2015 (1) TMI 178 - HC - VAT and Sales Tax

Entitlement to set off under Rule 41D of the Bombay Sales Tax Rules, 1959 - Export sales of the fountain pens sold at ₹ 30/- per piece and ball pens sold at ₹ 25/- per piece during the period 01-04-1995 to 30-09-1995 covered by Notification Entry 304 and export sale of fountain pens and ball pens sold at a price upto ₹ 30/- per piece during the period 01-10-1995 to 31.03.1997 covered by Notification Entry A-23 Held that - The Applicant contended that they have not claimed any exemption from the sales tax u/s 41 and, therefore, the standard condition No.3 in Annexure-1 referred to in column (4) of Entry A-23 was not applicable to them as far as the export of goods are concerned - Goods are either taxable or tax free - Taxable goods are either chargeable with tax or exempt from tax - The product sold by the assessee are in the exempted goods category - Section 2(33) determines whether goods are taxable or tax free and not Section 41 - The Applicant has sold pens locally in the course of inter State trade and also in the course of exports - The basic conditions were, set off under Rule 41D require the dealer to be a registered dealer having purchased goods covered by Schedule C, using the goods to manufacture taxable goods contemplated in Section 2(33) of the Bombay Sales Tax Act for sale or export - The goods manufactured should in fact have been sold or exported and goods purchased should have been used in the manufactured goods - since taxable goods include goods exempt from tax and the assessee has not claimed exemption from sales tax u/s 41, there is no reason to apply standard condition No.3 of Annexure-1 to notified entry A 23 the Applicant s rightly contended that they did not have claimed exemption from Sales Tax u/s 41, the condition No.3 cannot be imposed upon them thus, the disallowance of set off is unsustainable thus, the Tribunal was not justified in holding that the Applicant was not entitled to set off in respect of the export sales of the goods for the relevant period Decided in favour of Applicant-Assessee.

Summary

Issues Involved:
1. Entitlement to set-off under Rule 41D of the Bombay Sales Tax Rules, 1959, for export sales of fountain pens and ball pens.
2. Calculation of tax-free sales percentage including export sales.
3. Applicability of standard condition No.3 in Annexure-1 to notified entry A-23.

Detailed Analysis:

1. Entitlement to Set-off under Rule 41D for Export Sales:
The primary issue was whether the Tribunal was justified in denying the set-off under Rule 41D for export sales of fountain pens and ball pens sold at specified prices during the periods in question. The Applicant, a partnership concern engaged in manufacturing, selling, and exporting pens, claimed set-off under Rule 41D, which was partially allowed by the Assessing Officer. The Deputy Commissioner of Sales Tax (Appeals) further reduced the set-off, leading to the Applicant's appeal to the Tribunal. The Tribunal upheld the disallowance of set-off, interpreting the term "sale" under section 2(28) of the Bombay Act to include export sales and applying standard condition No.3 in Annexure-1 to notified entry A-23, which precludes set-off for goods used in the manufacture of exempted goods.

2. Calculation of Tax-Free Sales Percentage Including Export Sales:
The Deputy Commissioner (Appeals) had revised the set-off calculation, increasing the reduction percentage significantly based on an audit note. The Tribunal supported this revision, considering export sales as exempted sales for the purpose of reducing the set-off. The Applicant contended that this approach was incorrect, arguing that export sales should not be considered for reducing the set-off along with exempted local sales.

3. Applicability of Standard Condition No.3 in Annexure-1 to Notified Entry A-23:
The Tribunal interpreted standard condition No.3 to exclude set-off for goods used in the manufacture of exempted goods, including those exported. The Applicant argued that they had not claimed exemption under Section 41 for the exported goods, and thus, condition No.3 should not apply. The Tribunal disagreed, maintaining that the condition applied regardless of the claim under Section 41.

Judgment Summary:
The High Court analyzed the provisions of Section 41, Rule 41D, and relevant entries and notifications. The Court noted that taxable goods include goods exempt from tax and that the Applicant had not claimed exemption under Section 41. Therefore, standard condition No.3 should not apply to the Applicant's export sales. The Court found the Tribunal's reasoning unsustainable, particularly since the Applicant did not seek exemption under Section 41.

The Court concluded that the Tribunal was not justified in denying the set-off for export sales of the goods in question. The question referred was answered in the negative, in favor of the Applicant-Assessee and against the Respondent-Revenue. No order as to costs was made.