Set-off and refund rules were upheld as a relief mechanism, not a fresh levy on exempt sales.

Rule 11(1)(II) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954 was treated as a relief-mechanism for computing drawback, set-off, or refund of tax already borne, not as an independent levy on exempt sales. Section 18B of the Bombay Sales Tax Act, 1953 was read as authorising rules on the circumstances and conditions for such relief. On that construction, the formula in rule 11(1)(II) merely regulated the quantum of relief for sales of manufactured or processed goods not liable to tax under section 46, and was held not to exceed the parent Act.

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Issues: Whether rule 11(1)(II) of the Bombay Sales Tax (Exemptions, Set-off and Composition) Rules, 1954, was ultra vires on the ground that it effectively imposed a tax on sales exempt under section 46 of the Bombay Sales Tax Act, 1953.

Analysis: The relief scheme under rule 11 was read as a mechanism for determining the extent of drawback, set-off, or refund against tax already borne by a dealer, and not as an independent levy on sales. Section 18B of the Bombay Sales Tax Act, 1953, expressly empowered the rule-making authority to prescribe the circumstances and conditions for granting drawback, set-off, or refund of tax leviable under section 10. On that construction, the formula in clause (II) of rule 11(1) merely regulated the quantum of relief where manufactured or processed goods were sold in transactions not liable to tax under section 46, and did not transgress the parent Act.

Conclusion: The challenge to the validity of rule 11(1)(II) failed, and the second question was answered in the negative, against the assessee.

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