2016 (9) TMI 610 - HC - VAT and Sales Tax

Set-off on purchase of spares of electrical motors - manufacture of pumping sets - prohibited goods - Section 2(21) of the Act - the raw material used for manufacturing of electric motors were not directly sold by the assessee but, were sold after manufacturing pump sets - Whether the Gujarat Value Added Tax Tribunal was justified in holding that the dealer was entitled to set off under rule 42 of the Gujarat Sales Tax Rules, 1970 on purchase of prohibited goods as defined in clause 21(2) of the Gujarat Sales Tax Act, 1969 namely, spare parts and accessories of electric motors used in the manufacture of water pumps? - Held that - The 4th condition has a direct relation to the main body of the rule which provides that in assessing the tax payable by a manufacturer, the Commissioner shall subject to conditions grant him drawback, set off or refund of the whole or any part of the tax in respect of purchase of goods used by him in manufacture. The moment therefore the raw material is used for manufacture by an assessee and subject to other conditions being fulfilled, has been sold in the State of Gujarat or in the course of inter-State trade etc., Rule 42 would enable him to claim drawback, set off or refund as the case may be at prescribed rate on the tax paid on such purchases - appeal dismissed - decided against appellant.

Summary

Issues:
1. Interpretation of Rule 42 of the Gujarat Sales Tax Rules, 1970 regarding set-off on purchase of prohibited goods.
2. Application of conditions for granting set-off under Rule 42 in the case of purchases of spare parts for electric motors used in manufacturing water pumps.

Issue 1: Interpretation of Rule 42 of the Gujarat Sales Tax Rules, 1970 regarding set-off on purchase of prohibited goods:
The case involved an appeal by the Government challenging the Gujarat Value Added Tax Tribunal's decision granting set-off to a dealer for purchases of spare parts of electric motors used in manufacturing water pumps, categorized as prohibited goods under the Gujarat Sales Tax Act. The Tribunal allowed the set-off, considering the sale of pump sets as including the sale of electric motors. The State contended that the set-off should apply only to goods manufactured by the assessee using raw materials. The High Court analyzed the statutory provisions defining prohibited goods and Rule 42, emphasizing that the proviso to the rule exempted certain goods falling under prohibited categories if used in manufacturing specific items. The Court clarified that the conditions for set-off under Rule 42 should be independently assessed, and the sale of manufactured goods was crucial for eligibility. The Court concluded that the assessee met the conditions and upheld the Tribunal's decision.

Issue 2: Application of conditions for granting set-off under Rule 42 in the case of purchases of spare parts for electric motors used in manufacturing water pumps:
The Court examined the relevant provisions of the Gujarat Sales Tax Act and Rule 42 to determine the eligibility of the dealer for set-off on purchases of spare parts for electric motors used in manufacturing water pumps. It highlighted the distinction between prohibited goods and the proviso exempting certain goods if used in specific manufacturing processes. The Court emphasized the independent application of conditions related to prohibited goods and the sale of manufactured goods under Rule 42. It clarified that the sale of raw materials directly by the assessee was not a prerequisite for set-off eligibility, as long as the conditions specified in the rule were met. Ultimately, the Court dismissed the tax appeals, affirming the dealer's entitlement to set-off under Rule 42 for the purchases in question.