1. The applicant, a partnership firm, is a registered dealer within the meaning of the Bombay Sales Tax Act, 1953, (hereafter referred to as the Act). The firm at the material time was carrying on business of tanning skins and selling them to purchasers outside India. In the course of its business, the firm used to purchase raw skins of sheep slaughtered in the Bandra Slaughter House. Thereafter the applicant-firm separated the wool from the skin and then cleaning it used to sell the wool. We, however, are not concerned with the turnover of sale of wool. Skins were then converted into leather by tanning process and the latter was sold to purchasers outside India, and we are here concerned with the turnover of sale of leather. The relevant period is the period commencing from 1st April, 1954, to 31st March, 1955. It is not in dispute that at the time the applicant-firm purchased raw hides from the slaughter house, it was required to pay purchase tax on the price paid by it for purchasing raw skin of slaughtered sheep. In its assessment for the period commencing from 1st April, 1954, to 31st March, 1955, the applicant-firm claimed set-off to the extent of the purchase tax paid by it on the raw skin as against its tax liability under proviso to section 10 or in the alternative under rule 11(1) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954. On this aspect of the case it was also contended on behalf of the applicant-firm that rule 11(1)(II) of the said rules was invalid inasmuch as it in effect indirectly levied tax on sales exempted under section 46 of the Act, and therefore it went beyond the rule-making competence of the rule-making authority. Both these contentions were negatived by the Sales Tax Officer, the Sales Tax Officer holding that section 10 had no application to the facts of the case inasmuch as the goods sold were not the identical goods purchased by the applicant-firm. He further held that the set-off claimed under rule 11 was wiped off against the amount calculated under rule 11(1)(II) on the sale price of the goods sold to the purchasers from out of India. He held that rule 11(1)(II) was valid. The applicant-firm took the matter in appeal first to the Assistant Collector, and later to the Additional Collector, and the same contentions were reiterated, but to no avail. The applicant-firm then took the matter to the Sales Tax Tribunal and again reiterated both the contentions before the Tribunal. The Tribunal confirmed the view of the Sales Tax Officer that proviso to section 10 had no application to the facts of the case. The applicant has not challenged this finding by this reference. So far as the set-off claimed under rule 11 was concerned, the Tribunal held that the rule had no application to the facts of the case at all. On an application made by the applicant-firm under section 34 of the Act, the Tribunal has referred to us the following two questions :
'(1) Whether on the facts and in the circumstances of this case the Tribunal was justified in holding that the provisions of sub-rule (1) of rule 11 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, had no application; and
(2) Whether the procedure for ascertaining the set-off under the said sub-rule is faulty by virtue of the fact that it involves the levy of a tax on sales effected outside the State of Bombay ?'
2. Mr. Palkhiwalla on behalf of the respondent stated that for the purpose of this case, we should assume contrary to what has been held by the Tribunal that rule 11 has application to the facts and circumstances of the case. In view of Mr. Palkhiwalla's aforesaid statement before us, it is not necessary to consider the first question. We proceed on an assumption that rule 11(1) has application to the facts of the present case.
3. As regards the second question, it would be convenient at this stage to refer to the relevant provisions of sub-rules (1)(I) and (II) of rule 11. The material part thereof is in the following terms :
'11. Grant of drawback, set-off or refund of sales tax or general sales tax or purchase tax in certain cases. - (1) In assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale in respect of any period, the Collector shall grant him a drawback, set-off or refund, as the case may be, of the excess, if any, of the amount mentioned in clause (I) below over the amount mentioned in clause (II) below :
(I) The aggregate of the sums -
(iv) payable as purchase tax under clause (a) of section 10 on the purchase of such goods by the dealer.
(Proviso to clause (I) is not material).
(II) Three pies in the rupee on the aggregate of the sale prices of goods which have been so manufactured or processed, where -
(i) the sale is not liable to tax by virtue of the provisions of section 46 ..........'
