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Commissioner of Sales Tax Vs. Bharat Pulverising Mills Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 32 of 1972
Judge
Reported in[1976]384STC491(Bom)
ActsBombay Sales Tax Act, 1953 - Sections 8, 9, 10, 10A, 18B, 18B(2), 31 and 34(3); Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954 - Rule 11(1A); Central Sales Tax Act, 1956; Bombay Sales Tax Act, 1946; Bombay Sales Tax Act, 1952
AppellantCommissioner of Sales Tax
RespondentBharat Pulverising Mills Pvt. Ltd.
Appellant AdvocateK.S. Cooper and ;R.A. Dada, Advs.
Respondent AdvocateR.V. Patel and ;C.P. Vyas, Advs.
Excerpt:
sales tax - set-off - section 11 (1a) of bombay sales tax (exemption, set-off and composition) rules, 1954 - respondents dealer sold their goods locally and also outside state - claimed set-off against sale made outside state in respect of amount collected by registered dealers as purchase tax - rule 11 (1a) provides set-off to registered dealer who manufactures or processes any goods for sale - set-off amount equal to aggregate sum recovered by him by way of tax by registered dealers and purchase tax payable in respect of purchase by unregistered dealers - whether under rule 11 (1a) tribunal justified in holding that one percent should not be calculated from entire sale price of goods dispatched but only from sale price of goods sold outside state - held, tribunal not justified in.....madon, j. 1. the question which has been submitted to us for our determination in this reference under section 34(3) of the bombay sales tax act, 1953, made at the instance of the commissioner of sales tax is : 'whether, on the facts and in the circumstances of the case and on the proper interpretation of section 18b(2) of the bombay sales tax act, 1953, enacted by bombay act no. 16 of 1957 and rule 11(1a) of the bombay sales tax (exemptions, set-off and composition) rules, 1954, which came into force from 1st july, 1957, the tribunal was justified in holding that one per cent should be calculated not on the entire sale price of the goods despatched by the respondent to its branches, but only on that part of the sale price of the goods sold outside the state, which is attributable to the.....
Judgment:

Madon, J.

1. The question which has been submitted to us for our determination in this reference under Section 34(3) of the Bombay Sales Tax Act, 1953, made at the instance of the Commissioner of Sales Tax is :

'Whether, on the facts and in the circumstances of the case and on the proper interpretation of section 18B(2) of the Bombay Sales Tax Act, 1953, enacted by Bombay Act No. 16 of 1957 and rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, which came into force from 1st July, 1957, the Tribunal was justified in holding that one per cent should be calculated not on the entire sale price of the goods despatched by the respondent to its branches, but only on that part of the sale price of the goods sold outside the State, which is attributable to the locally purchased raw material on which the respondent was claiming set-off ?'

