9911796707
TMI Blog1964 (11) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... period from 24th October, 1957, to 25th November, 1958, it would be the Bombay Sales Tax Act, 1953, which would apply to the case and as Schedule B to that Act then stood, the rates of sales tax on sales of edible oil falling under item 14 of that Schedule were nil. During the assessment period, the applicants purchased groundnuts from registered as well as unregistered dealers. They had to pay to the registered vendors certain sums by way of the general sales tax on their purchases under section 9 and the purchase tax on their purchases from unregistered dealers. In their returns, the applicants claimed a set-off of the amounts paid by them by way of general sales tax to the registered vendors and purchase tax in respect of their purchases from unregistered dealers. The Sales Tax Officer, by his order dated 23rd November, 1959, rejected the applicants' claim for the set-off on the ground that groundnuts purchased by the applicants were used in the manufacture of edible oil which did not fall within any of the entries 19 to 80 of Schedule B and, therefore, a claim for set-off was not admissible under the proviso to rule 11(1A) of the said Rules. The applicants thereupon filed an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected the applicants' revision. Thereupon, the applicants filed a further revision before the Sales Tax Tribunal before whom they urged the same contentions urged by them before the Deputy Commissioner and the Assistant Commissioner. The Tribunal negatived these contentions and rejected the revision. The Tribunal agreed with the Assistant Commissioner that section 18B was intended to avoid tax on the same goods at two points, as the Legislature did not consider it fair that the same goods, whether in the form of raw materials or in the ultimate form of manufactured goods, should be taxed twice in the hands of the manufacturer, first at the time of the purchase and again at the time of the sale of the manufactured goods. The Tribunal observed that therefore a provision was made for granting set-off in respect of sums paid as and by way of general sales tax and purchase tax on purchases of raw materials. But the Tribunal noted that the intention of the Legislature was not to exempt such goods from tax altogether and that the relief by way of set-off against such taxation at two points could be granted only to the extent permitted by the Legislature. The Tribunal was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18B(1) and that, therefore, the proviso, on the strength of which the said orders were passed, should be held invalid. The argument was that sub-section (2) of section 18B made it mandatory on the State Government making rules under sub-section (1), to provide for set-off in the case of a registered dealer who manufactured or processed any goods for sale against sales tax payable by him under section 8 of the sums recovered from him by other registered dealers by way of general sales tax on the purchase of goods set out in entries 1 to 18 of Schedule B, sales tax on purchases of goods specified in entries 19 to 22 and 25 to 80 of that Schedule and purchase tax under section 10A on purchases of goods by such a dealer. It was urged that the right to claim set-off of these amounts under sub-section (2) of section 18B was a general right which could not be restricted by the rules made by the State Government under sub-section (1) and that, therefore, the proviso limiting the set-off only to cases where the goods manufactured were the goods falling under entries 19 to 22 and 25 to 80 of Schedule B for sale, was bad. Two questions would, therefore, arise on this contention, (1) whether s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olumn 1 of Schedule B at the rates, if any, specified against them in column 3 in the said Schedule. The section contains three provisos and an explanation, but it does not appear to be necessary to recite them here. Section 10 provides for the levy of purchase tax and lays down that there shall be levied a purchase tax on the turnover of purchase of goods specified in column 1 of Schedule B at the rates, if any, specified against such goods in column 4 of the said Schedule, (a) where such goods are purchased from a person who is not a registered dealer, and (b) where a certificate under clause (b) of section 8 has been furnished in respect of such goods and the purchasing dealer does not show to the satisfaction of the Collector that the goods have been sold by him or by a registered dealer to whom he has sold the goods, in the course of inter-State trade or commerce or in the course of export of goods out of the territory of India within a period of six months from the date of purchase by the dealer furnishing such certificate. The section contains a proviso which provides that no purchase tax shall be levied under clause (a) on the purchase of any goods specified in entries 1 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions that though sub-section (1) is an enabling provision authorising the State Government to frame rules with regard to granting of drawback, set-off, refund, etc., and gives power to the State Government to prescribe under clause (b) thereof circumstances and conditions subject to which such drawback, set-off and refund etc., should be granted, sub-section (2) provides that any rules made under sub-section (1) "shall provide" that in the case of a registered dealer manufacturing or processing any goods for sale, a set-off shall be granted against the sales tax payable by him under section 8. It will be noticed that though the provisions of sub-section (2) are mandatory in nature, the set-off, which it is incumbent upon the State Government to provide under the rules made under sub-section (1), is against the sales tax payable by such a dealer under the provisions of section 8. Rule 11(1A), which is challenged as being in conflict with section 18B(2) and therefore as being in excess of the rule-making power of the State Government, provides as follows: ''11. (1A) In assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided for in respect of sales of goods set out in column 1 of Schedule B, so far as entries 1 to 18 are concerned, the rates of sales tax are nil in respect of all of them. Therefore, edible oil being item No. 14 in Schedule B, no sales tax was payable in respect of that item and that being so, there was nothing against which a dealer could claim a set-off. It would seem that it was because the rates of sales tax in respect of goods enumerated in entries 1 to 18 in Schedule B were nil that in rule 11(1A) a proviso was inserted, namely, that set-off could only be claimed against turnover of sales of goods enumerated in entries 19 to 80 in column 1 of Schedule B. It would also seem that the object of providing for set-off was to grant to a registered dealer, who manufactured or processed goods for sale, some relief against the sales tax payable by him under section 8 on goods manufactured or processed by him. To achieve this end, set-off on the general sales tax, the sales tax on purchase of goods set out in entries 19 to 22 and 25 to 80 of Schedule B and purchase tax payable by a dealer on the purchase of goods was provided for against the sales tax payable by him under section 8. