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TMI Blog1992 (2) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... es tax payable by them for the years in question of certain sums, invoking the the provisions of Rules 41 and 41A framed under the Act, as they stood at the relevant time. As the wording of these rules, in so far as it is material for our present purposes, is identical and the basis of the claim was also common, it will be convenient to dispose of both sets of appeals by a common judgment and we proceed to do so. 2. The set off claimed by the assessees was in terms of S. 42 and Rules 41 and 41A, which may now be referred to : (1) Section 42 reads thus : 42. Draw-back, set off, refund etc. The State Government may provide by rules that - (a) in such circumstances and subject to such conditions as may be specified in the rules a drawback, set off or refund of the whole or any part of the tax - (i) ********* (ii) paid or levied or leviable in respect of any earlier sale or purchase of goods under this Act or any earlier law, be granted to the purchasing dealer; (b) *** *** *** The State Government has notified various rules from time to time in exercise of this power which are collected in Chapter VII of the Rules. Of these we are concerned with rules 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king of goods so manufactured grant him a drawback, set off or, as the case may be, a refund of the aggregate of the following sums, that is to say : (a) a sum recovered from the manufacturing dealer by other Registered Dealers by way of sales tax, or general sales tax, as the case may be, both, on the purchase by him from such registered dealers, when the manufacturing dealer did not hold a Recognition or when he held a recognition but effected the purchase otherwise than against a certificate under section 11 of the Act; (b)********* (c)********* (d)********* (Material portions underlined) (4) There was also a claim under Rule 43AB but we are not concerned with that in the present appeals. 3. Now to turn to the facts which give rise to these appeals. A. Burmah Shell 4. The Bharat Petroleum Corporation Ltd. is before us as the successor-in-interest of the Burmah Shell Refineries Ltd. which is the assessee with which we are concerned. We shall refer to it as the `refinery to distinguish it from the Burmah Shell Oil Storage and Distributing Company of India Ltd. which will be briefly referred to hereinafter as the `marketing company". 5. We are concerned with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contested before the High Court - and on this amount it paid sales tax. The record does not show the amount of sales tax paid by the refinery on this account, but, having regard to the nature of the commodity and turnover involved, it must, admittedly, have been a very small amount. 7. Having done this, the refinery claimed that, as against the sales tax paid by it for the period in question (including the tax paid on the acid sludge), it was entitled to a set off (and a refund, if need be) of the amount of Rs. 13,421.15 paid by it as sales tax on its purchases of sulphuric acid. Its argument is that it is entitled to this refund as all the conditions set out in clause (e) rule 41 were fulfilled this-wise : (a) It is a manufacture , as the process of refining carried out by it falls within the wide definition of manufacture contained in S. 2(17) of the Act viz. 2(17) `manufacture , with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise treating, or adapting any goods, but does not include such manufactures or manufacturing processes as may be prescribed . It is also a Registered dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the three periods other than between 1-7-1974 and 30-6-1975 but we are not concerned with this claim. The Sales Tax Officer allowed only partial relief to the assessee under Rule 41A. He permitted a set off not of the entire purchase tax paid by the assessee on the raw cotton purchased by it but only of a part thereof proportionate to the extent of yarn sales. The Appellate Tribunal however upheld the contention of the assessee. It allowed a set off of the entire purchase tax paid by the assessee on raw cotton, machinery and other purchases which had been used in the process of manufacture of cotton-waste. In doing so it followed the principle of the decision of the High Court in the case of Burmah-Shell Refineries (1978 41 S.T.C. 337). It observed : 21. ...When the raw-cotton is ginned or ginned cotton is used in the process of manufacturing yarn, there is bound to be cotton waste. In view of these facts, the appellant will also be entitled to full set-off so far as the purchases of cotton are concerned, which have resulted in the production of taxable commodity i.e. cotton waste. Each and every ounce of cotton is used in the manufacture of cotton waste which is a taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriods is not known. Also, the Tribunal has allowed full relief on the basis that since cotton was used in the manufacture of cotton waste, the assessee was entitled to relief in respect of purchase tax paid on raw cotton though for these years there was no such tax. But the order of the Tribunal refers also to set off so far as purchases of machinery and other purchases indicating that perhaps some purchase tax had been paid in respect of those purchases and set off had been sought in respect thereof. But, even assuming this, the discussion regarding cotton-waste appears to be pointless since, admittedly, the yarn manufactured was liable to sales tax and, on the Tribunal s reasoning, this was sufficient to enable the assessee to claim set off of the purchase tax paid on cotton, machinery and other materials used in the manufacture. But these aspects have not been touched upon before us. The arguments before us, as we shall refer presently, revolved round a very simple issue. We shall discuss this issue and leave the other aspects touched upon above to be clarified, if need be, when the assessment is finally redone in the light of our judgment. 14. Shri Dholakia, learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted taxable goods after 1-4-1961 and was sold by the marketing company. The second aspect of the rule is that, admittedly, the sulphuric acid purchased was wholly used in the manufacture of two items kerosene and acid sludge one of which viz. the sludge was taxable and also subjected to tax. Once this condition is fulfilled, the amount of set off is specified in the rule itself as the amount of purchase tax paid on the goods so used and cannot be scaled down proportionately merely because, according to the department, the turnover of the taxable goods is insignificant. Sri Rana, learned counsel appearing for the Phulgaon Cotton Mills, adopts this argument mutatis mutandis. 16. We have given deep thought to these contentions and we have come to the conclusion that, plausible and attractive as the argument urged on behalf of the State. the conclusion arrived at by the High Court and the Appellate Tribunal has to be upheld. But before dealing with this aspect, we may dispose of two minor questions. The first which arises in the Bharat Petroleum case is whether Rule 41 contemplates that the goods purchased by the dealer should be used for manufacture of taxable goods for sale by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l though we may point out that in the Bharat Petroleum case, the kerosene was also taxable for nine months in the year and in the case of Phulgaon Cotton Mills, yarn was manufactured and it was subject to tax. Sri Dholakia contends for an implicit principle of apportionment on the basis of turnovers of various itemof goods manufactured and restriction of the quantum of set off to a proportion based on the turnover of taxable goods to the total turnover. He cited certain decisions under the Income-tax and Sales Tax Acts in support of this contention : Anglo-French Textiles v. C.I.T. (1954-24 I.T.R. 27 SC); Tata Iron Steel Co. v. State (AIR 1963 SC 577) and Best Co. v. C.I.T. (1966-60 ITR 11 (SC). We do not think these cases are of assistance. The first two cases dealt with the question as to when profits and gains can be said to accrue or arise in a manufacturing business and the third held that when a receipt is a composite one of capital and revenue nature, it is open to the Revenue to apportion the same and bring the latter to tax. These are situations in which the taxable element is severable. Under the rules presently under consideration also, situations are conceivable whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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