2. The respondents, who were at all material times registered as a dealer under the said Act, were assessed for the period 1st April, 1957, to 31st March, 1958. During this period the respondents manufactured pesticides which they sold in the former State of Bombay excluding the territories which were transferred to other States on the reorganisation of States, as also despatched the manufactured goods to their branches and agents outside the State, which goods were thereafter sold by such branches and agents. The respondents had purchased raw materials for the manufacture of the said goods as also had purchased containers and packing materials for the manufactured goods both from dealers registered under the said Act as also from unregistered dealers. In respect of the purchases made by them from registered dealers the vendors of such raw materials, containers and packing materials had collected from the respondents amounts which these vendors would have had to pay by way of sales tax and general sales tax in their assessment to tax. In respect of their purchases made from unregistered dealers the respondents paid to the Government the purchase tax payable under clause (a) of section 10 of the said Act. In their assessment for the said period the respondents claimed a set-off in respect of the amounts collected from them by registered dealers by way of tax and the amounts paid by them as purchase tax against the amount of sales tax payable by them in respect of the sales of manufactured goods made by them. The set-off claimed by the respondents was allowed by the Sales Tax Officer. The respondents filed an appeal to the Assistant Commissioner of Sales Tax against the said assessment order on certain points which are not material for our purpose. In appeal, the set off allowed by the Sales Tax Officer to the respondents was not disturbed. The total set-off allowed by the Sales Tax Officer to the respondents was in the sum of Rs. 11,642.24. On 1st November, 1966, the Deputy Commissioner of Sales Tax issued a notice to the respondents under section 31 of the Bombay Sales Tax Act, 1953, calling upon them to show cause why the said assessment order should not be revised so as to reduce the set-off allowed to the respondents by a sum of Rs. 2,044.12, being one per cent of the sale price of goods of the value of Rs. 2,04,412, despatched by the respondents to their branches and agents outside the State and sold by such branches. By his order dated 30th November, 1966, the Deputy Commissioner revised the said assessment order so as to reduce the set-off allowed to the respondents by the said sum of Rs. 2,044.12. The respondents went in appeal to the Tribunal against the said order of the Deputy Commissioner. The said appeal was heard along with revision applications and appeals of two other assessees in which the same points had been raised, and by its judgment dated 14th August, 1967, the Tribunal allowed all the said appeals and revision applications. Not only the references arising out of the said other appeals and revision applications but also references in other matters where the same question is concerned are pending in this High Court and, in view of the fact, that several assessees were interested in the determination of this question, we allowed counsel appearing for these assessees to supplement the argument of counsel for the respondents in this case.

3. The answer to the question submitted to us turns upon the correct interpretation to be placed upon section 18B of the said Act and sub-rule (1A) of rule 11 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954. At the material time section 18B provided as follows :

'Rules for granting drawback, set-off, refund, etc. - (1) 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;

(c) the sale price or purchase price shall in the case of any class of sales or purchases be reduced for the purpose of levy of tax under section 8, 9, 10 or 10A to such extent and in such manner as may be specified.

(2) Any rules made under sub-section (1) shall provide that in the case of a registered dealer who manufactures or processes any goods for sale there shall be set-off against the sales tax payable by him under section 8, the aggregate of sums -

(i) recovered from the dealer by other registered dealers by way of -

(a) general sales tax on the purchase of goods specified in entries 1 to 18 (both inclusive) of Schedule B, and

(b) sales tax on the purchase of goods specified in entries 19 to 22 (both inclusive) and 25 to 80 (both inclusive) of Schedule B; and

(ii) payable as purchase tax under clause (a) of section 10 on the purchase of goods by such dealer;

after deducting therefrom one per cent of the sale price of any goods, manufactured or processed, where the sale of the goods takes place outside the pre-reorganisation State of Bombay, excluding the transferred territories.'

4. The pertinent thing to note about section 18B is that sub-section (2) thereof was substituted for the original by Bombay Act 16 of 1957 with effect from 1st July, 1957, in view of the coming into force on that date of the Central Sales Tax Act, 1956.

5. In pursuance of the power conferred by the said section 18B, the State Government inter alia made rule 11 providing for grant of drawback, set-off or refund, as the case may be, of sales tax, general sales tax or purchase tax in certain cases. Sub-rule (1A), which was inserted by Government Notification in the Finance Department No. STR. 1457/G. 1 dated 30th June, 1957, in rule 11 during the relevant period provided as follows :

'Grant of drawback, set-off or refund of sales tax or general sales tax or purchase tax in certain cases. - (1A) 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 an amount equal to the aggregate of the sums -

(i) recovered from the dealer by other registered dealers by way of sales tax or general sales tax;

(ii) calculated in the manner specified in sub-rule (1) of rule 11-A; and

(iii) payable as purchase tax under clause (a) of section 10 on the purchase of such goods by the dealer;

after deducting therefrom one per cent and in the case of goods falling under entry 23 or 24 of Schedule B to the Act, one quarter per cent of the sale price of any goods manufactured or processed where the sale of the goods takes place at any place in India outside the State of Bombay; the goods having been transported to such place on or after the 1st day of July, 1957 :

Provided that -

(a) such goods have been used as raw materials, processing materials, fuel, lubricants, containers or packing materials in the manufacture or processing of any goods specified in entries 19 to 80 (both inclusive) of Schedule B to the Act for sale,

(b) and the goods so manufactured or processed are not the goods on the sale of which no sales tax is payable under rule 5 or clause (i) of rule 7.'

