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TMI Blog1978 (12) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... section 45(1) of the Gujarat Sales Tax Act, 1969, in respect of pro rata breach of certificates in form 19 as worked out above? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that in view of the proviso to rule 42 of the Gujarat Sales Tax Rules, 1970, no set-off was admissible to the applicant under the aforesaid rule even in respect of tax paid on the purchases of raw materials and processing materials used in the manufacture of goods sold locally or in the course of interState trade and on which tax was payable by the applicant? (4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the reduction to be made from set-off under the proviso to rule 42 of the Gujarat Sales Tax Rules, 1970, was more than the admissible amount of set-off and hence the applicant was not entitled to any set-off under the above rule?" Questions Nos. (1) and (2) have not been pressed on behalf of the assessee at the hearing of the reference and the only questions which, therefore, survive for consideration are questions Nos. (3) and (4). Those questions raise an interesting question as to the true a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e manufacture of vegetable products is divisible as under: Goods Tax paid on goods used Tax paid on goods used in the manufacture of in the manufacture of vegetable products sold vegetable products sold locally on consignment basis Rs. Soyabean oil 39,264 39,264 Til oil 28,017 40,268 Hexine oil 15,738 656 Caustic soda 1,723 nil 84,742 80,188 The assessee contended during the course of the assessment proceedings that under rule 42 of the Rules it was entitled to full set-off of the tax paid by it on the purchase of goods used in the manufacture of vegetable products sold locally. This claim of the assessee was rejected by the Sales Tax Officer who held that under the proviso to rule 42 a deduction to the extent of 3 per cent of the sale price of the vegetable products sold on consignment basis was required to be made from the total amount of set-off admissible to the assessee and that on that basis the amount required to be deducted came to Rs. 6,15,035 and that since the total amount of set-off (including set-off of tax in respect of the purchases of goods used in the manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that it could be validly made from the set-off admissible in respect of tax paid on the purchases of goods used in the manufacture of vegetable products sold locally, that is to say, out of the sum of Rs. 84,742, thus leaving a negative balance. The revenue's stand at all the stages, on the other hand, has been that on a proper construction of the proviso to rule 42, the deduction to the extent of 3 per cent of the sale price of the vegetable products sold on consignment basis is required to be made from the total amount of set-off including the set-off admissible in respect of tax paid on the purchases of goods used by the assessee in the manufacture of vegetable products sold locally and that, accordingly, on the facts and in the circumstances of the present case, in order to effect deduction to the extent of Rs. 6,15,035, it would be competent to the taxing authority not only to deny the claim of set-off in the sum of Rs. 80,188 but also to reject the claim of set-off in the sum of Rs. 84,742. The next question, which emerges on the basis of the aforesaid controversy, therefore, is whether on a true and correct interpretation of the proviso to rule 42, the deduction required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in sections 7, 8 and 10 unless such persons issue certificates in the prescribed form. The assessee in the present case is a recognised dealer and we shall, therefore, confine our attention to the provisions as to deductions in respect of sales effected in favour of such dealers. A recognised dealer is a registered dealer who has been granted recognition under section 32 which includes a recognition deemed to have been granted under the Act [see section 2(23) and (24)]. Recognition under section 32 is granted in a prescribed form and on the fulfilment of and subject to certain conditions to a registered dealer who manufactures taxable goods for sale. The vendor of taxable goods to a recognised dealer would be entitled to deduct from the turnover of his sales the sales in favour of recognised dealer, provided the recognised dealer certifies in the prescribed form 19 that the goods, other than prohibited goods, sold to him are purchased by him for use by him as raw or processing materials or as consumable stores in the manufacture of taxable goods for sale by him within the State of Gujarat [see section 13(1)(B) read with form 191. The relevant question, which immediately poses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ader context of the scheme of deductions contemplated by sections 7, 8 and 10 in Special Civil Application No. 916 of 1973 (Morvi Vegetable Products Ltd. v. M.C. Padia, Sales Tax Officer, Morvi) decided by a Division Bench of this Court consisting of J.B. Mehta and T.U. Mehta, JJ., on 9/10th July, 1974. T.U. Mehta, J. (as he then was), speaking for the Division Bench, observed in the decision as follows: "........On the close scrutiny of the scheme of the Act as revealed through the above referred provisions of the Act, it is found that the various deductions