1993 (2) TMI 276 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the Deputy Commissioner's exercise of powers under section 57 of the Bombay Sales Tax Act, 1959.
2. Entitlement of the applicant to claim set-off under rule 41 or rule 43 of the Bombay Sales Tax Rules, 1959, for tax paid on cream converted into butter for sale.

Detailed Analysis:

Issue 1: Validity of the Deputy Commissioner's Exercise of Powers
The first issue concerns whether the Deputy Commissioner of Sales Tax was proper, legal, and valid in exercising powers under section 57 of the Bombay Sales Tax Act, 1959, to disallow the set-off allowed by the Sales Tax Officer.

The applicant, engaged in selling butter made from purchased cream, had initially been granted set-off by the Sales Tax Officer for the years 1967, 1968, and 1969. These orders were not challenged by the Revenue. However, the Deputy Commissioner later revised these assessment orders suo motu under section 57, completely disallowing the set-off. The applicant challenged these revisional orders, and the Tribunal set aside the Deputy Commissioner's orders, restoring the Sales Tax Officer's orders.

The Deputy Commissioner subsequently issued a new notice and again disallowed the set-off after hearing the parties. The applicant's revision applications were dismissed by the Tribunal, leading to the present reference.

The court found that the Deputy Commissioner could not exercise powers of revision under section 57 after a period of five years concerning the set-off allowed by the Sales Tax Officer in the years 1972 and 1973. However, for the additional amount of set-off allowed by the Sales Tax Officer in 1977, the Deputy Commissioner might have the power to revise, but the orders of set-off were confirmed on merits.

Issue 2: Entitlement to Claim Set-Off under Rule 41 or Rule 43
The second issue pertains to whether the applicant was entitled to claim set-off under rule 41 or rule 43 of the Bombay Sales Tax Rules, 1959, for tax paid on cream converted into butter for sale.

The court analyzed the definitions of "manufacture" and "resale" under the Act. The term "manufacture" excludes the preparation of butter from cream as per rule 3(xv). Thus, the preparation of butter from cream does not qualify as "manufacture," and the benefit of rule 41 is not available. However, the definition of "resale" under section 2(26) includes the sale of goods without doing anything that amounts to "manufacture." Therefore, the sale of butter, prepared from cream without a manufacturing process, qualifies as "resale."

The court concluded that the applicant was entitled to claim set-off under rule 43 because the preparation of butter from cream is not considered a manufacturing process, and thus, the sale of butter is treated as the resale of cream. This interpretation aligns with the legislative intent to avoid double taxation and ensure a single point levy of tax.

Conclusion:
The court answered question No. 1 partly in the negative, indicating that the Deputy Commissioner's exercise of revisional powers under section 57 was not valid concerning the set-off allowed in the years 1972 and 1973. Question No. 2 was answered in the negative and in favor of the assessee, confirming the applicant's entitlement to claim set-off under rule 43 for the tax paid on cream converted into butter. There was no order as to costs.