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TMI Blog1977 (11) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... l company upon certain terms and conditions set out in the said agreement. For the purpose of manufacturing and supplying the respondents' requirement of sulphuric acid the chemical company had erected a plant. The said agreement was to come into operation as soon as the chemical company was able to put on commission the required additional plant and was to remain in force for a period of ten years from the date of its coming into operation, unless terminated by notice as provided in the said agreement. By clause 5 of the said agreement, the respondents agreed that during the term of the said agreement they would not manufacture sulphuric acid either for their own consumption or for sale and would not resell or barter in any manner directly or indirectly any sulphuric acid supplied by the chemical company but would use the same for their own exclusive consumption. By clause 6 of the said agreement the respondents further agreed not to purchase sulphuric acid required for their use except from the chemical company unless the chemical company failed or was unable to supply the respondents' requirements. When crude oil is refined and made into kerosene, a byproduct which inevitably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod 1st April, 1954, to 10th July, 1956, the Deputy Commissioner of Sales Tax held the respondents to be dealers on the basis of purchases made by them. In view of this decision of the Deputy Commissioner of Sales Tax, the respondents did not contest in their revision applications in respect of the aforesaid subsequent periods that they were dealers and, accordingly, in respect of the said subsequent periods also the Deputy Commissioner of Sales Tax held the respondents to be dealers. The respondents then got themselves registered as dealers under the Bombay Sales Tax Act, 1953. They are also registered as dealers under the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the said Act"). They have also applied for and obtained a recognition under section 25 of the said Act on the basis that the value of all taxable goods manufactured for sale by them exceeded Rs. 2,500. In respect of their assessment for the period 1st January, 1961, to 31st December, 1961, the respondents claimed a set-off in respect of the amounts collected from them by the chemical company to cover the sales tax it would have to pay on the sales of sulphuric acid made by the chemical company to the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g out the real question of law which would fall to be decided by this High Court. The Tribunal accepted the submission of the respondents and reframed question No. (1). The Tribunal prepared a draft statement of the case, served it upon both sides and after hearing them stated this case to the High Court and referred to us the following two questions of law: "(1) Whether, on the facts and in the circumstances of the case and on a true interpretation of the agreement dated 9th June, 1955, between the respondent-company and Dharamsi Morarji Chemical Company Limited, the Tribunal was correct in law in holding that the sulphuric acid purchased by the respondent-company for refining the crude kerosene belonging to Burmah Shell Oil Storage and Distributing Company of India Limited was used in the manufacture of taxable goods for sale? (2) If the answer to the above question is in the affirmative, whether on a true and proper interpretation of rule 41 of the Bombay Sales Tax Rules, 1959, the respondent-company was entitled to the full set-off of Rs. 13,421.15 or only to the extent of Rs. 1,101.40, as held by the Sales Tax Officer?" In order to appreciate the real controversy in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies 1 and 2 of Schedule E to the said Act or specified in the notification issued under the said section 25. Thus, such a certificate could be given by a recognised dealer only when he purchases the said goods for use by him in the manufacture or packing of taxable goods which he is manufacturing for sale by him. If the goods purchased were intended by the manufacturer for use by him in the manufacture not of goods intended for sale by him but in the manufacture of goods belonging to others and to be sold by such others, such a certificate could not be granted. All the purchases of sulphuric acid made by the respondents from the chemical company during the assessment period in question were made by them without furnishing any such certificate to the chemical company. Accordingly, the sales were not entitled to be exempted from the turnover of sales of the chemical company, and the chemical company became liable to pay sales tax and general sales tax on the sales to the Government. In order to reimburse themselves in respect of this tax liability the chemical company recovered from the respondents the amount of sales tax and general sales tax which they had become liable to pay to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le goods manufactured by him for sale." The whole controversy before us revolves round the correct interpretation to be placed upon the phrase "provided that such goods are used by him