Clause (a) of section 10 of the Act provides that where a dealer purchases specified goods from a person who is not a registered dealer, he has to pay purchase tax at the specified rate. Now, the combined effect of section 10 and the aforesaid provisions of rule 11 would be that when a dealer purchases certain goods from a trader who is not a registered dealer under the Act, then he has to pay purchase tax over it. Further, when such a dealer, after paying purchase tax, manufactures articles out of these goods, or processes these goods and then sells the converted goods thereafter to the purchasers outside the State of Bombay, then he is entitled to say that he should get a set-off against his tax liability to the extent of the excess amount, if any, of the amount of the purchase tax paid by him over the amount calculated under clause (II) of sub-rule (1) of rule 11 of the rules, i.e., if the amount of purchase tax paid by him exceeds the amount calculated under clause (II) of sub-rule (1) of rule 11, then he gets a refund of the excess amount. In the present case, the applicant purchased raw skin from a person who was not a registered dealer. He was, therefore, liable to pay purchase tax under section 10 of the Act, and had paid it. As already stated, after purchasing the raw skin, the applicant-firm separated the wool from the skin and sold the wool separately. The skin was converted into leather by tanning process, and then sold to purchasers outside India. The applicant-firm clearly was entitled to get relief under sub-rule (1) of rule 11. It is not in dispute that the sale being one to purchasers outside Bombay State, it fell under section 46 of the Act. It is also not in dispute that under section 46, no tax was payable in respect of those sales. The relief thus to which the applicant-firm is entitled was to claim the excess amount, if any, found after deducting the amount ascertained under clause (II) of sub-rule (1) of rule 11 on the sale proceeds to the purchasers of leather from the amount of purchase tax paid by him over the amount ascertained under rule 11, be adjusted or refunded to him. This relief has been granted to the applicant, but for practical purposes the applicant has obtained no advantage. The amount ascertained under clause (II) of sub-rule (1) of rule 11 on the sale proceeds to the outside purchasers of leather is equal in amount of purchase tax paid by him. It is the contention of the applicant-firm that by virtue of section 46 of the Act, no sales tax was payable by it, the sale being to a purchaser outside the State of Bombay. By clause (II) of sub-rule (1) of rule 11, the rule-making authority had virtually levied a tax of three pies in a rupee on the sale price of the goods on which no sales tax was payable. The rule thus being beyond the provisions of section 46, was bad in law, in other words, beyond the rule-making capacity of the rule-making authority. The applicant therefore should get the refund or adjustment of the entire purchase tax paid by him against his tax liability. We are unable to accept this contention raised on behalf the applicant-firm by Mr. Trivedi. It is difficult to say that under the said clause (II) of sub-rule (1) of rule 11, the rule-making authority is levying any tax as such on the sales effected by the applicant-firm to purchasers from outside the State of Bombay. On the other hand, it is apparent that clauses (I) and (II) of sub-rule (1) read together determine the extent of relief granted to the dealers in respect of various taxes already paid by them. Section 18B of the Act provides that 'the State Government may by rules provide that (a) the tax leviable under section 8, 9, 10 or 10A shall not be payable in respect of any specified class of sales or purchases; (b) a drawback, set-off or refund of the whole or part of the tax leviable on any class of sales or purchases under section 8, 9, 10 or 10A shall be granted to the purchasing dealer in such circumstances and subject to such conditions as may be specified.' It would thus be seen that under the provisions of this section, namely section 18B, it is open to the rule-making authority to provide the circumstances and conditions subject to which drawback, set-off or refund of the tax leviable under section 10 be granted to the purchasing dealer. These being the specific powers conferred by the statute on the rule-making authority, it cannot be said that clause (II) of sub-rule (1) of rule 11 is ultra vires of the powers of the rule-making authority or beyond the competence of the rule-making authority. The contention raised by Mr. Trivedi, in our opinion, should therefore fail.
4. In the result, we answer the second question in the negative. We however make no order as to costs.
5. Reference answered accordingly.