1992 (2) TMI 250 - SC - VAT and Sales Tax

DRAW-BACK, SET-OFF OR REFUND MANUFACTURING DEALER GOODS USED IN MANUFACTURE OF TAXABLE GOODS FOR SALE - NO SCOPE FOR BIFURCATION

Summary

Issues Involved:
1. Entitlement to set-off under Rules 41 and 41A of the Bombay Sales Tax Act, 1959.
2. Interpretation of the term "manufacture" and its applicability.
3. Proportional allowance of set-off based on taxable and non-taxable goods.

Detailed Analysis:

1. Entitlement to Set-off under Rules 41 and 41A:
The primary issue revolves around the entitlement of the assessees, Bharat Petroleum Corporation Ltd. and Phulgaon Cotton Mills Ltd., to claim a set-off against sales tax payable under Rules 41 and 41A of the Bombay Sales Tax Act, 1959. The set-off claimed was for sums paid as sales tax on purchases used in manufacturing taxable goods for sale.

- Bharat Petroleum Corporation Ltd.: The refinery claimed set-off for the sales tax paid on sulphuric acid used in refining crude oil into kerosene and producing acid sludge. The Sales Tax Officer granted a partial set-off, which was denied entirely by the Appellate Assistant Commissioner but fully allowed by the Appellate Tribunal and upheld by the High Court.
- Phulgaon Cotton Mills Ltd.: The mills claimed set-off for purchase tax paid on raw cotton used in manufacturing yarn and cotton waste. The Sales Tax Officer allowed partial relief, but the Appellate Tribunal granted full set-off, which was contested by the Revenue.

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.

- Bharat Petroleum Corporation Ltd.: The refinery's process of refining crude oil and producing kerosene and acid sludge was considered "manufacture." The High Court and Tribunal concluded that the refinery was entitled to set-off as the sulphuric acid was used in manufacturing taxable goods (acid sludge).
- Phulgaon Cotton Mills Ltd.: The mills' process of ginning raw cotton and manufacturing yarn and cotton waste was considered "manufacture." The Tribunal allowed full set-off for the purchase tax paid on raw cotton, machinery, and other purchases used in manufacturing taxable goods (cotton waste).

3. Proportional Allowance of Set-off:
The State argued that set-off should be proportionate to the extent of taxable goods manufactured and sold, suggesting an implicit principle of apportionment based on the turnover of taxable and non-taxable goods.

- Bharat Petroleum Corporation Ltd.: The State contended that set-off should be restricted as the primary manufactured good (kerosene) was not sold by the refinery and was non-taxable for part of the year. However, the High Court and Tribunal upheld full set-off as the sulphuric acid was used in manufacturing taxable goods (acid sludge).
- Phulgaon Cotton Mills Ltd.: The State argued for proportional set-off based on the turnover of taxable goods (yarn) and non-taxable goods (cloth). The Tribunal allowed full set-off, noting that the cotton waste, a taxable by-product, justified the full set-off.

Conclusion:
The Supreme Court upheld the High Court and Tribunal's decisions, allowing full set-off for the assessees. The Court emphasized a literal interpretation of the rules, rejecting the State's argument for proportional allowance based on turnover. The entire tax paid on purchases used in manufacturing taxable goods was eligible for set-off, regardless of the concurrent production of non-taxable goods. The appeals by the Revenue were dismissed.