1976 (2) TMI 164 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to set-off under Rule 41 of the Bombay Sales Tax Rules, 1959.
2. Interpretation of Rule 41 and its explanation, particularly clause (iii) of the first proviso.
3. Calculation and aggregation of set-off amounts.
4. Application of the explanation to sales outside the State but within India.

Issue-wise Detailed Analysis:

1. Entitlement to Set-off under Rule 41:
The respondents, registered dealers under the Bombay Sales Tax Act, 1959, carried on the business of manufacturing coconut oil and sold the oil both locally and outside the State. They purchased drums and tins from unregistered dealers, paid the purchase tax under section 13 of the Act, and claimed set-off under Rule 41 of the Bombay Sales Tax Rules, 1959. The key issue was the amount of set-off to which the respondents were entitled for the purchase tax paid during two assessment periods: 1st January 1960 to 31st March 1960, and 1st April 1960 to 31st March 1961.

2. Interpretation of Rule 41 and its Explanation:
Rule 41 provides for a drawback, set-off, or refund of tax paid by a manufacturing dealer. The respondents claimed set-off under clause (d) of Rule 41, which allows set-off for purchase tax paid on goods used in manufacturing taxable goods for sale. The explanation to Rule 41 extends the definition of "sale" to include sales of manufactured goods despatched to the dealer's own place of business or agent outside the State and actually resold there, subject to certain conditions.

3. Calculation and Aggregation of Set-off Amounts:
The department argued that the set-off should be reduced by 1% of the sale price of goods despatched outside the State, as per clause (iii) of the first proviso to the explanation. The Tribunal held that this reduction should only apply to the set-off for drums used in despatches outside the State, not to all drums and tins purchased. The Tribunal's interpretation led to an adverse balance, which the department could not recover. The department contended that the aggregate set-off should include both plus and minus figures, but the court disagreed, stating that the aggregate should only include sums of money granted to the dealer.

4. Application of the Explanation to Sales Outside the State but Within India:
The court analyzed the explanation to Rule 41 and its provisos, concluding that the first proviso applies only to sales by the dealer's branches or agents outside the State but within India. The three conditions in the proviso must be met for the set-off to be granted, and the reduction by 1% of the sale price applies only to this specific category of sales. The court rejected the department's argument that the reduction should apply to all types of sales, emphasizing that the proviso is an integrated provision dealing with a particular class of sales.

Conclusion:
The court reframed the question to focus on whether the reduction under clause (iii) of the first proviso should be made only from the set-off due for goods used in manufacturing taxable goods sold as per the explanation and clauses (i) and (ii) of the proviso. The court answered this question in the affirmative, supporting the Tribunal's interpretation. The applicant was ordered to pay the respondents' costs of Rs. 250.