Sales tax refund relief under Rule 42 depends on actual tax liability on the manufactured goods, not merely exempt transactions.

Rule 42 of the Gujarat Sales Tax Rules, 1970 allows drawback, set-off or refund only when purchased raw materials or consumable stores are used to manufacture taxable goods and the manufacturer satisfies rule 47(1)(A) by being liable to pay tax on the sale of those goods. Exemption for particular transactions does not, by itself, mean the goods cease to be taxable goods. For cooked food supplied to customers, the pre-Constitution (Forty-sixth Amendment) Act position treated meal supply as service rather than sale, and section 6 of that Act validated such transactions only within its limited retrospective scope. On the stated facts, the assessee was not liable to pay tax on the relevant supplies and therefore did not qualify for the refund benefit.

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Issues: Whether the assessee was entitled to drawback, set-off or refund under rule 42 of the Gujarat Sales Tax Rules, 1970 in respect of tax paid on purchases of raw materials and consumable stores used for preparing cooked food supplied to customers, and whether the assessee satisfied the further condition in rule 47(1)(A) of being liable to pay tax on the sale of the goods manufactured by it.

Analysis: Rule 42 permits relief to a manufacturer only if the purchased goods are used in the manufacture of taxable goods and the manufactured goods are sold in the prescribed manner. The fact that cooked food was exempt from tax in certain transactions did not mean that cooked food ceased to be taxable goods; the exemption attached to a class of transactions and not to the goods themselves. The larger question, however, was whether the assessee was a dealer liable to pay tax within the meaning of rule 47(1)(A). The declaration of law prior to the Constitution (Forty-sixth Amendment) Act, 1982 treated supply of meals as service and not sale. Section 6 of that Amendment Act validated and gave limited retrospective effect to such transactions, while exempting specified pre-commencement supplies from the validating fiction. On the facts found, the assessee had not become liable to pay tax on the relevant supplies and therefore did not satisfy rule 47(1)(A).

Conclusion: The assessee was not entitled to drawback, set-off or refund, because it was not liable to pay tax on the relevant sales within the meaning of rule 47(1)(A).

Final Conclusion: The reference was answered against the assessee and in favour of the Revenue, with the claim for refund under the rules failing for want of statutory eligibility.

Ratio Decidendi: Relief under rule 42 read with rule 47(1)(A) is available only where the assessee is in fact liable to pay tax on the sale of the goods manufactured, and an exemption or a validating fiction that does not create such liability for the relevant period will not suffice.

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