6. The whole controversy before us has ranged round the deduction of one per cent of the sale price of the goods to be made from the amount of the set-off due to a dealer. According to the Tribunal, the one per cent which was to be deducted was one per cent of the proportionate sale price of the manufactured or finished product allocable to the raw materials, packing materials, containers, etc., purchased by the dealer which had been used in the manufacture of the finished product or as containers and packing materials for the finished product which had been transported outside the State and sold there. In the alternative, it was contended by the respondents that assuming the construction placed by the Tribunal upon the said rule 11(1A) was wrong, the one per cent to be deducted was one per cent of the price at which the vendors of raw materials, containers and packing materials sold them to the respondents. According to the department, the one per cent to be deducted was one per cent of the price of the finished product which had been transported outside the State and sold there.

7. We will now examine these rival contentions. A system of drawback, set-off and refund to be granted by the State to a dealer in respect of purchases made by him on which he has paid to the Government purchase tax or to his vendors the amounts which such vendors would have to pay to the Government by way of sales tax or general sales tax is an integral part of the taxation structure under the 1953 Act after it was amended by Bombay Act 10 of 1954. Under the first general Sales Tax Act to be brought on the statute-book in the Province of Bombay, namely, the Bombay Sales Tax Act, 1946, a single point levy of tax was introduced. The 1946 Act was repealed with effect from 1st November, 1952, by the Bombay Sales Tax Act, 1952, which substituted in place of the one-point levy a multi-point levy. As originally enacted, the Bombay Sales Tax Act, 1953, was intended to re-enact the Bombay Sales Tax Act, 1952, after removing therefrom the constitutional defects which led to the invalidating of the 1952 Act by the Bombay High Court in the case of United Motors (India) Ltd. v. State of Bombay [1953] 4 S.T.C. 10. In view of the dissatisfaction which prevailed amongst the industrial and commercial circles by reason of the introduction of a multi-point levy of tax, the 1953 Act was amended so as to substitute in place of the multi-point levy a two-point levy, and this was done by passing Bombay Act 10 of 1954, which drastically amended the 1953 Act. The mode of introducing the two-point levy was by providing for a system of deductions and exemptions when in certain circumstances goods were sold against certificates given by registered dealers as also in the case of some goods and transactions by providing for a system of drawback, set-off or refund of taxes paid or collected from a dealer in respect of his purchases of goods. It is for this reason that when section 6 of the said Act, which sets out the taxes payable by a dealer, came to be amended by Bombay Act 10 of 1954, it provided in sub-section (1) thereof as follows :

'Subject to any rules made under section 18B there shall be paid by every dealer who is liable to pay tax under this Act .........'

8. Then follow different taxes which a dealer is liable to pay under the said Act. Thus, by section 6, the taxes payable by a dealer are linked to the system of drawback, set-off or refund to be prescribed by the rule-making authority, namely, the Government, under section 18B.

