.

The court analyzed the language of Rule 11(1A) and Section 18B(2) and concluded that the deduction of one percent should be from the sale price of the finished product, not the raw materials or packing materials. The court also dismissed the alternative argument that the deduction should be based on the price at which the vendors sold the raw materials to the respondents.

The court emphasized that the system of drawback, set-off, and refund is integral to the taxation structure under the 1953 Act. The legislative intent was to provide relief to the manufacturing dealer in respect of the taxes paid on purchases, but this relief is subject to the deduction of one percent of the sale price of the finished product sold outside the State.

Conclusion:

The court answered the reference in the negative, holding that the Tribunal was not justified in its interpretation. The respondents were ordered to pay the costs of the reference fixed at Rs. 250.

Reference answered in the negative.