which are contemplated by sections 7 to 10 are provided with a view to see that, so far as possible, there is only a single point levy of sales tax on the goods purchased or sold in the State. The purpose of confining the tax, so far as possible, to a single point levy, is obviously to ensure that the goods do not carry with them any unnecessary burden of tax, and the State would, at the same time, avail of the necessary revenue. Another object for providing these deductions seems to be to harmonise the inter-State trade and commerce as well as the export trade. It would, therefore, be incorrect to say that the object of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of section 9, a purchase tax at the appropriate rate set out in the relevant schedule in respect of such goods. This section, it would appear, is enacted with a view to ensuring that taxable goods do not escape levy of tax, but at the same time there is in it an in-built safeguard with regard to a single point levy of tax. Before proceeding further, it may be pointed out that section 12 deals with levy of tax at a reduced rate on certain sales. The said section, as it read at the material time, in substance, provided that where any dealer liable to pay tax sells any taxable goods to a licensed dealer or to a commission agent, who issues relevant certificates in the prescribed form, then, notwithstanding anything contained in section 7, 8 or 10, on such sale of goods the selling dealer shall be liable to pay sales tax at the rate of three paise in the rupee, or where a lesser rate is specified in any schedule in respect of those goods, at that lesser rate. Broadly speaking, the sales covered by section 12 are in respect of taxable goods, which are to be consigned within the specified time-limit outside the State for sale or for use in the manufacture of goods for sale outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the purchasing dealer a drawback, set-off or refund of the whole or any part of the tax paid or levied or leviable in respect of any earlier sale or purchase of goods under this or the previous Act in circumstances and subject to conditions which may be specified in the rules. We do not propose to enter into consideration of the rather difficult question as to what is the nicety of distinction between drawback, set-off and refund. However, we are concerned in the present case with "set-off" to be given to a purchasing dealer. We must, therefore, try to ascertain the meaning of at least that word in the said context. It appears to us, having regard to the context and collocation and setting of the said word in the scheme of section 51, that "set-off" means adjustment or deduction from the tax payable by a purchasing dealer to the Government of the amount to be returned to such purchasing dealer in respect of the purchase tax paid by him or as representing the amount of sales tax or general sales tax collected from him by his vendor. The question, which immediately confronts itself for consideration is: what was the need of providing for rules being framed by the Government for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain conditions and under sub-section (2) the State Government is empowered, "if it considers it necessary so to do in the public interest", to exempt any specified class of sales or purchases from payment of the whole or any part of any tax payable under the provisions of the Act, by notification in the official Gazette, subject to such conditions as it might impose. Even these safeguards were, however, not considered sufficient because the legislature could not possibly have contemplated each and every contingency which may arise and the diverse factors which may have their inter-play in the modern complex commercial transactions. Section 51 was, therefore, enacted whereunder power was given to the State Government to frame rules providing for grant of a drawback, set-off or refund in such circumstances and subject to such conditions as may be specified. An illustration based upon the very rule which is under consideration herein will highlight this point. Take the case of a recognised dealer, who purchases from an unregistered dealer goods for use by him as raw or processing materials or consumable stores in the manufacture of taxable goods for sale by him locally. In such a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .......................... Provided also that............................................. (3) the said goods have been used by the assessee within the State, as raw or processing materials or as consumable stores in the manufacture of taxable goods as defined in clause (33) of section 2 of the Act, and (4) the goods so manufactured have been sold by the assessee in the State of Gujarat or in the course of inter-State trade or commerce or of export out of the territory of India or have been transported by the assessee outside the State of Gujarat but within India, to his own place of business, or to the place of business of his agent, and sold there. Extent of drawback, set-off, etc., shall be the amount calculated in accordance with clauses (A) and (B) hereunder, subject to the proviso: (A) ...................................................... (B) For the purchases of goods on or after the appointed day.