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TMI Blog1976 (2) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... under the said Act, were assessed for the period 1st April, 1957, to 31st March, 1958. During this period the respondents manufactured pesticides which they sold in the former State of Bombay excluding the territories which were transferred to other States on the reorganisation of States, as also despatched the manufactured goods to their branches and agents outside the State, which goods were thereafter sold by such branches and agents. The respondents had purchased raw materials for the manufacture of the said goods as also had purchased containers and packing materials for the manufactured goods both from dealers registered under the said Act as also from unregistered dealers. In respect of the purchases made by them from registered dealers the vendors of such raw materials, containers and packing materials had collected from the respondents amounts which these vendors would have had to pay by way of sales tax and general sales tax in their assessment to tax. In respect of their purchases made from unregistered dealers the respondents paid to the Government the purchase tax payable under clause (a) of section 10 of the said Act. In their assessment for the said period the respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 18B provided as follows: "Rules for granting drawback, set-off, refund, etc.-(1) The State Government may by rules provide that- (a) the tax leviable under section 8, 9, 10 or 10A shall not be payable in respect of any specified class of sales or purchases; (b) a drawback, set-off or refund of the whole or part of the tax leviable on any class of sales or purchases under section 8, 9, 10 or 10A shall be granted to the purchasing dealer in such circumstances and subject to such conditions as may be specified; (c) the sale price or purchase price shall in the case of any class of sales or purchases be reduced for the purpose of levy of tax under section 8, 9, 10 or 10A to such extent and in such manner as may be specified. (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 aggregate of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h inclusive) of Schedule B to the Act for sale, (b) and the goods so manufactured or processed are not the goods on the sale of which no sales tax is payable under rule 5 or clause (i) of rule 7." The whole controversy before us has ranged round the deduction of one per cent of the sale price of the goods to be made from the amount of the set-off due to a dealer. According to the Tribunal, the one per cent which was to be deducted was one per cent of the proportionate sale price of the manufactured or finished product allocable to the raw materials, packing materials, containers, etc., purchased by the dealer which had been used in the manufacture of the finished product or as containers and packing materials for the finished product which had been transported outside the State and sold there. In the alternative, it was contended by the respondents that assuming the construction placed by the Tribunal upon the said rule 11(1A) was wrong, the one per cent to be deducted was one per cent of the price at which the vendors of raw materials, containers and packing materials sold them to the respondents. According to the department, the one per cent to be deducted was one per cent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ler are linked to the system of drawback, set-off or refund to be prescribed by the rule-making authority, namely, the Government, under section 18B. We have already set out above the provisions of section 18B. It will be noticed that section 18B is divided into two sub-sections. The first subsection provides for the general nature of the rules to be made under that section. Sub-section (2) mentions the special provisions which are to be incorporated into such rules in respect of a registered dealer who manufactures or processes any goods for sale. On behalf of the department emphasis was placed upon the difference in the language used in sub-section (1) and in sub-section (2). It was pointed out that sub-section (1) opened with the words "the State Government may by rules provide that ", while sub-section (2) opened with the words "any rules made under sub-section (1) shall provide that". Relying upon this difference it was submitted by Mr. Cooper, the learned counsel for the department, that while sub-section (1) was permissive, sub-section (2) was mandatory and, if the State Government made rules providing for grant of drawback, set-off or refund, there was an obligation cast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that falls to be determined with respect to the construction of section 18B is the same question of construction which faces us in rule 11(1A), namely, the construction to be placed upon the phrase "the sale price of any goods manufactured or processed". It will be, therefore, convenient first to see what meaning that phrase bears in rule 11(1A) and then consider whether there is a different meaning attributable to this phrase when used in sub-section (2) of section 18B. The provisions of rule 11(1A), as in operation at the material time, have already been reproduced by us earlier in the course of this judgment. While we are on the provisions of rule 11(1A), it may be mentioned that by Government Notification in the Finance Department No. 1457/G. 1 dated 24th February, 1959, the words "of any goods manufactured or processed" have been substituted by the words "of the goods which have been so manufactured or processed by him". Though this amendment was not made during the period of assessment with which we are concerned in this reference, it was in operation in the next period of assessment of the respondents with which the next reference before us, namely, Sales Tax Reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods manufactured or processed", it is pertinent to note that this phrase for the first time occurs in