1984 (11) TMI 297 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of rule 41-A of the Bombay Sales Tax Rules, 1959 regarding set-off for goods purchased and resold by a manufacturer.

Detailed Analysis:

The case involved a dispute regarding the entitlement of a manufacturer to a set-off under rule 41-A of the Bombay Sales Tax Rules, 1959 for goods purchased and subsequently resold as scrap. The manufacturer, engaged in the production of laminated labels, had purchased iron and steel scrap sheets for manufacturing labels, cutting them to required sizes and selling the remnants as scrap. The Sales Tax Officer disallowed a set-off proportionate to the resale of scrap, leading to an appeal. The Tribunal later held that the manufacturer was entitled to the full set-off, prompting a reference to the High Court under section 61(1) of the Bombay Sales Tax Act, 1959.

Rule 41-A provides for a drawback, set-off, or refund of tax paid by a manufacturer for specified goods used in manufacturing taxable goods. In this case, the purchased iron and steel scrap sheets fell under Schedule B and were used in manufacturing taxable goods, making the manufacturer eligible for a set-off. The remnants sold by the manufacturer were considered "resales" under the Act, as per the definition provided. The contention that the resale of remnants affected the manufacturer's claim for a full set-off was examined.

The Court rejected the argument that the resale of remnants impacted the manufacturer's eligibility for a full set-off. It emphasized that the entire quantity of purchased goods had been utilized in manufacturing taxable goods, with the remnants sold as scrap due to being unsuitable for the intended purpose. The judgment cited a previous case to highlight that apportionment of tax paid is not required when all purchased materials are utilized in the manufacturing process. The Court clarified that rule 41-A does not mandate every inch of purchased goods to be used in manufacturing, allowing for remnants to be sold without affecting the set-off claim.

The Court distinguished the present case from the cited precedent, emphasizing that the manufacturer had fully utilized all purchased goods in manufacturing taxable products, with only unsuitable remnants being sold as scrap. It underscored that the legal position under rule 41-A focuses on the utilization of purchased goods in manufacturing taxable products, irrespective of the resale of remnants. Ultimately, the Court answered the reference question in favor of the manufacturer, affirming their entitlement to a full set-off under rule 41-A.