9. We have already set out above the provisions of section 18B. It will be noticed that section 18B is divided into two sub-sections. The first sub-section provides for the general nature of the rules to be made under that section. Sub-section (2) mentions the special provisions which are to be incorporated into such rules in respect of a registered dealer who manufactures or processes any goods for sale. On behalf of the department emphasis was placed upon the difference in the language used in sub-section (1) and in sub-section (2). It was pointed out that sub-section (1) opened with the words 'the State Government may by rules provide that', while sub-section (2) opened with the words 'any rules made under sub-section (1) shall provide that'. Relying upon this difference it was submitted by Mr. Cooper, the learned counsel for the department, that while sub-section (1) was permissive, sub-section (2) was mandatory and, if the State Government made rules providing for grant of drawback, set-off or refund, there was an obligation cast upon the State Government to provide in such rules that so far as registered dealers who manufactured or processed any goods for sale were concerned, against the amount of tax paid by them or collected from them which was to be granted to them by way of set-off, etc., there had to be deducted one per cent of the sale price of any goods manufactured or processed, where the sale of such goods took place outside the pre-reorganisation State of Bombay excluding the transferred territories. Mr. Cooper placed considerable emphasis upon the phrase 'after deducting therefrom one per cent of the sale price of any goods manufactured or processed'. He submitted that the goods manufactured or processed could not be construed as being the raw materials which had gone into the manufacture or processing of the finished product nor could it mean the packing materials or containers for marketing the finished product. On behalf of the assessees it was submitted that sub-section (2) did not cast a mandatory obligation upon the State Government to deduct one per cent as provided therein and that it was open to the State Government to provide for the deduction of a lesser percentage or not to provide for any deduction at all. In support of this submission reliance was placed upon rule 11(1A) under which one per cent was to be deducted in the case of all goods except goods falling under entry 23 or 24 of Schedule B to the Act where only one quarter per cent was to be deducted. The goods mentioned in entries 23 and 24 of Schedule B to the Act are bullion and specie and articles made of gold and silver of a certain fineness not containing any precious stones, synthetic or artificial precious stones or pearls, real, artificial or cultured. In view of the fact that in framing rule 11(1A) the State Government has, in respect of the goods mentioned in entries 23 and 24 of Schedule B to the Act, provided for deduction of a lesser percentage than one per cent, we are inclined to hold that the word 'shall' used in the opening phrase of sub-section (2) is not used in a mandatory or obligatory sense so far as the percentage of deduction is concerned, but is used in a permissive sense and means 'may'. We are, however, really not concerned with this controversy, because this reference does not relate to any of the goods of the description falling under the said entry 23 or 24. The real question that falls to be determined with respect to the construction of section 18B is the same question of construction which faces us in rule 11(1A), namely, the construction to be placed upon the phrase 'the sale price of any goods manufactured or processed'. It will be, therefore, convenient first to see what meaning that phrase bears in rule 11(1A) and then consider whether there is a different meaning attributable to this phrase when used in sub-section (2) of section 18B.

10. The provisions of rule 11(1A), as in operation at the material time, have already been reproduced by us earlier in the course of this judgment. While we are on the provisions of rule 11(1A), it may be mentioned that by Government Notification in the Finance Department No. 1457/G. 1 dated 24th February, 1959, the words 'of any goods manufactured or processed' have been substituted by the words 'of the goods which have been so manufactured or processed by him'. Though this amendment was not made during the period of assessment with which we are concerned in this reference, it was in operation in the next period of assessment of the respondents with which the next reference before us, namely. Sales Tax Reference No. 33 of 1972, is concerned. Both parties are, however, agreed that the amendment to the sub-rule made on 24th February, 1959, did not change the meaning of the said sub-rule but merely made clear what was intended by the phrase 'of any goods manufactured or processed'. According to the department, this amendment made clear that the one per cent of the sale price which was to be deducted was one per cent of the sale price of the finished product, while, according to the assessees, the amendment made clear that the one per cent of the sale price which was to be deducted was the one per cent of the sale price of the raw materials which had gone into the manufacture or processing of the goods or of the packing materials or containers for marketing the finished product or, in the alternative, one per cent of the price paid by the registered dealer in question when he purchased raw materials, packing materials, containers, etc.