-(i) In respect of the purchases made on or after the appointed day from a registered dealer without giving any certificate under sections 12 and 13 of the Act, (a) the amount of sales tax or of general sales tax or as the case may be, of both recovered separately, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase tax, in respect of goods purchased and used by such an assessee in manufacture. The grant of such relief, However, is subject to two kinds of conditions: (1) general conditions specified in rule 47, and (2) further conditions specified in rule 42 itself. The general conditions need not detain us in this case because they are admittedly satisfied. We shall, for the purpose of this case, analyse the further conditions specified in rule 42 itself. The first of such conditions is that the assessee must be a registered dealer under the Act. The second condition is that the goods purchased must be taxable goods other than those falling within the category of prohibited goods as defined in the Act. We will skip over the provisos attached to the second condition because they are not relevant for the purposes of this case. The third condition is that the goods in question must have been used by the assessee within the State, as raw or processing materials or as consumable stores, in the manufacture of taxable goods as defined in the Act. The fourth condition is that: (1) the goods so manufactured must have been sold by the assessee, (a) in the State of Gujarat, or (b) in the course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage that the goods sold to him are purchased by him for use by him as raw materials in the manufacture of taxable goods for sale within the State of Gujarat but who ultimately sells the manufactured goods within the State of Gujarat. In both the above-mentioned cases, the recognised dealer will have paid tax on the raw materials, although if he had purchased the raw materials from a registered dealer, in the first case, or upon furnishing certificate, in the second case, he could have purchased those goods without payment of tax. By virtue of the third condition read with the first part of the fourth condition prescribed in rule 42, such a recognised dealer would be entitled to claim a set-off of the whole of the tax in respect of the purchases of raw materials made by him and thereby he would be placed in the same position as if he had purchased the raw materials from a registered dealer or against a certificate in form 19. This, however, is not the only category of cases which would be covered within the ambit of rule 42, for the third condition has a broader sweep and it takes in the case even of a manufacturer who is not covered by section 13(1)(B). Whereas for the applicabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te. The fourth condition relates to the sale of the manufactured goods in the making of which the taxable goods have been used as raw or processing materials or as consumable stores. Four kinds of sales of the finished product are envisaged by the said condition, namely, (1) sale within the State of Gujarat, (2) sale in the course of interstate trade or commerce, (3) sale in the course of export out of the territory of India, and (4) sale outside the State of Gujarat but within India by transportation of the manufactured goods to the manufacturer's own place of business or to the place of business of his agent. As indicated earlier, the fourth condition read along with the third condition enlarges the scope of rule 42 and takes in cases not covered by section 13(1)(B). The last part of the fourth condition in terms permits a set-off being given even in cases where the manufactured goods are sold on consignment basis, though the rate of relief, as earlier observed, is on the reduced scale by virtue of the proviso. The point to be noted at this stage is that the fourth condition makes a clear classification or categorisation of different kinds of sales of the manufactured goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one or more of the different heads (a), (b) and (c) comprised in clauses (A) and (B). The point to be noted at this stage is that in calculating the amount in accordance with clauses (A) and (B), the deduction contemplated by the proviso which immediately follows must be given effect to. This would be so not only because of the enactment of the proviso, the normal function of which is to qualify or create an exception in the preceding enactment, but also because of the express words "subject to the proviso" to be found in the heading preceding clauses (A) and (B). The rule-making authority by adopting this twopronged device has underscored the importance of the proviso in the calculation of the amount of drawback, set-off or refund, as the case may be. That takes us to the proviso, the true and correct interpretation of which is the bone of contention between the parties hereto. The proviso is in two parts. The first part prescribes the consequence which must ensue upon the fulfilment of the condition or existence of the situation mentioned in the second part. It would be convenient, therefore, to refer first to the second part. That part refers to the state of affairs where t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which have been manufactured, is sold on consignment basis, the proviso would be attracted. We are, however, not called upon to decide that question, because for the purposes of this case, the assessee was prepared to proceed on the basis that the proviso would be attracted even if a portion of the