SARASWATI OIL MILLS Vs. STATE OF GUJARAT

JUDGEMENT

(1.) THE two questions referred to us in this reference for out opinion are :- (1) Whether the proviso to rule 11(1A) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, in so far as it requires that the goods purchased should be used in the manufacture of goods specified in entries 19 to 80 (both inclusive) of Schedule B to the Act is in excess of the rule-making power of the Government and is to that extent ultra vires of section 18B of the Bombay Sales Tax Act, 1953 ? (2) Whether, on the facts and in the circumstances of the case, set-off is a admissible to the applicant-mill of the general sales tax and the purchase tax paid by the applicant-mill on the purchases of groundnuts under the provisions of rule 11(1A) read with section 18B(2) of the Bombay Sales Tax Act, 1953, irrespective of the proviso to that rule.

(2.) THE applicants at the material time carried on the business of manufacturing edible oil from groundnuts. THE period of assessment being the period from 24th October, 1957, to 25th November, 1958, it would be the Bombay Sales Tax Act, 1953, which would apply to the case and as Schedule B to that Act then stood, the rates of sales tax on sales of edible oil falling under item 14 of that Schedule were nil. During the assessment period, the applicants purchased groundnuts from registered as well as unregistered dealers. THEy had to pay to the registered vendors certain sums by way of the general sales tax on their purchases under section 9 and the purchase tax on their purchases from unregistered dealers. In their returns, the applicants claimed a set-off of the amounts paid by them by way of general sales tax to the registered vendors and purchase tax in respect of their purchases from unregistered dealers. THE Sales Tax Officer, by his order dated 23rd November, 1959, rejected the applicants' claim for the set-off on the ground that groundnuts purchased by the applicants were used in the manufacture of edible oil which did not fall within any of the entries 19 to 80 of Schedule B and, therefore, a claim for set-off was not admissible under the proviso to rule 11(1A) of the said Rules. THE applicants thereupon filed an appeal before the Assistant Collector of Sales Tax. During the pendency of the appeal, the Act of 1953 was repealed and the Bombay Sales Tax Act, 1959, was brought into force and consequently, the appeal was heard and decided by the Assistant Commissioner of Sales Tax. By his order dated 16th June, 1960, the Assistant Commissioner rejected the appeal holding that the proviso to rule 11(1A) provided that a set-off could only be granted when the goods manufactured by the applicants were covered by any of the entries 19 to 80 of Schedule B and that, when edible oil manufactured by the applicants was covered by entry 14 of that Schedule, the set-off claimed by the applicants was not admissible by reason of the aforesaid proviso. THE Assistant Commissioner rejected the applicants' contention that the right to claim set-off under section 18B(2) was absolute and that, therefore, the set-off claimed by them should be granted in respect of the tax paid by them on the purchases of groundnuts notwithstanding the fact that no sales tax was payable by them on the sales of the manufactured goods, namely, edible oil. He also rejected a further contention of the applicants that since the right to claim set-off under section 18B was an absolute right, the proviso to rule 11(1A) was invalid as being ultra vires section 18B on the ground that it placed a restriction upon the absolute right to claim set-off. THE Assistant Commissioner was of the view that section 18B was enacted with a view to give relief against the imposition of tax under the Act at two points, namely, the imposition of the purchase tax and the general sales tax on the raw materials and the sales tax on the manufactured goods, namely, edible oil. But as there was no liability to pay sales tax on the sales of goods covered by entries 1 to 8 in Schedule B, in the present case entry No. 14, the Legislature did not intend to grant relief of set-off in such cases, that is to say, where goods manufactured are those which fall under any of the entries 1 to 18 of Schedule B. THE applicants, aggrieved by this order, filed a revision before the Deputy Commissioner of Sales Tax who dismissed the revision. THE Deputy Commissioner of Sales Tax however held, as regards the contention that the proviso to rule 11(1A) was ultra vires section 18B, that he had no jurisdiction to deal with that contention and, as aforesaid, rejected the applicants' revision. THEreupon, the applicants filed a further revision before the Sales Tax Tribunal before whom they urged the same contentions urged by them before the Deputy Commissioner and the Assistant Commissioner. THE Tribunal negatived these contentions and rejected the revision. THE Tribunal agreed with the Assistant Commissioner that section 18B was intended to avoid tax on the same goods at two points, as the Legislature did not consider it fair that the same goods, whether in the form of raw materials or in the ultimate form of manufactured goods, should be taxed twice in the hands of the manufacturer, first at the time of the purchase and again at the time of the sale of the manufactured goods. THE Tribunal observed that therefore a provision was made for granting set-off in respect of sums paid as and by way of general sales tax and purchase tax on purchases of raw materials. But the Tribunal noted that the intention of the Legislature was not to exempt such goods from tax altogether and that the relief by way of set-off against such taxation at two points could be granted only to the extent permitted by the Legislature. THE Tribunal was of the view that section 18B(2) prescribed the extent of the relief which should be granted and authorised the grant of set-off only against the sales tax payable by a dealer under section 8, and therefore, if the manufactured product was not liable to sales tax, there was nothing against which set-off could be granted. THE Tribunal also observed that the grant of what would virtually amount to refund of the general sales tax and the purchase tax in cases where the dealer was not liable to pay the sales tax under section 8, would be in effect to confer a total exemption from tax on the raw materials and would introduce discrimination between manufacturers of goods who are not liable to sales tax and manufacturers of goods liable to sales tax. THE manufacturers of goods not liable to sales tax would not pay any sales tax on the sales of goods and would also have refunded to them the general sales tax and the purchase tax paid on the purchase of raw materials and would enjoy total exemption from taxes if the claim of the applicants were to be accepted, while the manufacturers of goods liable to sales tax would have to pay the sales tax on the sale of manufactured goods subject to only the set-off in respect of the general sales tax and the purchase tax paid by them on the purchase of raw materials. Such discrimination, according to the Tribunal, could not have been intended by the Legislature while enacting section 18B(2). According to the Tribunal, a rule which denies the grant of set-off in respect of goods which are used in the manufacture of goods not liable to sales tax under section 8 would be in conformity with the scheme of section 18B(2) and did not introduce any conflict with that sub-section. THE Tribunal also held that apart from the proviso to rule 11(A), under the very terms of section 18B(2), a dealer could claim set-off only against the sales tax payable by him under section 8 and edible oil manufactured by the applicants falling under entry 14 of Schedule B not being liable to sales tax, the applicants' claim for set-off in any event had to be rejected. It is this order of the Tribunal which has been challenged in this reference.

(3.) SECTION 18, with which we are in this reference immediately concerned, empowers the State Government to make rules in connection with granting drawback, set-off, refund, etc. Sub-section (1), as it stood at the material time, provided that the State Government may by rules provided that the tax leviable under sections 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 sections 8, 9, 10 or 10A, shall be granted to the purchasing dealer in such circumstances and subject to such conditions as may be specified, and (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 sections 8, 9, 10 or 10a to such extent and in such manner as may be specified. Sub-section (2), upon which reliance has been placed, reads as under :- "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 dealer 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 on 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."