Commissioner of Sales Tax vs Shrike Construction Equipments (P) Ltd.

We have heard Mr. Sonpal appearing on behalf of the Revenue in this reference at length. With his assistance, we have perused the statement of facts and the questions which have been referred for our opinion by the Tribunal. These questions read as under:

"(a) Whether, on the facts and in the circumstances of the case, and on the true and correct interpretation of rule 41D(2)(iii) of the Bombay Sales Tax Rules, 1959, the Tribunal was justified in allowing the set-off under rule 41D when the manufactured goods were used in works contract in other States, and were not sold in those States as contemplated by section 2(28) of the Bombay Sales Tax Act, 1959?

(b) Whether, on the facts and in the circumstances of the case and on the true and correct interpretation of rule 41D(2)(iii) of the Bombay Sales Tax Rules, 1959, the Tribunal was justified in law in holding that the manufactured goods used in works contract in other States were in fact ''sold'' as required by the said rule?"

It is not in dispute that the dealer had approached the authorities under the Bombay Sales Tax Act, 1959 (BST). The grievance, inter alia, of the dealer was that he is entitled to set-off under rule 41D as it stood then. The rule to the extent relevant for us reads as under:

41D. Drawback, set-off, etc., of tax paid by a manufacturer in respect of purchases made on or after the notified day.-- (1) In assessing the amount of tax payable in respect of any period by a registered dealer who manufactures goods for sale or export (hereinafter in this rule referred to as ''the claimant dealer''), the Commissioner shall, in respect of purchases made by the claimant dealer on or after the notified day, of any goods specified in entry 6 of Schedule B and in Schedule C [***] and used by him within the State,

(i) in the manufacture of goods not being kerosene [***] for sale, which manufactured goods have in fact been sold by him or exported by him, or

(ii) in the packing of goods so manufactured, grant him subject to the reduction specified in sub-rule (3), a drawback, set-off, or as the case may be, a refund of aggregate of the sums determined in accordance with the provisions of rule 44D:

Provided that where the turnover of sales of such manufactured goods consists principally of sales of waste or scrap goods, then the claimant dealer shall not be entitled to any drawback, set-off or as the case may be, a refund under this rule:

Provided further that where such manufacture results in the production of goods other than taxable goods, then such drawback, set-off, or as the case may be, the refund, shall not be granted on purchase of goods including capital assets effected prior to the April 1, 1998 also in respect of capital assets on which depreciation has been earlier claimed by any other person or dealer and which have been purchased by the claimant dealer on or after the April 1, 1998:

Provided also that, the claimant dealer shall not be entitled to claim any drawback, set-off or refund in respect of purchases of molasses and rectified spirit used by him in the manufacture of country-liquor and Indian-made foreign liquor:

Provided also that, set-off under this rule shall not be granted to a dealer, in respect of purchases of goods, which are used by him in the manufacture of goods, treated as capital assets by him or parts and components of such capital assets:

Provided also that, the claimant dealer shall not be entitled to claim any drawback, set-off or, as the case may be refund of the sum mentioned in clause (a) of rule 44D in respect of purchases of the goods purchased against declaration in form A1 in accordance with the entry 148 of group A of Schedule appended to the notification issued under section 41 of the Bombay Sales Tax Act, 1959.

(2) For the purpose of this rule the expression ''export'' shall include,--

(i) a sale in the course of inter-State trade and commerce or in the course of export of the goods out of the territory of India, where such sale occasions the movement of the goods from the State,

(ii) despatches made by the claimant dealer to a person outside the territory of India, with a view to selling the goods to the said person and the said goods have actually been sold to him within the period of one year from the date of despatch, and

(iii) despatches made by the claimant dealer to his own place of business or to his agent outside the State where the claimant dealer produces certificate in form 31C issued by his manager, or as the case may be, his agent declaring, inter alia, that the goods will in fact be sold by him or will be used by him in the manufacture of goods which will in fact be sold by him and that he, his manager or, as the case may be, his agent is registered under the Central Sales Tax Act 1956 (LXXIV of 1956) in respect of that place of business.

(3) . . ."

The issue raised was that the set-off has been disallowed on various counts but we are concerned with only ground of disallowance, namely, that the goods were to be used in works contract.

The assessee pointed out before the first appellate authority as also the Tribunal that disentitlement to set off comes from the fact that the set off is claimed because the goods have been despatched from the dealer''s place of business to its branches in the State of Andhra Pradesh and Uttar Pradesh. Those branches have sold the goods which are used in execution of the works contract in which the dealer/appellant respondent before us produced the certificate in form 31C before the Assistant Commissioner at the time of assessment. The dealer pointed out that the branches are registered under the local Act as also under the Central Sales Tax Act in those States. It was urged that the definition of term "sale" in those States and as well as those local Acts included works contract. Reliance was placed on a circular issued by the Commissioner of Sales Tax, Maharashtra State dated July 17, 1987.

The Tribunal, going by the plain language of the rule, namely, 41D(1) and the definition of "export" as appearing in sub-rule (2) thereof, so also the circular, held that the Assistant Commissioner was in error in disallowing the set-off under this rule.

