2004 (12) TMI 652 - HC - VAT and Sales Tax

Court affirms set-off for ice-cream manufacturer purchasing essential dry-ice under sales tax rules

The Court affirmed the Tribunal's decision to grant set-off under rule 42 of the Gujarat Sales Tax Rules, 1970 to a manufacturer of ice-cream for the ... Set-off under rule 42 of the Gujarat Sales Tax Rules, 1970 - consumable stores - manufacturing activity as including incidental processes up to making goods available for sale - commercial expediency test for inclusion of items as consumable storesSet-off under rule 42 of the Gujarat Sales Tax Rules, 1970 - consumable stores - commercial expediency test for inclusion of items as consumable stores - Tribunal's allowance of set-off under rule 42 in respect of tax paid on dry-ice used by the assessee for preservation during transportation - HELD THAT: - The Court applied the established principle that articles which are integrally connected with the manufacturing activity and without which the manufacture may be commercially inexpedient qualify as raw or processing materials or consumable stores for purposes of claiming set-off. Relying on the reasoning in Vasuki Carborundum Works (adopting the apex Court's approach in J.K. Cotton Spinning Weaving Mills), the Court held that items used in processes or activities which are essentially connected with manufacture - including those necessary to preserve the character of the manufactured product until it reaches selling centres - fall within the scope of consumable stores. On the material findings of the Tribunal, ice cream must be preserved at certain temperatures during transit to retain its character; dry ice used for preservation in transportation therefore forms part of consumable stores under rule 42 and is eligible for set-off. The Tribunal's application of the commercial expediency test to these facts involved consideration of whether absence of the item would render the manufacturing activity commercially inexpedient; the Court found no infirmity in that conclusion and declined to interfere. [Paras 5, 6]The Tribunal was justified in law in allowing set-off under rule 42 in respect of the purchase of dry ice used by the assessee for preservation during transportation; reference answered in the affirmative.Final Conclusion: The reference is answered in the affirmative: dry ice used to preserve ice cream during transportation qualifies as consumable stores and the Tribunal was justified in allowing set off under rule 42; reference disposed of with no order as to costs. Issues:Interpretation of rule 42 of the Gujarat Sales Tax Rules, 1970 regarding set-off on purchase of dry-ice for manufacturing ice-cream.Analysis:The Gujarat Sales Tax Tribunal referred a question of law under section 69 of the Gujarat Sales Tax Act, 1969 to determine the justification of allowing set-off under rule 42 of the Gujarat Sales Tax Rules, 1970 on the purchase of dry-ice by the opponent, who is a manufacturer of ice-cream. The Tribunal upheld the contention of the assessee, based on the decision in a similar case, that the activity of manufacture includes everything done up to making the manufactured product available for sale. The Tribunal considered dry-ice as a consumable store necessary for preserving ice-cream during transportation, applying the principles of commercial expediency.Rule 42 of the Rules specifies conditions for granting set-off to a manufacturer, including the use of goods as raw materials, processing materials, or consumable stores in the manufacture of taxable goods. The Court referred to a previous case involving the purchase of twine for packing manufactured goods, where it was held that items integral to the manufacturing process, even if not raw materials, could be considered consumable stores if essential for the commercial viability of the manufacturing activity.Applying the principles established in previous cases, the Court found that dry-ice, used by the assessee for preserving ice-cream during transportation, qualifies as a consumable store under rule 42. The Court concluded that the Tribunal was justified in allowing the set-off on the purchase of dry-ice, as it met the criteria of being essential for maintaining the characteristics of the manufactured product and ensuring commercial viability. Consequently, the Court answered the question in the affirmative, affirming the Tribunal's decision to grant the set-off.In conclusion, the judgment clarifies the interpretation of rule 42 in the context of claiming set-off on the purchase of consumable stores for manufacturing taxable goods. It emphasizes the importance of commercial expediency in determining the eligibility for set-off and upholds the Tribunal's decision to allow the set-off on the purchase of dry-ice for preserving ice-cream during transportation.