11. Let us first analyse what rule 11(1A) sets out to provide. It provides for a grant of drawback, set-off or refund to a registered dealer 'who manufactures or processes any goods for sale'. Where convenient we will refer to such a dealer as 'the manufacturing dealer'. Such drawback, set-off or refund is to be given to the manufacturing dealer in assessing the amount of sales tax payable by him. This drawback, set-off or refund is to be of an amount equal to the aggregate of the sums recovered from him by way of tax by registered dealers and purchase tax payable by him to the Government in respect of purchases made by him from unregistered dealers. The amount of such drawback, set-off or refund is, however, not the complete aggregate of the sums recovered from the manufacturing dealer by a registered dealer or payable by him by way of purchase tax. This aggregate is less a certain percentage provided in rule 11(1A). So far as we are concerned, that percentage is one per cent of the sale price of any goods manufactured or processed. Such deduction is, however, to be made where the sale of goods has taken place at any place in India outside the State of Bombay in cases where the goods have been transported to such place outside the State but within India on or after 1st July, 1957. There is a proviso to rule 11(1A) to which we will refer later. Since we are concerned with the construction to be placed upon the phrase 'the sale price of any goods manufactured or processed', it is pertinent to note that this phrase for the first time occurs in rule 11(1A) in a somewhat different form in the very opening words of that sub-rule, namely, in describing the dealer to whom the drawback, set-off or refund is to be granted. These opening words are 'in assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale'. As our eyes travel further down this sub-rule, our attention is immediately arrested by clause (iii), which uses the words 'such goods'. Clause (iii) refers to the set-off, drawback or refund of the amount of purchase tax payable by the manufacturing dealer in respect of his purchases from unregistered dealers. That clause provides, 'payable as purchase tax under clause (a) of section 10 of the purchase of such goods by the dealer'. Now, the manufacturing dealer does not pay purchase tax in respect of his finished product. The manufacturing dealer pays purchase tax only in respect of the raw materials, packing materials, containers for finished product, etc., purchased by him. The use of the word 'such' before the word 'goods' in clause (iii) shows that these are the goods which have already been referred to earlier. The only place where the word 'goods' has been used in rule 11(1A) prior to its use in clause (iii) is in the opening phrase 'in assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale'. The use of the words 'such goods' in clause (iii) would, therefore, support the construction urged before us on behalf of the assessees, which has found favour with the Tribunal, and we would have been inclined to accept this construction but for the insuperable difficulties, which come in the way thereof when one reads the whole of sub-rule 11(1A), and which have been overlooked by the Tribunal in giving its decision. The first thing to notice is that the amount of tax collected by registered dealers from the manufacturing dealer or the purchase tax payable by the manufacturing dealer in respect of his purchases from unregistered dealers is not a drawback, set-off or refund in the abstract but is a drawback, set-off or refund against the amount of sales tax payable by the manufacturing dealer, because such drawback, set-off or refund is to be given to him in assessing the amount of sales tax payable by him in respect of any period. Sales tax is payable by a dealer to the Government. It is a taxation charge levied by section 8 of the said Act. Under that section there is to be levied a sales tax on the turnover of sales of goods specified in column 1 of Schedule B to the said Act at the rates specified in that schedule. Clause (20) of section 2 of the said Act defines the term 'turnover of sales' as meaning 'the aggregate of the amounts of sale price received and receivable by a dealer in respect of any sale of goods made during a given period after deducting the amount, if any, refunded by the dealer to a purchaser, in respect of any goods purchased and returned by the purchaser within the prescribed period'. Thus, the drawback, set-off or refund to be granted to the manufacturing dealer is against the amount of sales tax payable by him in respect of the aggregate of the amounts of sale price received and receivable by him in respect of his sales of goods, that is, in respect of the goods sold by him. What the manufacturing dealer sells is the finished product which he has