1978 (12) TMI 181 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to pay purchase tax under Section 16 of the Gujarat Sales Tax Act, 1969.
2. Liability to penalty under Section 45(1) of the Gujarat Sales Tax Act, 1969.
3. Admissibility of set-off under Rule 42 of the Gujarat Sales Tax Rules, 1970.
4. Calculation of set-off under the proviso to Rule 42 of the Gujarat Sales Tax Rules, 1970.

Issue-Wise Detailed Analysis:

1. Liability to Pay Purchase Tax Under Section 16 of the Gujarat Sales Tax Act, 1969:
This issue was not pressed by the assessee during the hearing and thus was not considered by the court.

2. Liability to Penalty Under Section 45(1) of the Gujarat Sales Tax Act, 1969:
This issue was also not pressed by the assessee during the hearing and thus was not considered by the court.

3. Admissibility of Set-off Under Rule 42 of the Gujarat Sales Tax Rules, 1970:
The court examined whether the assessee was entitled to set-off under Rule 42 even when a portion of the manufactured goods was sold on a consignment basis outside the state. Rule 42 provides for a deduction from the aggregate of amounts calculated before a drawback, set-off, or refund of tax is granted. The court emphasized that the rule must be read in its entirety, considering the context and the legislative intent behind it.

The assessee argued that the deduction should only apply to the portion of the set-off related to the tax paid on goods used in the manufacture of products sold on consignment basis. The revenue contended that the deduction should be made from the total set-off, including the tax paid on goods used in the manufacture of products sold locally.

The court concluded that the deduction should be confined to the set-off related to the tax paid on goods used in the manufacture of products sold on consignment basis. The court emphasized that the legislative intent was to avoid multi-point taxation and to ensure that the cost of manufactured goods does not become unduly excessive due to multiple tax levies.

4. Calculation of Set-off Under the Proviso to Rule 42 of the Gujarat Sales Tax Rules, 1970:
The court examined the correct interpretation of the proviso to Rule 42, which requires a deduction of 3% of the sale price of goods sold on consignment basis from the aggregate set-off amount. The assessee contended that the deduction should only apply to the set-off related to the tax paid on goods used in the manufacture of products sold on consignment basis, and any excess deduction should not affect the set-off related to goods sold locally.

The court agreed with the assessee's interpretation, stating that the proviso should be read in conjunction with the rule's overall purpose. The court emphasized that the deduction should not extend beyond the set-off related to consignment sales, as this would result in an unjust and unreasonable burden on the assessee.

The court referred to the decision of the Bombay High Court in Commissioner of Sales Tax v. Jai Hind Oil Mills Co., which supported the view that the deduction should be confined to the set-off related to consignment sales.

Conclusion:
The court answered the remaining questions in favor of the assessee, stating that the deduction under the proviso to Rule 42 should be limited to the set-off related to the tax paid on goods used in the manufacture of products sold on consignment basis. The court held that any excess deduction should not affect the set-off related to goods sold locally. The State of Gujarat was ordered to pay the costs of the reference to the assessee.