1977 (11) TMI 127 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sulphuric acid purchased by the respondent-company for refining crude kerosene was used in the manufacture of taxable goods for sale.
2. Whether the respondent-company was entitled to the full set-off of Rs. 13,421.15 or only to the extent of Rs. 1,101.40 as held by the Sales Tax Officer.

Issue-Wise Detailed Analysis:

1. Use of Sulphuric Acid in the Manufacture of Taxable Goods for Sale:

The respondents carried on the business of processing and refining crude oil to manufacture kerosene, which belonged to Burmah Shell Oil Storage and Distributing Company of India Limited. They required sulphuric acid for refining crude oil and entered into an agreement with Dharamsi Morarji Chemical Company Limited to purchase all their sulphuric acid requirements. The agreement stipulated that the respondents would not manufacture sulphuric acid for their own consumption or sale and would use the supplied sulphuric acid exclusively for their consumption. A byproduct of refining crude oil into kerosene is acid sludge or spent acid, which the respondents agreed to sell to the chemical company.

The respondents contended that they were not dealers and were not liable to be registered as such. However, the Sales Tax Officer, Assistant Commissioner of Sales Tax, and Deputy Commissioner of Sales Tax held otherwise. The respondents were registered as dealers and obtained recognition under section 25 of the Bombay Sales Tax Act, 1959. They claimed a set-off for the amounts collected from them by the chemical company to cover the sales tax on sulphuric acid sales.

The Tribunal held that the respondents were entitled to the full set-off claimed by them. The Commissioner of Sales Tax applied to the Tribunal to refer two questions to the High Court for determination. The Tribunal reframed the first question to address whether the sulphuric acid purchased by the respondent-company for refining crude kerosene was used in the manufacture of taxable goods for sale. The High Court examined the relevant provisions of the Act and the Rules, particularly rule 41(e) of the Bombay Sales Tax Rules, 1959, which provides for a set-off of tax paid by a manufacturer if the goods are used in the manufacture of taxable goods for sale.

The High Court held that the relief in clause (e) of rule 41 is available to a recognized dealer who purchases goods for use in the manufacture of goods for sale by him or others. The Court emphasized that the language of clause (e) did not restrict the relief to goods manufactured for sale by the dealer himself. The Court also noted that the respondents were engaged in the business of manufacturing both kerosene and acid sludge for sale, and the sale of acid sludge constituted a subsidiary business.

2. Entitlement to Full Set-off:

The respondents claimed a set-off of Rs. 15,107.72 for the amounts collected from them by the chemical company, but the Sales Tax Officer allowed only Rs. 1,101.40, apportioning the set-off based on the sales of acid sludge. The Assistant Commissioner of Sales Tax disallowed even this set-off, but the Tribunal held that the respondents were entitled to the full set-off.

The High Court examined whether the respondents were entitled to the full set-off under rule 41 of the Bombay Sales Tax Rules, 1959. The Court noted that the respondents had been taxed as dealers in acid sludge and had entered into a business commitment to sell acid sludge to the chemical company. The Court rejected the argument that the respondents did not manufacture goods for sale, emphasizing that the process of refining crude oil into kerosene and producing acid sludge constituted manufacturing for sale.

The Court also addressed the argument that during the first quarter of the assessment period, kerosene was tax-free, and thus the respondents were not entitled to a full set-off. The Court held that the rule did not require all manufactured products to be taxable for a dealer to claim a set-off. The Court concluded that the respondents were entitled to the full set-off of Rs. 13,421.15, as the goods purchased were used in the manufacture of taxable goods for sale.

Conclusion:

The High Court answered the reframed first question in the affirmative, holding that the sulphuric acid purchased by the respondent-company was used in the manufacture of taxable goods for sale. The Court also held that the respondents were entitled to the full set-off of Rs. 13,421.15 and not only to the extent of Rs. 1,101.40 as held by the Sales Tax Officer. The applicant was ordered to pay the respondents' costs of the reference, fixed at Rs. 500.