manufactured or processed. He does not sell the raw materials or the packing materials or the containers which he has bought for purposes connected with or incidental to the manufacture or processing of the finished product. Thus, the use of the phrase 'in assessing the amount of sales tax payable by a registered dealer who manufactures or processes any goods for sale' must mean in assessing the amount of sales tax payable by the registered dealer in respect of the sales of the finished product manufactured or processed by him. Though clause (iii) of rule 11(1A) uses the phrase 'such goods', the word 'such' from the nature of things cannot refer to the finished product in the context of which alone in the opening words of rule 11(1A) the words 'any goods for sale' have been used. The use of the word 'such' in clause (iii) is really an instance of careless and loose draftsmanship. This is made abundantly clear as we proceed further down the rule and notice the qualifications and conditions provided immediately after the mention of the percentage of deduction. These qualifications and conditions relate to the place of the sales of goods, one per cent of the sale price of which is required to be deducted, the date of transportation of the goods in question to such place of sale, the user of the goods and the nature of the goods. The last two are provided for by the proviso, while the first two are provided for by the concluding portion of rule 11(1A) preceding the proviso. Under the said concluding portion 'the sale of the goods' must take 'place at any place in India outside the State of Bombay'. What are these goods which are described as 'the goods' in this phrase The answer depends upon the goods which the manufacturing dealer sells. He sells the finished product. He does not sell raw materials or packing materials or containers. Many raw materials are consumed in the production of the finished produce or in the preliminary and incidental processes thereto, or are in the process altered totally and take on a different form, nature and character. They no more exist in the same form in which they were when purchased as raw materials. Packing materials and containers are used in packaging goods for sale. When the finished product is sold, it is sold in packages or in drums or tins, but the sale is not a sale of packing materials or of drums or tins but of the finished product. The words 'the sale of the goods', which occur in the qualifying clause to the phrase 'the sale price of any goods manufactured or processed' would, therefore, refer to the goods manufactured or processed, and would show that the goods manufactured or processed are not the raw materials, packing materials or containers but the finished product. This is made clearer by the second qualification set immediately thereafter in these words, namely, 'the goods having been transported to such place on or after the 1st day of July, 1957'. Here once again the words 'the goods' refer to the phrase 'the sale price of any goods manufactured or processed' occurring earlier. Raw materials which have ceased to exist by being consumed in the process of manufacture or which have ceased to exist in the same form cannot be said to be transported to any place. What is transported is the finished product, and this second qualification makes the position further clear. Assuming there was any lingering doubt in anyone's mind even after this, such doubt is wholly dispelled when we look to the language of the proviso. The proviso is in two clauses, namely, clause (a) and clause (b). Under clause (a) 'such goods' must have been 'used as raw materials, processing materials, fuel, lubricants, containers or packing materials, in the manufacture or processing of any goods specified in entries 19 to 80 (both inclusive) of Schedule B to the Act for sale'. Clause (a) thus refers to two types of goods, namely, (1) goods which have been used as raw materials, processing materials, fuel, lubricants, containers or packing materials in the manufacture or processing of certain goods for sale, and (2) the goods manufactured or processed for sale, which phrase, with the necessary grammatical variations required by the context, is a throw-back to the phrase 'a registered dealer who manufactures or processes any goods for sale' in the opening part of rule 11(1A) and to the phrase 'the sale price of any goods manufactured or processed' in the portion of rule 11(1A) after clause three. The goods used as raw materials, etc., are not the goods manufactured or processed is also shown by clause (b) of the proviso, which states that 'the goods so manufactured or processed are not the goods on the sale of which no sales tax is payable under rule 5 or clause (i) of rule 7'. As we have seen, sales tax is payable on a sale of goods. Rule 5 sets out the various class

