1976 (2) TMI 166 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Calculation of set-off reduction under rule 41 of the Bombay Sales Tax Rules, 1959.
2. Calculation of set-off reduction under rule 41A of the Bombay Sales Tax Rules, 1959.

Detailed Analysis:

Issue 1: Calculation of Set-off Reduction under Rule 41
The first issue pertains to whether the set-off reduction under clause (iii) of the proviso to the explanation to rule 41 should be calculated on the entire sale price of the goods despatched or only on that part attributable to locally purchased raw materials.

Facts and Context:
The respondents, registered dealers under the Bombay Sales Tax Act, 1959, manufacture products such as chocolates and cocoa. They purchase raw materials both from registered and unregistered dealers. For purchases from registered dealers, tax amounts are collected, while for unregistered dealers, the respondents pay purchase tax.

Relevant Provisions:
Rule 41 provides for a drawback, set-off, or refund of tax paid by a manufacturer. The explanation to rule 41 includes sales of manufactured goods despatched to branches or agents outside the State and resold there. The proviso to the explanation stipulates a reduction of the set-off by 1% of the sale price of the goods despatched.

Tribunal's Interpretation:
The Tribunal held that the deduction should be 1% of the sale price attributable to locally purchased raw materials, not the entire sale price of the goods despatched.

Court's Analysis:
The Court disagreed with the Tribunal, interpreting "the sale price of the goods so despatched" to mean the sale price of the finished goods despatched. The Court emphasized that raw materials are consumed or altered in the manufacturing process and do not retain their original form when despatched. The Court also noted that the language of clause (iii) uses "goods so despatched" to refer to finished goods, not raw materials.

Conclusion:
The Court concluded that the 1% reduction should be calculated on the sale price of the finished goods despatched, not on a proportionate part attributable to raw materials. Therefore, the Tribunal's interpretation was incorrect.

Issue 2: Calculation of Set-off Reduction under Rule 41A
The second issue is analogous to the first but pertains to rule 41A, which applies to purchases made on or after 15th July 1962.

Relevant Provisions:
Rule 41A also provides for a drawback, set-off, or refund of tax paid by a manufacturer, with similar provisions for reduction by 1% of the sale price of goods despatched outside the State.

Court's Analysis:
Both parties agreed that the explanation to rule 41A does not materially differ from rule 41 for the purposes of this case. Therefore, the Court applied the same interpretation to rule 41A as it did to rule 41.

Conclusion:
The Court held that the 1% reduction under rule 41A should also be calculated on the sale price of the finished goods despatched, consistent with its interpretation of rule 41.

Judgment:
The Court answered both questions in the negative, indicating that the set-off reduction should be calculated on the sale price of the finished goods despatched outside the State. The Tribunal must compute the actual amount of set-off or refund applying the principles laid down in this judgment and in the case of Commissioner of Sales Tax v. Jai Hind Oil Mills Co. The respondents were ordered to pay the costs of the reference, fixed at Rs. 250.

Reference answered in the negative.