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Commissioner of Sales Tax Vs. Saravagi Industries - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtMumbai High Court
Decided On
Case NumberSales Tax Reference No. 25 of 1979 in Reference Application No. 175 of 1975
Judge
Reported in(1985)87BOMLR15; 1985MhLJ116; [1985]59STC259(Bom)
Acts Bombay Sales Tax Act, 1959 - Sections 2(26) and 61(1)
AppellantCommissioner of Sales Tax
RespondentSaravagi Industries
Excerpt:
sales tax - set off - sections 2 (26) and 61 (1) of bombay sales tax act, 1959 and rule 41a of bombay sales tax rules, 1959 - whether tribunal correct in allowing full set-off under rule 41a when resale allowed in respect of remnants of scrap sold - assessee entitled to full set off if assessee used entire quantity of purchased goods in manufacture of taxable goods for sale - remnants left over unusable would not deprive assessee of benefit of full set-off under rule 41a - entire quantity of goods purchased was used in manufacture of taxable goods by assessee - question answered in affirmative. - - we would like to thank mr......held that the assessee was entitled to the full permissible set-off under rule 41-a of the bombay sales rules, 1959. it, therefore, held that the lower authorities were not justified in reducing the set-off. from this decision of the tribunal, the following question has been referred to us under section 61(1) of the bombay sales tax act, 1959 :'whether on the facts and in the circumstances of the case, the tribunal was correct in law in allowing full set-off under rule 41-a of the bombay sales tax rules, 1959 when the resale was allowed in respect of the remnants of the scrap sold ?'2. rule 41-a of the bombay sales tax rules, 1959 elaborately deals with drawback, set-off, etc., of tax paid by a manufacturer in respect of purchases made on or after 15th july, 1962. under this rule, 'in.....
Judgment:

Smt. Sujata V. Manohar, J.

1. Respondents M/s. Saravagi Industries are manufacturers of laminated labels. For the manufacturer of laminated labels the assessee (respondents) had purchased iron and steel scrap sheets. Out of the sheets so purchased the assessee cut the required sizes for making laminated labels which were either round, square or oblong in shape. After the pieces were so cut, the remnants were sold as scrap. For the assessment period 1st April, 1968 to 31st March, 1969 the Sales Tax Officer held that the assessee was not entitled to a set-off under rule 41-A of the Bombay Sales Tax Rules, 1959 to the extent proportionate to the scrap which was resold by the assessee. The sales Tax Officer worked out the quantity of resale as 11%. Hence he disallowed set-off under rule 41-A proportionately which worked out to a 'magnificent' sum of Rs. 165. The first appeal from this order of the Sales Tax Officer was rejected. In the second appeal before the Tribunal, the Tribunal held that the assessee was entitled to the full permissible set-off under rule 41-A of the Bombay sales Rules, 1959. It, therefore, held that the lower authorities were not justified in reducing the set-off. From this decision of the Tribunal, the following question has been referred to us under section 61(1) of the Bombay Sales Tax Act, 1959 :

'Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing full set-off under rule 41-A of the Bombay Sales Tax Rules, 1959 when the resale was allowed in respect of the remnants of the scrap sold ?'

2. Rule 41-A of the Bombay Sales Tax Rules, 1959 elaborately deals with drawback, set-off, etc., of tax paid by a manufacturer in respect of purchases made on or after 15th July, 1962. Under this rule, 'In assessing the amount of tax payable in respect of any period by a registered dealer who manufactures taxable goods for sale, the Commissioner shall, in respect of the purchases made by such dealer on or after the 15th July, 1962 of any goods specified in Schedule B, C, D or E and used by him within the State in the manufacture of taxable goods ....... grant him a drawback, 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 or, as the case may be, both on the purchase by him from such registered dealers ........'. In the present case, the assessee had purchased iron and steel scrap sheets which fell under entry 3 of Part I of Schedule B. These sheets were purchased by him for use in the manufacture of taxable goods. He has therefore claimed full permissible set-off under rule 41-A. The remnants of raw material so purchased and used in the manufacture of taxable goods have been sold by the assessee. These sales are considered as 'resale's' by virtue of the definition of the word 'resale' under section 2(26) of the Bombay Sales Tax Act, 1959 at the relevant time. Under section 2(26)(iii), 'resale', inter alia, means a sale of purchased goods 'being goods specified in any entry in Schedule B, without doing anything to them which takes them out of the description thereof in that entry, and the word 'resale' shall be construed accordingly'. The remnant of iron and steel sheets also form a part of entry 3 in Schedule B which deals with, inter alia, steel scrap. With the result that the sale of these remnants are considered as 'resales' by the assessee.

