Set-off under sales tax rules extends to manufacturing for sale by others, with full relief despite mixed outputs.

Rule 41(e) of the Bombay Sales Tax Rules was construed as an additional relief provision, not one limited to goods used in manufacture for sale by the dealer himself. Because the clause did not use restrictive words found elsewhere in the Act and Rules, the court treated the omission as deliberate and held that drawback, set-off or refund remained available where purchased goods were used in a manufacturing process producing taxable goods for sale, even if the goods were sold by others. The same reasoning also supported full set-off where one process yielded both kerosene and acid sludge; no apportionment was required merely because kerosene was tax-free for part of the period.

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Issues: (i) Whether rule 41(e) of the Bombay Sales Tax Rules, 1959 permits drawback, set-off or refund to a recognised dealer who purchases goods for use in manufacturing goods for sale by others as well as by himself. (ii) Whether the assessee was entitled to the full set-off where the manufacturing process yielded both taxable kerosene and taxable acid sludge, though kerosene was tax-free for part of the relevant period.

Issue (i): Whether rule 41(e) of the Bombay Sales Tax Rules, 1959 permits drawback, set-off or refund to a recognised dealer who purchases goods for use in manufacturing goods for sale by others as well as by himself.

Analysis: The clause did not use the restrictive words "for sale by him", unlike other provisions in the Act and Rules where that limitation was expressly employed. The scheme of the Act showed that the rule-making authority could, where intended, confine relief to goods used in manufacture for sale by the dealer himself, but it had not done so in rule 41(e). The clause was treated as an additional relief provision designed to prevent tax from increasing the cost of manufacture and to avoid discrimination between larger manufacturers and processors who carry out only a stage of the production chain.

Conclusion: The assessee was entitled to the relief under rule 41(e) even though the goods purchased were used in manufacturing goods sold by others.

Issue (ii): Whether the assessee was entitled to the full set-off where the manufacturing process yielded both taxable kerosene and taxable acid sludge, though kerosene was tax-free for part of the relevant period.

Analysis: The process of refining crude oil with sulphuric acid produced two commercial commodities, namely kerosene and acid sludge, both intended for sale. The existence of a tax-free period for kerosene did not require apportionment under rule 41(e), because the rule did not provide for such splitting where a single manufacturing process simultaneously yielded more than one product. The condition in rule 41(e) was satisfied once the purchased goods were used in the manufacture of taxable goods for sale, even if other products arising from the same process were not taxable or were taxed differently during part of the period.

Conclusion: The assessee was entitled to the full set-off claimed and not merely the reduced amount allowed by the Sales Tax Officer.

Final Conclusion: The reference was answered in favour of the assessee, and the department's restrictive interpretation of rule 41(e) was rejected.

Ratio Decidendi: Where a taxing provision granting drawback or set-off does not expressly confine relief to goods used in manufacture for sale by the dealer himself, such a limitation cannot be read into it; if the purchased goods are used in a manufacturing process resulting in taxable goods for sale, the statutory condition is satisfied even if the goods are sold by another or the same process also yields non-taxable products.

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