in the manufacture of taxable goods for sale" in the said clause (e). Mr. Jetly, learned counsel for the applicant, submitted that the said phrase meant that the goods purchased were used by the manufacturing dealer in the manufacture of taxable goods for sale by him and not for sale by others. In Mr. Jetly's submission, the real business of the respondents was to manufacture kerosene, it not being disputed that the processing and refining of crude oil into kerosene amounts to a manufacture within the meaning of the said term as defined by clause (17) of section 2 of the said Act. Mr. Jetly further submitted that acid sludge was merely a waste product which resulted in the process and compared to the sale price of kerosene its sale price was so disproportionate that it could not be said that the respondents were carrying on the business of manufacturing acid sludge for sale by them. Before we deal with this submission we may mention that the sales of acid sludge are liable to tax at the rates s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the said sub-section (1A), sales by a dealer selling taxable goods to a registered dealer who certified in the prescribed form, namely, form 15, that the goods were of the class specified in his recognition and that they were purchased by him for use by him within the State in the manufacture of taxable goods for sale by him or in the packing of the goods so manufactured were taxable not at the rates provided in the relevant entry but at the rate of one paisa in the rupee. This rate was subsequently increased to two paise in the rupee in respect of certain goods and it is at present three paise in the rupee. The said sub-section (1A) was amended by Maharashtra Act 42 of 1971 and, for the words "for sale by him", the words "which will in fact be sold by him (and will not be given away as samples or otherwise)" were substituted. In Mr. Jetly's submission, what the legislature intended was that a sale to a recognised dealer should be exempt from tax or be subject to a lower rate of tax only if the raw materials purchased by the manufacturing dealer were used by him in the manufacture of goods for sale by him and not for or on behalf of others and the rule-making authority, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the country. There is also the factor that each State desires to encourage growth of industries within the State so that the prosperity of the State would increase and employment would be found for a larger number. Bearing all these factors in mind a system has been devised under the said Act by which sales or purchases of certain goods are made exempt from levy of tax and certain transactions of sales or purchases, particularly those which form one or more links in a chain of transactions, are made exempt from taxation. This is done by the system of granting licences, authorisations, recognitions and permits. Under the said Act, a licensed dealer, an authorised dealer, a recognised dealer or a dealer holding a permit can in certain circumstances make purchases in respect of which no tax is leviable, provided lie gives a certificate in the prescribed form setting out that purpose. We have already seen that, under the old clause (b) of section 12, the recognised dealer could give such a certificate in form 15 to enable him to purchase raw materials which he required for manufacturing goods which he himself sells, without that transaction being liable to be taxed, and now under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kept at an economic or competitive level. It is with this viewpoint that the State Government framed rules which are to be found in Chapter VII of the Bombay Sales Tax Rules, 1959. We have had occasion previously to deal with cases under the said rule 41. We had repeatedly inquired into those matters, as we did in this, to be enlightened as to when, how and in what circumstances drawback under these rules could be granted or what it meant in the context of this particular piece of sales tax legislation. Neither the department nor any of the Advocates for the assessees have been at any time able to enlighten us on this point or the precise connotation of this expression in the said rules. Reading the said Chapter VII, we find that the words "drawback, set-off and refund" have been loosely used by the rule-making authority. A set-off would arise if the amount to be returned to the dealer in respect of the purchase tax paid by him or as representing the amount of tax collected from him by his vendor were to be adjusted and deducted from the tax payable by such dealer to the Government. It may, however, happen in some cases that the amount to be so returned by the Government may exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him from a registered dealer on furnishing a certificate under section 12, provided the manufacturing dealer shows to the satisfaction of the Commissioner of Sales Tax that the goods were resold by the said registered dealer to him after purchasing them from another registered dealer and that the sales tax leviable under section 10 has been paid or has become payable on an earlier transaction in respect of the same goods and that the registered dealer has not separately recovered sales tax