COMMISSIONER OF SALES TAX, BOMBAY ETC.ETC. vs. BHARAT PETROLEUM CORPORATION LTD. ETC. ETC.

CIVIL APPEAL No. 1031/1979Supreme Court[1992] 1 S.C.R. 80718 February 1992Bench: 3 JudgesAuthor: S. RANGANATHAN, V. RAMASWAMI, S.C. AGRAWAL16 pages
AI SummaryDismissed

What were the facts?

The case involves two sets of appeals concerning the Bombay Sales Tax Act, 1959, and Rules 41 and 41-A. In the first appeal, an oil refinery (predecessor to Bharat Petroleum Corporation Ltd.) purchased sulphuric acid for refining crude oil into kerosene. The refined kerosene was sold by a marketing company, while the acid sludge, a by-product, was sold by the refinery. The refinery paid sales tax on the sulphuric acid purchase and claimed set-off. The Sales Tax Officer allowed partial set-off, the Appellate Assistant Commissioner denied it, and the Appellate Tribunal and High Court allowed it fully. In the second set of appeals, a cotton mill purchased raw cotton, paid sales tax, and used it to manufacture ginned cotton, yarn, and cloth. Cotton waste and yarn waste were also sold. The mill claimed set-off for tax paid on raw cotton. The Sales Tax Officer allowed partial set-off, but the Appellate Tribunal allowed it for the entire purchase tax paid on raw cotton used in manufacturing cotton waste.

What did the Supreme Court hold?

The Supreme Court held that the assessees are entitled to a set-off of the entire tax paid on the purchases of sulphuric acid and cotton respectively. The sole condition under the rules is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale. The concurrent user of these goods for the manufacture of another item, whether taxable or not, is immaterial. The Court rejected the principle of apportionment on the basis of turnovers of various manufactured items and the restriction of set-off to a proportion based on the turnover of taxable goods. It reasoned that in composite user situations, where it's not possible to correlate any part of the purchased goods to the manufacture of taxable goods, such apportionment is not feasible. The rules do not require that purchased goods must be used *only* for the manufacture of taxable goods for sale. The Court found that the entire sulphuric acid went into the composition of acid sludge and the entire raw cotton was used in the manufacturing process. Therefore, it was not possible to cut down the quantum of relief clearly outlined in the rule. The appeals were dismissed.

What were the issues?

1. Whether the assessee, having used sulphuric acid in the manufacture of both taxable (acid sludge) and non-taxable (kerosene) goods, is entitled to a set-off of the entire sales tax paid on the purchase of sulphuric acid, or only a proportionate amount based on the turnover of taxable goods, under Rule 41(e) of the Bombay Sales Tax Rules, 1959. 2. Whether the principle of apportionment on the basis of turnovers of taxable and non-taxable goods manufactured is applicable to restrict the quantum of set-off under Rule 41-A of the Bombay Sales Tax Rules, 1959. Assessee's Contentions: The sulphuric acid purchased was wholly used in manufacturing kerosene and acid sludge. The acid sludge was taxable and tax was paid on it. The set-off amount is the purchase tax paid on goods used, and it cannot be scaled down proportionately just because the taxable goods' turnover is insignificant. It is not a requirement that the manufactured goods must be sold by the manufacturer himself. Revenue's Contentions: Rules 41 and 41-A are intended for goods used in manufacturing taxable goods for sale. The manufactured goods (kerosene) were neither sold by the assessee nor taxable for a period. A set-off should not be allowed merely because a by-product (acid sludge) was sold for a nominal turnover. The set-off should be split proportionately based on the turnover of taxable and non-taxable goods, as such apportionment is implicit in tax law and the rules' purpose.

Which sections of the Income-tax Act were involved?

Section 42

AI-generated summary — verify with the full judgment below

COMMISSIONER OF SALES TAX, BOMBAY ETC.ETC. A v. BHARAT Plf'.TROLEUM CORPORATION LTD. ETC. ETC. FEBRUARY 18, 1992 [S. RANGANATHAN, V. RAMASWAMI AND S.C. AGRAWAL, JJ.] Bombay Sales Tax Act, 1959/Bombay Sales Tax Rules, 1959: Section 42/Rules 41 and 41-A-Sales tax--Right to claim set-off-Sales tax paid on purchase of raw material used in manufacture of no11-taxable goods and taxable by-products for sale-Whether set-off would be available B c 011 the e11tire amou/lf of tax paid on purchase of raw materiaf-Whether pri11ciple of apponio11mellt on basis of tumover of taxable and non-taxable goods could be i11voke~Wliether raw material purchased by manufacturer- dealer-· should be used for mam1facn1ring taxable goods only and sale of D manufactured goods should be made by ma11ufacntrer-dealer himse!f-By- product yielded in the process of manufacture of main product-Whether manufacturer of main product-manufacntrer of by-product also.

The assessee-Oil refinery, predecessor-in-interest to the respondent Corporation in one of the appeals had registered itself as a dealer under E the Bombay Sales Tax Act, 1959. During the Calendar year 1961, it had purchased sulphuric acid

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 42

All 77 judgments and leading authorities on Section 42 →

Recent GST High Court judgments

Search GST case law →