COMMISSIONER OF SALES TAX Vs. SARAVAGI INDUSTRIES

JUDGEMENT

(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 :

(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 "resales" 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.