1992 (2) TMI 378 - SC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to set-off under Section 42 and Rules 41 and 41A of the Bombay Sales Tax Act, 1959.
2. Interpretation of the term "manufacture" and its application to the facts of the case.
3. Proportionality of set-off in cases involving the manufacture of both taxable and non-taxable goods.

Summary:

1. Entitlement to Set-off under Section 42 and Rules 41 and 41A:
The respondents, Bharat Petroleum Corporation Ltd. and Phulgaon Cotton Mills Ltd., claimed set-offs against the sales tax payable by them, invoking provisions of Rules 41 and 41A u/r the Bombay Sales Tax Act, 1959. The set-off claimed was in terms of Section 42 and Rules 41 and 41A, which provide for a draw-back, set-off, or refund of tax paid on earlier purchases of goods used in the manufacture of taxable goods for sale. The Sales Tax Officer partially allowed the set-off, but the Appellate Tribunal and the High Court upheld the full claim of the assessees.

2. Interpretation of the Term "Manufacture":
The term "manufacture" as defined in Section 2(17) of the Act includes producing, making, extracting, altering, ornamenting, finishing, or otherwise treating or adapting any goods. The refinery's process of refining crude oil into kerosene and the cotton mill's process of ginning cotton and manufacturing yarn and cloth were held to fall within this definition. The acid sludge and cotton waste produced as by-products were also considered manufactured goods.

3. Proportionality of Set-off:
The State argued that set-off should be proportionate to the extent of taxable goods manufactured and sold. However, the Court held that the rules do not require a quantitative correlation between the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid. The entire sulphuric acid and cotton purchased were used in the manufacturing process, and the set-off could not be scaled down proportionately. The Court emphasized a literal interpretation of the rules, stating that the relief provided is based on the use of purchased goods in the manufacture of taxable goods for sale, without requiring an apportionment based on the turnover of taxable and non-taxable goods.

Conclusion:
The Supreme Court upheld the view taken by the High Court and the Appellate Tribunal, allowing the full set-off claimed by the assessees. The appeals by the Revenue were dismissed, and no order regarding costs was made.