12. es of sales on which no sales tax is payable, and clause (i) of rule 7 sets out the classes of sales on which no sales tax and general sales tax is payable.

13. According to the Tribunal, when the manufacturing dealer transports the finished product on or after 1st July, 1957, to a place within India but outside the State of Bombay and sells it, for the purposes of rule 11(1A), there must be in addition to the actual sale of the finished product also a notional sale of all the raw materials, etc., which have gone into the manufacture or processing of the finished product and of the packing materials and containers in which these goods have been packaged. We do not find it possible to accept this construction. It is not necessary to resort to a theory of notional sales of raw materials and packing materials in order to interpret the said rule, and to import such a concept into the said rule is to do violence to its language. In arriving at its conclusion the Tribunal sought support from article 286(1) of the Constitution which imposes a constitutional prohibition against a State imposing any tax on the sale or purchase of goods where such sale or purchase takes place, inter alia, outside the State. The effect of this provision of article 286(1) has been reproduced in section 46 of the said Act. According to the Tribunal, if the State were to deduct from the amount of drawback, set-off or refund one per cent of the sale price of the finished product which had been transported to any place within India but outside the State and sold there, what the State would be doing would be to recover in a circuitous manner a tax on the sales of these goods which had taken place outside the State. We are not able to appreciate this argument. The State has no power to levy a tax on outside State sales and since, according to the Tribunal, there is a notional sale outside the State of raw materials, packing materials and containers on which the State could constitutionally recover in a circuitous way one per cent by way of tax, we fail to see why that should be valid, and the recovery of tax in a circuitous way on the sale price of the finished product cannot be valid or constitutional. If the Tribunal's argument that it is a circuitous way of collecting the tax on an outside State sale were right, it would be so in either event, whether it is one per cent of the sale price of the finished product or of a notional sale price of the raw materials, the packing materials and containers. In either case, it would be a tax on sales taking place outside the State. We may also point out that in Mohamed Massi Safi & Co. v. State of Bombay [[1962] 13 S.T.C. 552 , clause (II) of sub-rule (1) of rule 11 of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules; 1954, was challenged in this High Court as being ultra vires the powers of the rule-making authority on the ground that by that clause the rule-making authority had virtually levied a tax on the sale price of the goods sold outside the State on which no sales tax was payable. Rejecting that contention the court observed :

'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 the powers of the rule-making authority or beyond the competence of the rule-making authority.'

14. Even apart from this judgment of a Division Bench of our High Court, the question of constitutionality either of any provision of rule 11(1A) or of section 18B is not before us.

15. We will now consider the alternative construction advanced before us by the assessees, namely, that one per cent of the sale price of any goods manufactured or processed means one per cent of the sale price of the raw materials, packing materials and containers purchased by the manufacturing dealer. A plain reading of rule 11(1A) shows that such a construction is not possible. The words used are 'the sale price of any goods manufactured or processed'. The rule is drafted from the point of view of the manufacturing dealer with the intention of giving him relief in respect of the amount of taxes collected from him and payable by him on his purchase of raw materials, packing materials and containers, etc. The words 'sale price' would, therefore, be the most inappropriate words to use, because what a purchaser pays would be the purchase price and not the sale price. In fact, section 2 of the said Act defines the term 'purchase price' as also the term 'sale price'. Clause (10A) of section 2 defines 'purchase price' as meaning 'the amount of valuable consideration payable by a person for the purchase of any goods, .......' Clause (14) of section 2 defines 'sale price' as meaning 'the amount of valuable consideration payable to a dealer for the sale of any goods, ......'

16. For the reasons set out above, we find that the construction placed by the Tribunal upon rule 11(1A) was erroneous and cannot be supported.

17. So far as section 18B(2) is concerned, we fail to see why any different construction should be placed upon the phrase 'after deducting therefrom one per cent of the sale price of any goods manufactured or processed'. In fact, clause (ii) of sub-section (2), which talks about adding the amount of purchase tax payable by a dealer to the tax collected from him in order to make up the aggregate of sums in respect of which drawback, set-off or refund is to be granted to the dealer, states 'payable as purchase tax under clause (a) of section 10 on the purchase of goods by such dealer'. It does not use the loose and careless phraseology of clause (iii) of rule 11(1A), namely, 'payable as purchase tax under clause (a) of section 10 on the purchase of such goods by the dealer'. Therefore, even the arguments advanced before us based on the use of the words 'such goods' in clause (iii) of rule 11(1A) do not apply to the construction of section 18B(2).

18. In the result, we answer the question submitted to us in the negative.

19. The respondents will pay to the applicant the costs of this reference fixed at Rs. 250.

20. Reference answered in the negative.


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