manufactured goods is sold in the manner prescribed in the last part of the proviso. Both the sides were agreed that in such an event, it would be permissible to bifurcate the manufactured goods into two distinct parts and that the deduction to be made from the drawback, set-off or refund, as the case may be, should be to the extent of only 3 per cent of the sale price of that portion of the manufactured goods which have been sold in the manner prescribed in the last part of the proviso. In other words, for the purposes of this case, there is no dispute between the parties on two points: first, that the proviso would be attracted even if a portion of the manufactured goods is sold on consignment basis and, second, that in a case of that nature, the deduction to be effected in accordance with the proviso must be equivalent to 3 per cent of the sale price of the goods sold on consignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, which is required to be deducted, is in excess of the amount from which deduction has to be effected accordingly, the balance should not be allowed to be projected into the drawback, set-off or refund, as the case may be, relatable to the *Here italicised. tax paid in respect of the purchases of goods used in the manufacture of goods sold locally. The revenue contended, on the other hand: (1) that the second part of the proviso merely describes the situation, the existence of which gives rise to the applicability of the proviso, (2) that when such a situation is found to exist, the power to make deduction under the proviso can be legitimately exercised and such deduction can be made from the aggregate of the amounts of drawback, set-off or refund, as the case may be, admissible to the assessee, and (3) that the deduction under the first part of the proviso, on its plain meaning, could not be confined only to the drawback, set-off or refund, as the case may be, to be granted to the assessee in respect of the tax paid on the purchases of goods used in the manufacture of goods sold on consignment basis outside the State but within India. Such a dichotomy or bifurcation, acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integra. We are unable to accede to this submission made on behalf of the revenue. It is true that the assessee, who was the writ petitioner in Morvi Vegetable Products Ltd.'s case (Special Civil Application No. 916 of 1973 decided on 9/10th July, 1974-Gujarat High Court), had, inter alia, raised a plea similar to the one which is advanced on behalf of the assessee herein under almost identical circumstances in the memo of writ petition. However, as it often happens, that plea does not appear to have been pressed into service at the hearing and, as is apparent from the very first paragraph of the judgment of this Court in that matter, the assessee appears to have confined his challenge there to the vires of the proviso on the grounds that the said proviso infringes the equality clause of article 14 and also offends articles 286 and 301 of the Constitution of India. In para 6 of the judgment, this Court formulated three distinct grounds of challenge and those grounds were also confined to the vires of the proviso. That apart, when one reads the whole judgment, it is manifest that the only question which was there considered by this Court was as to the constitutionality of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be satisfied and the relief has to be quantified in accordance with the prescribed formula of which the proviso is an integral part. Those conditions, as earlier pointed out, are closely interdependent in their working. It would thus appear that not only the Act and the Rules relating to drawback, set-off or refund including rule 42 are a part of an integrated scheme, which aims to attain a basic objective; but also that the different parts of rule 42 themselves are closely interrelated, each portion working in close union with the other. Indeed, as found earlier, the last part of the fourth condition and the second part of the proviso both deal with a contingency where identical conditions must exist and similar situation must prevail. Under the circumstances, the interpretation of the proviso, which occurs in such context and setting must be made ex visceribus actus, that is to say, the intention of the legislature in enacting the proviso must be found by reading the statute as a whole. The rule of construction which is firmly established is that every clause of a statute should be construed with reference to the context and other clauses of the Act, so as, as far as possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n one of the aforesaid three modes, as contended by the revenue? Or, as contended by the assessee, do these words mean the aggregate of the amounts of sales tax, general sales tax or purchase tax, as the case may be, paid on the purchases of goods used in the manufacture of goods sold on consignment basis? If the construction suggested by the revenue is accepted, then the negative balance of the amount of deduction can be realised by effecting corresponding *Here italicised. reduction in the amount of drawback, set-off or refund, as the case may be, admissible in respect of the tax paid on the purchases of goods used in the manufacture of goods sold in the State or in the course of inter-State trade or commerce or of export out of the territory of India. If, on the other hand, the construction