3. It is the contention of the application that since some of the goods purchased by the assessee have been 'resold', it cannot be said that the assessee has used the entire quantity of goods purchased in the manufacture of taxable goods. At least to the extent to which the goods are being resold, they are not used in such manufacture. This argument, however, does not take into account the artificial definition of 'resale' given in section 2(26) at the relevant time. If the assessee had resold some of the goods purchased by him in the same form in which they were purchased by him, there could have been some substance in the contention taken up by the applicant. In the present case, however, it is nobody's contention that what has been 'resold' is in the same form in which it was purchased. In fact, from the statement of the case it is clear that the iron and steel sheets which were purchased have been utilised to the full extent in the manufacture of laminated labels. The remnants which could not be used in such manufacture have been resold as scrap. In these circumstances, it is not possible to say that the assessee has not used the entire quantity of goods purchased by him in the manufacture of taxable goods for sale. What was left over was incapable of being used in the manufacture of laminated labels. There is nothing in the language of rule 41-A which would indicate that in order to claim full set-off, every inch of the goods purchased must be used up in the manufacture of taxable goods for sale and there should not be any waste product at all. We have not been shown any authority which would support such a proposition. This was the only argument which was advanced before us. We do not see any reason for interpreting rule 41-A in this fashion.

4. In the case of Commissioner of Sales Tax v. Burmah Shall Refineries Ltd. reported in [1978] 41 STC 337 a Division Bench of this High Court was required to consider a case where the respondents had claimed a set-off in respect of the tax collected from them for the purchase of sulphuric acid. The acid was used by the respondents in the manufacture of refined kerosene. There was also a by-product, namely, acid sludge, which was also sold by the respondents. The Sales Tax Officer held that the respondents were entitled to a set-off of so much of the amount of tax collected from the respondents when they purchased sulphuric acid, as appertained to the sales of acid sludge. (The sale of kerosene during the relevant period was tax-free). Before the Division Bench of the High Court it was contended that all the products which were manufactured must be taxable before a manufacturer-dealer can get relief under the relevant rules for set-off at the time. If one of such products was not taxable, full relief cannot be granted. This contention was negatived by the Division Bench. In the course of its judgment it observed : 'There is no provision in rule 41 (which was the relevant rule) for any apportionment of the purchase tax paid or the amount collected from a dealer where a manufacturing process results simultaneously in the production of two commodities. It is not as if the materials purchased by the manufacturing dealer have been partly used in the manufacture of non-taxable goods for sale and the remaining part used in the manufacture of taxable goods for sale ......... Since here every single drop of sulphuric acid is utilised both in refining crude oil into kerosene and in the manufacture of acid sludge, there can be question of any such apportionment, .......'.

5. The facts of the present case are somewhat different and the ration in the above case does not apply to the present case. In the present case, the entire quantity of goods purchased have been used in the manufacture of taxable goods for sale; but certain remnants which cannot be so used are sold as scrap. Before the Tribunal it was contended on behalf of the applicant that if these remnants had been thrown away, then the assessee could have claimed a full set-off. But because the remnants have been 'resold' the assessee is not entitled to a full set-off. This argument does not have any basis in the provisions of rule 41-A. For the purpose of rule 41-A were have to see whether the goods purchased have been used in the manufacture of taxable goods for sale. For this purpose we have to see whether the entire quantity so purchased has been utilised fully to the extent possible in he manufacture of such goods. If so, the assessee is entitled to the full set-off. It is not necessary that the entire quantity of purchased material has to be used up in the manufacture. If there are any remnants left over which are unusable for the manufacture in question, this would not deprive the assessee of the benefit of a full set-off under rule 41-a. Whether such remnants are 'resold' or thrown away makes no difference to this legal position.

6. In the premises, the question is answered in the affirmative, that is to say, in favour of the respondents.

7. As the respondents have not appeared in the reference, there will be no order as to costs. We would like to thank Mr. B. C. Joshi, who has very kindly appeared at our request as amicus curiae, for the assistance rendered by him.


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