in respect of the said goods from the manufacturing dealer and that "the said goods have actually been used by the manufacturing dealer in the manufacture of taxable goods for sale", and further that the manufacturing dealer produced a certificate in form 31-A issued by the registered dealer stating, inter alia, that the sale is or will be included by him in his turnover of sales. Mr. Jetly laid particular emphasis upon the fact that in the said sub-rule (cc), while the words used were "used by the manufacturing dealer in the manufacture of taxable goods for sale" and not "used by the manufacturing dealer in the manufacture of taxable goods for sale by him", none the less relief under the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in respect of goods described in Schedule B, while under clause (e), the recognised dealer would be entitled to get relief by way of set-off or refund even in respect of such goods if the other conditions of the said clause (e) were satisfied. Mr. Jetly, however, submitted that to grant the relief under clause (e) to a manufacturing dealer who did not himself sell the goods manufactured by him would be grossly discriminatory to a recognised dealer who purchased goods by furnishing a certificate under section 12. On the face of it, it could not be discriminatory so far as the goods described in Schedule B are concerned. Even apart from that, what would be discriminatory would be the interpretation sought to be placed on this clause by Mr. Jetly. Before a finished product can be put on the market, apart from the actual manufacture of the main parts or components several other processes may be required to be carried out. Not every manufacturing unit has the arrangements or facilities for carrying out all such processes itself. In most cases, therefore, manufacturing units get some of the processes carried out by other processors. If no such relief were available to the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided just as it has provided in the case of exemption or relief in the case of resale of goods if such resale is to be by the purchaser himself. Similarly, it would be clear that under the Rules relief has been granted to different categories of dealers which reliefs are in addition to reliefs expressly specified in the said Act. In clause (e) of rule 41, when the rule-making authority did not insert the words "by him" in the expression "manufacture or packing of taxable goods for sale by him" occurring in clause (b) of section 12, what is intended was to grant an additional relief in the case of manufacturing dealers. Just as other rules grant relief in circumstances not provided for by the statute, similarly, clause (e) grants to a manufacturing dealer relief in those cases where he is unable to obtain the relief provided for by the exemption section in the said Act. If the intention of the legislature was to confine clause (e) only to those cases where the taxable goods were purchased by the manufacturing dealer for use in the manufacture of taxable goods for sale by him, there was nothing simpler for the rule-making authority than to use in that clause the expression "for sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds were manufactured or processed by the manufacture or processor himself but not where the goods were got manufactured or processed by him in someone else's factory. Even apart from the intention of the Parliament, on a plain reading of the said clause (b) of sub-section (3) of section 8 itself, no other interpretation is possible, according to us. The omission of the words 'by him' after the words 'manufacture or processing of goods for sale' is significant, and all the more so, when we find the words 'by him' used after the words 'for resale' earlier in the same clause. So far as the principles of interpretation applicable to a taxing statute is concerned, we can do no better than to quote the by-now classic words of Rowlatt, J., in Cape Brandy Syndicate v. Inland Revenue Commissioner[1921] 1 K.B. 64 at 71.: '......in a taxing Act, one has to look merely at what is clearly said, There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.' This passage has been cited with approval by almost every High Court in India and also by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eally means is that when there are two interpretations open, one of which imposes a heavier burden of tax and the other a lower burden or no burden at all, the court in a case of doubt would prefer the interpretation which imposes a lower burden or does not impose any burden. The result of preferring such an interpretation would be, of course, to reduce the tax burden on the taxpayer. This canon of interpretation would be nullified if in every case where on one of the two interpretations a lower rate of tax or no liability to tax is attracted if such interpretation were rejected and the one less beneficial adopted on the ground that the particular statutory provision in question is an exemption or a concession clause." For the reasons given above, we hold that the relief in clause (e) of rule 41 of the Bombay Sales Tax Rules, 1959, by way of drawback, set-off or refund, as the case may be, is available both to a recognised dealer who purchases