2015 (7) TMI 463 - HC - VAT and Sales Tax

Set off claimed under Rule 41-D of the Bombay Sales Tax Rules, 1959 - The dealer is carrying on business of export of goods - tax paid on the consumables which were treated as components, parts and accessories of machinery - Whether the Tribunal was justified in confirming the reduction of set off by the Deputy Commissioner of Sales Tax by 1.5% by calculating the exports at 96.1% in place of 97.6% calculated by the Sales Tax Officer after excluding the sales of scrap? Held that - We are concerned in the present case with the proviso below clause (2) of sub-rule (1) of Rule 41-D where the Legislature has clarified that where the turnover of sale of such manufactured goods consists principally of sales of waste or scrap goods, then the claimant-dealer shall not be entitled to any drawback, set-off or as the case may be, a refund under this Rule. It is not the conclusion drawn by both authorities in the present case that the turnover of sales of the manufactured goods and intended for export and in fact exported consisted principally of sale of waste or scrap goods. The words consists principally of sales of waste or scrap goods are completely ignored by both the Revisional Authority and the Tribunal. The dealer in this case has not been found to have principally dealt with waste or scrap goods. The exported goods were manufactured with the purchases of goods styled as raw materials that have been made by the dealer. In such circumstances, we do not see how the dealer was ineligible or not qualified for the refund under the Rule. A finding of fact, therefore, should have been rendered and in terms of this proviso. Equally, on the second aspect, the disentitlement comes in the case of a dealer in respect of purchase of goods which are used by him in the manufacture of goods treated as capital assets by him or parts and components of such capital assets. The Sales Tax Officer found that the dealer has not treated them as purchases of capital goods. - there is no discussion at all in both the orders as to why goods or assets were indeed not treated as capital assets by the dealer. The authorities ought to have indicated with clarity and precision as to what is meant by capital goods and which capital goods and of what description have been acquired. We are of the opinion that the authorities have completely misread and misinterpreted the Rules and the concurrent conclusion is not in accordance with law. - Decided in favor of assessee.

Summary

Issues Involved:
1. Disallowance of set-off claimed under Rule 41-D of the Bombay Sales Tax Rules, 1959.
2. Reduction of set-off by calculating exports at a lower percentage after excluding the sales of scrap.

Detailed Analysis:

1. Disallowance of Set-off Claimed under Rule 41-D:
The first issue revolves around whether the Tribunal was justified in confirming the disallowance of set-off claimed under Rule 41-D of the Bombay Sales Tax Rules, 1959. The Deputy Commissioner of Sales Tax disallowed the set-off of Rs. 1,22,267/- on consumables treated as components, parts, and accessories of machinery.

Factual Background:
The assessee, a manufacturer of steel files and rasps, holds an Entitlement Certificate under the Package Scheme of Incentives 1993 and is an export-oriented unit certified by the Government of India. The Sales Tax Officer allowed a full set-off under Rule 41-D(3)(c)(ii), resulting in a refund of Rs. 15,67,499/-. However, the Deputy Commissioner revised this, withdrawing the set-off of Rs. 1,22,267/- and additional interest, resulting in a total disallowance of Rs. 1,46,768/-.

Tribunal's Findings:
The Tribunal upheld the Deputy Commissioner's decision, reasoning that the parts and accessories of machinery do not get consumed in the end product and should be treated as capital assets, thereby justifying the withdrawal of the set-off.

Court's Analysis:
The High Court noted that the plain language of Rule 41-D allows set-off for goods used in manufacturing for export. The rule specifies that set-off should be granted for purchases of goods used in manufacturing, provided they are not treated as capital assets. The court found that the authorities misinterpreted the rule by treating consumables as capital assets without clear evidence or reasoning. The court emphasized that the dealer had consistently treated these items as consumables with a short lifespan, and there was no contrary material on record to dispute this.

Conclusion:
The court concluded that the authorities misread and misinterpreted the rules, and the set-off should not have been denied. Therefore, the first question was answered in favor of the dealer.

2. Reduction of Set-off by Calculating Exports at a Lower Percentage:
The second issue concerns whether the Tribunal was justified in confirming the reduction of set-off by calculating exports at 96.1% instead of 97.6%, excluding the sales of scrap.

Factual Background:
The Sales Tax Officer initially calculated the export percentage at 97.6%, including the sales of scrap. The Deputy Commissioner revised this, calculating exports at 96.1% and excluding the sales of scrap, resulting in a reduced set-off.

Tribunal's Findings:
The Tribunal upheld the Deputy Commissioner's decision, reasoning that the percentage of export sales should not include scrap sales, as scrap is not exported.

Court's Analysis:
The High Court examined Rule 41-D, which provides set-off for goods used in manufacturing for export. The rule specifies that set-off should not be granted if the turnover consists principally of sales of waste or scrap goods. The court noted that the dealer's turnover did not principally consist of scrap sales, and the scrap was a by-product of the manufacturing process. The court found that the authorities failed to consider this and incorrectly excluded scrap sales from the export percentage.

Conclusion:
The court concluded that the authorities misinterpreted the rule and that the exclusion of scrap sales was unjustified. Therefore, the second question was also answered in favor of the dealer.

Final Judgment:
The High Court answered both questions in favor of the dealer and against the Revenue, thereby upholding the conclusions of the Sales Tax Officer and directing the Tribunal to dispose of the reference accordingly.