rule 11(1A) in a somewhat different form in the very opening words of that sub-rule, namely, in describing the dealer to whom the drawback, set-off or refund is to be granted. These opening words are "in assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale". As our eyes travel further down this sub-rule, our attention is immediately arrested by clause (iii), which uses the words "such goods". Clause (iii) refers to the set-off, drawback or refund of the amount of purchase tax payable by the manufacturing dealer in respect of his purchases from unregistered dealers. That clause provides, "payable as purchase tax under clause (a) of section 10 of the purchase of such goods by the dealer". Now, the manufacturing dealer does not pay purchase tax in respect of his finished product. The manufacturing dealer pays purchase tax only in respect of the raw materials, packing materials, containers for finished product, etc., purchased by him. The use of the word "such" before the word "goods" in clause (iii) shows that these are th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... containers which he has bought for purposes connected with or incidental to the manufacture or processing of the finished product. Thus, the use of the phrase 'in assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale" must mean in assessing the amount of sales tax payable by the registered dealer in respect of the sales of the finished product manufactured or processed by him. Though clause (iii) of rule 11(1A) uses the phrase "such goods", the word "such" from the nature of things cannot refer to the finished product in the context of which alone in the opening words of rule 11(1A) the words "any goods for sale" have been used. The use of the word "such" in clause (iii) is really an instance of careless and loose draftsmanship. This is made abundantly clear as we proceed further down the rule and notice the qualifications and conditions provided immediately after the mention of the percentage of deduction. These qualifications and conditions relate to the place of the sales of goods, one per cent of the sale price of which is required to be deducted, the date of transportation of the goods in question to such place of sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubricants, containers or packing materials, in the manufacture or processing of any goods specified in entries 19 to 80 (both inclusive) of Schedule B to the Act for sale". Clause (a) thus refers to two types of goods, namely, (1) goods which have been used as raw materials, processing materials, fuel, lubricants, containers or packing materials in the manufacture or processing of certain goods for sale, and (2) the goods manufactured or processed for sale, which phrase, with the necessary grammatical variations required by the context, is a throw-back to the phrase "a registered dealer who manufactures or processes any goods for sale" in the opening part of rule 11(1A) and to the phrase "the sale price of any goods manufactured or processed" in the portion of rule 11(1A) after clause three. The goods used as raw materials, etc., are not the goods manufactured or processed is also shown by clause (b) of the proviso, which states that "the goods so manufactured or processed are not the goods on the sale of which no sales tax is payable under rule 5 or clause (i) of rule 7". As we have seen, sales tax is payable on a sale of goods. Rule 5 sets out the various classes of sales on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or of a notional sale price of the raw materials, the packing materials and containers. In either case, it would be a tax on sales taking place outside the State. We may also point out that in Mohamed Massi Safi Co. v. State of Bombay[1962] 13 S.T.C. 552 at 555., clause (11) of sub-rule (1) of rule 11 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, was challenged in this High Court as being ultra vires the powers of the rule-making authority on the ground that by that clause the rule-making authority had virtually levied a tax on the sale price of the goods sold outside the State on which no sales tax was payable. Rejecting that contention the court observed: "It is difficult to say that under the said clause (11) of sub-rule (1) of rule 11, the rule-making authority is levying any tax as such on the sales effected by the applicant-firm to purchasers from outside the State of Bombay. On the other hand, it is apparent that clauses (1) and (11) of subrule (1) read together determine the extent of relief granted to the dealers in respect of various taxes already paid by them. Section 18B of the Act provides that 'the State Government may by rules provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s........." For the reasons set out above, we find that the construction placed by the Tribunal upon rule 11(1A) was erroneous and cannot be supported. So far as section 18B(2) is concerned, we fail to see why any different construction should be placed upon the phrase "after deducting therefrom one per cent of the sale price of any goods manufactured or processed". In fact, clause (ii) of sub-section (2), which talks about adding the amount of purchase tax payable by a dealer to the tax collected from him in order to make up the aggregate of sums in respect of which drawback, set-off or refund is to be granted to the dealer, states "payable as purchase tax under clause (a) of section 10 on the purchase of goods by such dealer". It does not use the loose and careless phraseology of clause (iii) of rule 11(1A), namely, "payable as purchase tax under clause (a) of section 10 on the purchase of such goods by the dealer". Therefore, even the arguments advanced before us based on the use of the words "such goods" in clause (iii) of rule 11(1A) do not apply to the construction of section 18B(2). In the result, we answer the question submitted to us in the negative. The respondents wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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