2015 (11) TMI 260 - HC - VAT and Sales Tax

Disallowance of set-off on purchases of goods for scientific research and development - purchases of cement used in the foundation of plant and machinery - Rule 41D of the B.S.T Rules - Held that - what Rule 41D provides for is a drawback, set-off of a tax paid by a manufacturer in respect of purchases made on or after the notified day. The language is that in assessing the amount of tax payable in respect of any period by a Registered dealer who manufactures goods for sale or export, the claimant/dealer can claim set-off and the Commissioner shall allow in respect of purchases made by such claimant dealer on or after the notified day, of any goods specified in entry 6 of Schedule B and in Schedule C and used by him within the State. The rule does not stop here. It goes on further to say that the set-off is admissible if the purchased goods are used by the claimant dealer within the State in the manufacture of goods not being kerosene for sale, which manufactured goods are in fact been sold by him or exported or in the packing of the goods so manufactured. The set-off is subject to reduction specified in sub-Rule (3). First Appellate Authority was concerned with a set-off on purchases of scientific equipments and other materials which are used for research and development purposes. - set-off can be claimed and granted provided the manufacturer sells the goods manufactured by using the goods purchased and during the assessment year or period in question. It is in that period and if at all the conditions under this sub-rule are satisfied that this set-off is admissible. Once it is found that the goods brought in are not used in the manufacture of goods for sale and which goods have in fact been sold by the dealer or exported by him or in the packing of the goods so manufactured, then, there was no scope for any such set-off. In the case of set-off under Rule 41D of purchase of cement the Tribunal as also the First Appellate Authority found that the cement may have been brought in and purchased for the purposes of strengthening the foundation of the manufacturing plant and the manufacturing plant may have been used in the manufacture of goods sold, still, the cement brought in was not used for such purpose. The cement was not used during the course of the manufacture of goods but substantial portion of this cement was used for construction of staff quarters etc. That had nothing to do with the manufacturing activity. The cement brought in having no direct connection with the manufacturing activity that the Tribunal and the First Appellate Authority concluded that no set-off is admissible in terms of the rule and as it stands. - Decided against assessee.

Summary

Issues Involved:
1. Entitlement to set-off of tax paid on purchases of cement used in the foundation of machinery.
2. Entitlement to set-off under Rule 41D of the Bombay Sales Tax Rules, 1959, for tax paid on purchases of materials for research and development.

Issue-Wise Detailed Analysis:

1. Entitlement to Set-Off of Tax Paid on Purchases of Cement Used in the Foundation of Machinery:

The primary issue was whether the dealer was entitled to a set-off of the tax paid on purchases of cement used in the foundation of machinery used for manufacturing goods for sale. The Tribunal and the First Appellate Authority both concluded that the cement purchased was not used directly in the manufacturing process but was instead used for purposes such as construction of staff quarters, which are not related to manufacturing activities. The Tribunal endorsed the finding that the cement was not used during the course of manufacturing goods but was substantially used for non-manufacturing purposes. Thus, the set-off was rightly disallowed as the cement brought in had no direct connection with the manufacturing activity.

2. Entitlement to Set-Off Under Rule 41D for Purchases of Materials for Research and Development:

The second issue revolved around whether the dealer was entitled to a set-off under Rule 41D for tax paid on purchases of materials used for research and development of existing and new products. The Tribunal and the First Appellate Authority found that the language of Rule 41D did not permit such a set-off. Rule 41D provides for a set-off of tax paid by a manufacturer in respect of purchases made on or after the notified day, specifically for goods used in the manufacturing of goods for sale or export within the State. The rule does not extend to purchases for research and development purposes. The Tribunal noted that the set-off could only be claimed if the purchased goods were used directly in the manufacturing process and the manufactured goods were sold or exported. Since the materials for research and development did not meet these criteria, the set-off was not admissible.

Legal Reasoning and Interpretation:

The court emphasized that the language of Rule 41D is plain, unambiguous, and clear, leaving no room for interpretation. The rule specifies that set-off is admissible only for goods used directly in the manufacturing process, which are then sold or exported. The court also highlighted that the principles of statutory interpretation come into play only when the language of a statute is ambiguous or leads to an absurd construction, which was not the case here.

Additional Considerations:

The court dismissed the dealer's argument that the Tribunal had granted similar benefits to other companies like M/s Ballarpur Industries Ltd and M/s Tata Motors Ltd. The court held that a wrong decision in favor of one party does not entitle another party to claim the same benefit. The court also noted that the Tribunal's view in other cases does not bind the court or influence its interpretation of the law.

Conclusion:

The court answered both questions in favor of the Revenue and against the dealer. The reference was disposed of accordingly, with no costs awarded. The court reiterated that the set-off under Rule 41D is strictly limited to goods used directly in the manufacturing process and does not extend to materials used for research and development or for non-manufacturing purposes like construction of staff quarters.