goods of the description specified in that clause for use by him in the manufacture of goods for sale by him as also to one who purchases such goods for use by him in the manufacture of goods for sale by others. Mr. Jetly, learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out in the application for reference made by it, referred only to the use of acid by the respondents "in the manufacture of acid sludge and not in the manufacture of kerosene", but at the instance of the respondents, as is shown by the order of reference, the Tribunal reframed that question as set out earlier so as to include in it the contention of the respondents that manufacture of kerosene by them was also a manufacture of taxable goods for sale. This the Tribunal did by using the words "used in the manufacture of taxable goods for sale" in question No. (1), as referred to us. In view of this, it is surprising that such an argument should have been advanced before us on behalf of the department. So far as acid sludge is concerned, Mr. Jetly, learned counsel for the applicant, submitted that the Tribunal was in error in holding that the respondents manufactured acid sludge for sale. In Mr. Jetly's submission, the respondents did not manufacture acid sludge for sale, but acid sludge sold by them was merely a waste product which resulted in the process of refining kerosene, and, therefore, sale of such acid sludge by the respondents to the chemical company could not be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. The respondents have further undertaken not to sell it to any other party during the continuance of the said agreement. They have thus entered into a firm business commitment for a period of ten years to sell acid sludge at the rates provided in the said agreement to the chemical company. The fact that compared to the price of sulphuric acid the price of acid sludge is disproportionately low is irrelevant. If in the manufacture of a particular article other by-products normally result, the sale of such by-products by the manufacturer also constitutes a subsidiary business by him and such sales by him are also effected with a view to earn more profit on the entire transaction. While we are on this point we may as well mention that, in the statement of the case submitted to us by the Tribunal, the total sale price of acid sludge during the relevant period has been mentioned by the Tribunal as being Rs. 68,108. According to Mr. Jetly, this is a mistake, and the correct amount of total sale price is Rs. 22,080. As mentioned earlier, the statement of the case was settled by the Tribunal after hearing both sides on the draft statement of the case prepared by it. We are informed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt collected from a dealer where a manufacturing process results simultaneously in the production of two commodities. It is not as if the materials purchased by the manufacturing dealer have been partly used in the manufacture of non-taxable goods for sale and the remaining part used in the manufacture of taxable goods for sale. There, obviously a manufacturing dealer could only claim drawback, set-off or refund in respect of the amount collected from him pertaining to the particular quantity of raw materials used by him in the manufacture of taxable goods for sale. Since here every single drop of sulphuric acid is utilised both in refining crude oil into kerosene and in the manufacture of acid sludge, there can be no question of any such apportionment, and if Mr. Jetly's contention were right, it would appear that the respondents would not be entitled to any set-off or refund at all. Such could not have been the consequences contemplated by the rule-making authority. Here we have a case where the taxable goods manufactured are of a lesser value compared to the price of raw materials purchased. There can also be a case where a particular process of manufacture results in simultaneo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said rule 12. The Tribunal confirmed the decision of the sales tax authorities holding that it was not reasonable to suppose that the textile mill produced unginned cotton for the purpose of selling the cotton seeds. The Gujarat High Court held that the textile mill was entitled to the refund claimed by it. The Supreme Court dismissed the appeal filed by the State. The Supreme Court held that not to grant refund would be tantamount to not giving effect to the words "for sale". The Supreme Court further held that in order to qualify for refund, the purpose must be the purpose of producing any of the goods mentioned, namely, unginned cotton, ginned or pressed cotton or cotton seeds, for sale and the words "for sale" must be given effect to. Mr. Jetly sought to distinguish this case on the ground that in the said rule 12, the words used were "where a dealer who has purchased any goods specified in clause (i) or (ii) of rule 6" of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, and that the use of the expression "any goods" made all the difference between clause (e) of rule 41 with which we are concerned and the said rule 12. We do not see any such distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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