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods falling under entries 19 to 80 of Schedule B and, therefore, the restriction placed in the proviso to rule 11(1A) to goods which have been used in the manufacture or processing of any of the goods specified in entries 19 to 80 of Schedule B would be in conflict with the unrestricted right of set-off provided in sub-section (2) of section 18B. Sub-section (2) of section 18B, as it stood prior to 1st July, 1957, read as follows: "(2) Any rules made under sub-section (1) shall provide that in the case of a registered dealer who manufactures or processes any goods for sale there shall be set-off against the sales tax payable by him under section 8, the excess, if any, of the amount mentioned in clause (1) below over the amount mentioned in clause (11) below: (I) the aggregate of the sums- (i) recovered from the dealer by other registered dealers by way of- (a) general sales tax on the purchase of goods specified in entries 1 to 18 (both inclusive) of Schedule B, and (b) sales tax on the purchase of goods specified in entries 19 to 22 (both inclusive) and 25 to 80 (both inclusive) of Schedule B, and (ii) payable as purchase tax under clause (a) of section 10 on the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der subsection (1), it would be mandatory on it to provide for set-off in respect of taxes paid by a dealer even though the goods on which he has paid those taxes were not used by him in the manufacture or processing of goods falling under entries 19 to 22 and 25 to 80 of Schedule B. That may perhaps be said to be the result of the omission of the proviso from the amended sub-section (2). Nevertheless, the condition precedent to a claim of set-off was still retained in the amended sub-section (2), namely, that a set-off of the amount of taxes set out there could only be against the sales tax payable by a dealer under section 8 and therefore, no such set-off could be claimed if the dealer had not to pay sales tax under section 8. Since no sales tax was payable by a dealer in respect of the goods specified in entries 1 to 18 of Schedule B, the omission of the proviso from the amended sub-section (2) would make no difference in the case of a dealer whose turnover of sales was in respect of goods falling under any of the entries 1 to 18 of Schedule B. It is an admitted fact that the applicants were not liable to pay any sales tax under section 8 on their manufactured product, namely, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fallacy in the argument lies in the fact that the right to set-off under the sub-section is conditioned not on the mere chargeability of sales tax under section 8 but on the sales tax payable by a dealer under section 8. The construction suggested by him would mean altering the words of sub-section (2) and substituting the words "payable under section 8" by the words "chargeable under section 8". The construction suggested by Mr. Kaji, therefore, has to be rejected. Mr. Shah also argued that the set-off contemplated by subsection (2) was an independent relief and though it is called in the sub-section a set-off, it is in the nature of a counter-claim and therefore, did not require sales tax being actually payable by a dealer. He relied on the meaning of the word "set-off" given in Motion's Pocket Law Lexicon, Eighth Edition, at page 338, where it is stated that in an action to recover money, a set-off is a cross-claim for money by the defendant, for which he might maintain a separate action against the plaintiff. But this does not mean that every cross-claim is a counter-claim and there is in law a well-settled distinction between a set-off and a counter-claim. The learned autho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by him under section 8. This he tried to establish by submitting that there was a distinction between a remedy and a relief, that the first part of sub-section (2) provided a relief and the latter part a remedy. His contention in other words was that the sub-section first provides for the relief of set-off which has nothing to do with the sales tax payable by a dealer, and then provides how that relief is to be adjusted, i.e., against the sales tax payable by him. This construction also cannot be accepted at least for two good reasons, (1) that it refuses to take into account the crucial words in the sub-section, namely, "setoff against the sales tax payable by him under section 8" which must mean that there must be some sales tax which is payable by the dealer under section 8, and (2) that it is not consistent with the scheme and the object of sub-section (2). The scheme of the sub-section is that it falls into two parts. The first part of the sub-section provides for the relief, i.e., set-off of the aggregate amount of the three taxes paid by the dealer against the sales tax payable by him, a relief given to a dealer who is a registered dealer and who has manufactured or proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-off. But such an argument cannot be upheld for the reason again that the set-off is against the sales tax payable by a dealer, and if no sales tax is payable by him, for example, where his sales are outside the State, clearly he would not be entitled to claim the relief of set-off. The relief of set-off under section 18B(2) is not against the taxes paid by a dealer, namely, the general sales tax or the purchase tax on the purchase of raw materials, but against the sales tax paid by him under section 8 on goods manufactured or processed by him. The former tax decides the quantum of relief while the latter tax is the tax against which the relief of set-off is granted. In our view, as the applicants did not have to pay any sales tax under section 8, they were debarred from claiming set-off by reason of the very provisions of section 18B(2) themselves irrespective of rule 11(1A). In that view, there would be no necessity of going into the question of the vires or the validity of rule 11(1A). For the reasons aforesaid, our answer to question No. (2) is in the negative. As regards question No. (1), it is not necessary to give any answer. The applicants will pay to the respondent the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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