for which the assessee pleads is accepted, the deduction will have to be made only from the totality of the amount of sales tax, general sales tax or purchase tax (if more than one of such taxes is paid) and the negative balance of the amount of deduction cannot be realized by effecting corresponding reduction in the amount of drawback, set-off or refund, as the case may be, admissible in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee contends is the only possible construction on the rule of literal interpretation. The words "the aggregate of the amounts" are qualified by the words "calculated in accordance with the clauses (A) and (B)". We must, therefore, turn to clauses (A) and (B) and find out which are the specified amounts that enter into the process of calculation under those two clauses. Those specified amounts, so far as clause (B) is concerned, are: (1) the amounts of (i) sales tax, (ii) general sales tax, (iii) both (in case where both are recovered) or (iv) purchase tax, as the case may be, when recovered separately at the time of purchase of goods used in manufacture, or (2) the amount calculated in accordance with the prescribed formula where the amount of sales tax or of general sales tax or of both, as the case may be, has not been so recovered separately. Substantially similar provision with only slight suitable modification is to be found in clause (A). It is thus clear beyond doubt that "the aggregate of the amounts" calculated in accordance with the clauses (A) and (B) are the amounts of the aforesaid various taxes paid on the purchases of goods used in the manufacture. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the provisions in the Act relating to the grant of recognition to a manufacturer and those relating to deductions to be effected when taxable goods are purchased by a recognised dealer against the certificate for use in manufacture, have been enacted to confine, as far as possible, the tax to a single point levy so that the manufactured goods do not carry with them any unnecessary burden of tax and the State would at the same time avail of the necessary revenue. An incidental object also is to harmonise the inter-State trade and commerce as well as the export trade. The legislature could not, however, have possibly contemplated and provided for each and every contingency in which its intervention is necessary to achieve the aforesaid objects. The State Government was, therefore, empowered to enact rules providing for grant of a drawback, set-off or refund in such circumstances and subject to such conditions as may be specified. Rule's have accordingly been enacted and those rules are an integral part of the taxation structure under the Act. In construing those rules, therefore, that construction must be preferred which carries out the aforesaid objects which the legislature ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctured goods sold locally will bear unnecessary burden of tax. It is required to be borne in mind that rule 42 including the proviso, in substance, is a beneficent provision and that its interpretation should be such as would advance the remedy. The construction suggested by the revenue, besides working inconvenience and hardship, defeats the very purpose of rule 42 and it is also opposed to reason and justice and is inconsistent with the general scheme of the Act. The construction suggested on behalf of the assessee, on the other hand, does not suffer from any such infirmities and it attains the objective. This is so because on the assessee's interpretation, (a) the drawback, set-off or refund admissible in respect of goods used in the manufacture of goods sold otherwise than on consignment basis is not affected and (b) at the same time, in cases where the deduction to be made is equal to or more than the drawback, set-off or refund relatable to goods used in the manufacture of goods sold on consignment basis, the whole of such drawback, set-off or refund will stand withdrawn with the resultant effect that goods so used will continue to bear the full levy of tax which was initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rawback, set-off or refund, as the case may be, to be granted in respect of tax paid on the purchases of goods used in the manufacture of goods sold on consignment basis outside the State but within India. Therefore, in cases where a portion of the goods manufactured has been sold on consignment basis, deduction should be effected only from that portion of the drawback, set-off or refund, as the case may be, which is relatable to the tax paid in respect of the purchase of goods used in the manufacture of goods sold on consignment basis and that if the amount which is required to be deducted is in excess of the amount from which deduction has to be effected accordingly, negative balance should not be allowed to be projected into the drawback, set-off or refund, as the case may be, relatable to the tax paid in respect of purchases of goods used in the manufacture of goods sold locally. We may indicate that in the view which we are taking, we derive support from the decision of the Bombay High Court in Commissioner of Sales Tax v. Jai Hind Oil Mills Co. [1977] 40 STC 60. The question which there arose for consideration was similar to the one involved herein. The language of the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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