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TMI Blog1992 (2) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... es, 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 Section 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 draw-back, set off or refund of the whole or any part of the tax - (i) x x x (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) x x x 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 and 41A. (2) Rule 41 (omitted w.e.f. 24.6.81) was a very long rule containing several clauses. In so far as is relevant for our p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt him a draw-back, 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 _________________________________________________________ (Footnote) //* The words or export were inserted by a notification dated 31.8.70. * * The words which have in fact.... so manufactured were substituted by a notification dated 15.1.1976 for the words for sale or export or in the packing of goods so manufactured for sale or export.// purchase otherwise than against a certificate under Section 11 of the Act; (b) x x x (c) x x x (d) x x x (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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulphuric acid was used in the refining process, the crude oil got refined and purified but the impurities therein precipitated into the acid and yielded acid sludge . The refinery's contract with Dharmsis provided that the acid sludge should be sold by the refinery to the Dharmsis which, apparently, had its own uses for the sludge. Accordingly, the refinery sold 3541.985 MT of acid sludge, during the relevant period, for ₹ 68,108 - the correctness of this figure was unsuccessfully 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Besides cotton and yarn, cotton waste and yarn waste were also obtained in the course of the manufacture and these were also sold by the assessee. Some quantity of the fabrics produced by the assessee were also exported. 12. During the periods 1-7-73 to 30-6-74 and 1-7-74 to 30-6-75, the assessee had paid sales tax on the purchase value of the entire raw cotton purchased by it. It, therefore, claimed a set off, under Rule 41A, of the purchase tax so paid as it had to pay sales tax on the yarn and cotton waste sold by it. It also claimed set off under Rule 43AB in respect of the three periods other than between 1-7-74 and 30-6-75 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 the raw cotton, machinery and other purchases which had been used in the process of manufacture of cotton-was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation of rules 41 and 41A which has been debated before us, we wish to point out the difficulties encountered by us as the facts in the case of Phulgaon Cotton Mills are not quite clear from the record. From the Tribunal's order, it is seen that, during the periods 1-7-75 to 30-6-76 and 1-7-76 to 30-6-77, the assessee purchased no raw cotton from unregistered dealers and no purchase tax was levied thereon. Nevertheless, some relief under Rule 41A was allowed by the Officer in the assessments for these periods as well. The basis on which a claim was made, and partially allowed, under Rule 41A in respect of these periods 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, submits that the High Court and Tribunal ought to have restricted the relief only to a proportionate extent as done by the sales tax officer. He points out that the basis on which the apportionment was made by the officer had not been specifically challenged before the appellate authorities and is not in issue before us. 17. On the other hand, Sri Bobde, learned Counsel appearing for Bharat Petroleum laid stress on two aspects of the rule. First, he points out that, under the rule, it is not a requirement that the manufactured goods have to be sold by the manufacturing dealer himself. The fact is that the kerosene constituted taxable goods after 1.4.61 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment to apply for and obtain a recognition certificate for the manufacture of sludge and it had also paid tax as dealers in acid sludge. These two contentions have, therefore, to be rejected. 19. Turning now to the main question, we are inclined to agree with respondents' counsel that they are entitled to a set off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively. The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale. Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial 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 also manufactured and it was subject to tax. Sri Dholakia contends for an implicit principle of apportionment on the basis of turnovers of various items of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le claimed to underlie the provision. As Sri Bobde rightly pointed out, the basis for the relief provided is not very clear cut. Various reliefs have been provided in a group of rules which come in for application in various situations. The relief may be based on the principle that the manufactured product is taxed either in the hands of the same assessee or in someone else's hands, or that the manufactured goods are exported which may yield no tax but earn foreign exchange, or even that the purchases are utilised for manufacture of goods in the State thus contributing to the industrial development of the State. It is, therefore difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid. In this background, the straight forward answer to the question raised lies in the literal interpretation of the language of the rules without straining to discover some doubtful principle for denying relief. 20. For the above reasons, we agree with the view taken by the High Court and followed by the Tribunal and dismiss these appeals. We, however, make no order regarding co ..... 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