1976 (2) TMI 183 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Entitlement to Set-off under Rule 40(2) of the Bombay Sales Tax Rules, 1959.
2. Applicability of Legal Fiction created by Rule 11AA and Rule 16(2) of the Bombay Sales Tax (Exemption, Set-off, and Composition) Rules, 1954.
3. Continuity of benefits under repealed laws after the enactment of the Bombay Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Entitlement to Set-off under Rule 40(2) of the Bombay Sales Tax Rules, 1959:
The primary issue was whether the respondents were entitled to a set-off under Rule 40(2) of the Bombay Sales Tax Rules, 1959, for the stock of goods held on January 1, 1960. The respondents claimed set-off based on the provisions of Rule 40(2), which allows for a drawback, set-off, or refund of tax for goods in stock on the appointed day. The Sales Tax Officer initially granted this set-off, but the Assistant Commissioner of Sales Tax later disallowed it. The Tribunal, however, upheld the respondents' entitlement to the set-off, which led to the reference to the High Court.

2. Applicability of Legal Fiction created by Rule 11AA and Rule 16(2) of the Bombay Sales Tax (Exemption, Set-off, and Composition) Rules, 1954:
The respondents relied on the legal fiction created by Rule 11AA and Rule 16(2) of the 1954 Rules, which allowed them to be deemed as the purchasers of the goods for the purpose of claiming set-off. Rule 16(2) stipulated that the stock of goods transferred along with the business should be deemed to be purchased by the transferee, and Rule 11AA extended this benefit to the transferee for the purpose of set-off, drawback, or refund. The court emphasized the importance of legal fictions, quoting Lord Asquith in East End Dwellings Co. Ltd. vs. Finsbury Borough Council, to highlight that once a legal fiction is created, all its consequences must be treated as real.

3. Continuity of benefits under repealed laws after the enactment of the Bombay Sales Tax Act, 1959:
The court examined whether the benefits under the repealed 1953 Act and 1954 Rules continued after the enactment of the 1959 Act. The court noted that the 1959 Act was a consolidating and amending act, not intended to wipe out all existing laws but to provide continuity. Sections 76 to 79 of the 1959 Act supported this by saving certain provisions of the earlier laws, including the continuity of registration certificates and the ability to claim set-off or refund for taxes paid under the earlier laws. Section 42 of the 1959 Act specifically empowered the State Government to make rules for granting set-off or refund for taxes paid under any earlier law.

The court concluded that the purpose of Rule 40(2) of the 1959 Rules was to ensure that dealers were not deprived of the relief they would have received under the earlier laws. The court rejected the department's argument that the legal fiction created by the 1954 Rules should not extend to the 1959 Rules. The court held that the respondents were entitled to the set-off under Rule 40(2) of the 1959 Rules, as the legal fiction created by Rule 11AA and Rule 16(2) of the 1954 Rules continued to apply.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the respondents were entitled to the set-off under Rule 40(2) of the 1959 Rules by virtue of the legal fiction created by Rule 11AA and Rule 16(2) of the 1954 Rules. The court emphasized the continuity of benefits under the repealed laws and the purpose of the 1959 Act to consolidate and amend, not to eliminate existing rights and benefits. The question was answered in the affirmative, and the respondents were awarded costs of Rs. 250.