Mr. Sonpal, therefore, submits that the Tribunal erred in allowing the assessee''s appeal and granting the relief though it was aware that the clarification which has, been given by the circular cannot go contrary to the rule itself. The substantive provision enables the assessee to obtain the set-off only after he satisfies the pre-condition, namely, of not just producing the certificate, but the contends of the certificate can be verified by the Revenue. In this case, the contents of the certificate have been verified and they reveal that though the manager/agent of the place of the business of the assessee in the State of Andhra Pradesh and Uttar Pradesh stated that the goods will be sold or the goods which have been despatched by the assessee will be used in manufacturing of goods which in fact are going to be sold, what has transpired is that these goods have been utilized in execution of works contract by these branches. Therefore, the dealer before us is not entitled to rely on the said provisions, namely, rule 41D appearing in the Bombay Sales Tax Rules; 1959 and claim a set-off.

The assessee''s advocate, on the other hand supported the reasoning of the Tribunal and urged that any factual matter cannot be raised in this limited jurisdiction and we are required to proceed on the footing that the Tribunal noted the necessary facts dealing with the assessee''s appeal and decided to refer the questions of law for the purpose of opinion of this court. That such questions arose during the course of argument and in the facts and circumstances of the assessee''s case. He, therefore, submits that the reference be answered in favour of the assessee and against the Revenue.

After perusing the order of the Tribunal including the questions framed, we are of the opinion that had all concerned carefully perused the rule together with the definition, there would have been no doubt at all. We do not enter into any factual controversy particularly because the issue raised was that the place of business of the assessee to which goods were despatched and from the places of business in the State of Andhra Pradesh and Uttar Pradesh, a certificate was obtained in "form 31C". However, contrary to the contents of that certificate, the goods have been used in works contract executed in these States. That is not within the contemplation of the present Rules, and therefore, reliance was placed on the circular dated July 17, 1987. We are of the opinion that whether the circular applied or not need not be decided by us. Even if the circular is ignored, upon plain reading of the provisions that have been brought to our notice, the Tribunal was right in the conclusion it reached. The set-off is admissible when the assessee satisfies the requirements of sub-rule (1) that states that in assessing the amount of tax payable in respect of any period, by a registered dealer who manufactures (goods) for sale or export, the Commissioner shall, in respect of purchases made by the claimant dealer on or after the notified day, of any goods specified in entry 6 of Schedule B and in Schedule C and used by it within the State. Firstly, in the manufacture of goods which are specified in clauses (i) and (ii) of sub-rule (1) of rule 41D, grant to the claimant dealer subject to the reduction specified in sub-rule (3), a drawback, set-off, or as the case may be, a refund of the aggregate of the sums determined in accordance with the provisions of rule 44D.

The expression "export" includes despatches made by the claimant/dealer to his own place of business or to his agent outside the State where the claimant/dealer produces certificate in "form 31C". This certificate is issued by his manager or as the case may be, his agent who declared, inter alia, that the goods will be in fact sold by him or will be used by him in the manufacture of goods which will be in fact sold by him and that there is a registration in their favour under the Bombay Sales Tax Act, 1959 in respect of that place of business. Undisputedly, such certificate was produced. Once such a certificate was produced and export is defined inclusively to mean a dispatch as above, then, any larger controversy or wider question should not have been gone into and decided by the Tribunal at all. The reference to the circular was wholly unnecessary because the claimant/dealer can despatch the goods to his own place of business or his agent outside the State. He would be able to obtain the reliefs in terms of sub-rule (1), provided certificate in "form 31C" is produced. Admittedly, that certificate was produced and it contains the relevant particulars. In such circumstances, we do not see how Mr. Sonpal can urge that what eventually happened at the place of the claimant dealer outside the State will decide his entitlement for the relief under rule 41D(1). In the facts of this case we find that the Tribunal had before it the material that the branches of the claimant dealer were registered under the local Act as well as the Central Sales Tax Act, qua those States. The definition of "sale" in those States includes a "works contract" as defined in the law in force in those States. In such circumstances, the Tribunal was right in the conclusion it reached. We are of the opinion that the questions have been rightly decided. In the circumstances, the reference at the instance of the Revenue ought not to have been made to this court but having been made and we are called upon to decide, that we conclude that the Tribunal correctly read rule 41D and granted relief thereunder. The reference is, therefore, answered against the Revenue and in favour of the assessee.

We clarify that any larger controversy and particularly with regard to the applicability of any works contract Act prevailing in the other States and that having any bearing on the definition of term "sale" as appearing in BST Act need be gone into and decided. It can be so decided in an appropriate proceeding and at an appropriate stage. We are also not impressed by Mr. Sonpal''s argument that the issue, whether despite the contents of certificate which oblige the person to state that the goods will in fact be sold by him or be used by him in the manufacture of goods which will in fact be sold by him enables the Revenue to find out whether the goods have in fact been sold or not. Going by the plain reading of the expression "export" and its inclusive definition particularly in the context of the despatch by the claimant dealer, the certificate stating that the goods will be sold or will be used in manufacturing of goods which would in fact be sold is decisive and conclusive. Any other interpretation and which has not been rightly placed in the given facts and circumstances would disentitle the dealer to the relief on the ground and for reasons which are not to be found in the statute. The reference is, accordingly, disposed of.