Set-off under trade tax law is available where tax is lawfully adjusted against an exemption eligibility certificate, not only paid in cash.

Section 4BB of the U.P. Trade Tax Act allows set-off for tax paid on raw material or packing material used in manufacturing notified finished goods, and it does not prescribe any particular mode of payment. Tax assessed on an exempt dealer's turnover and adjusted against the dealer's eligibility certificate is treated as payment in law, because the exemption operates in favour of the dealer and adjustment is a recognised discharge of tax liability. On that basis, the statutory payment requirement was satisfied and the assessee was entitled to the set-off.

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Issues: Whether the assessee was entitled to set-off under section 4BB of the U.P. Trade Tax Act, 1948 when the raw material was purchased from a dealer exempt under section 4A of the Act and the tax was adjusted against the seller's eligibility certificate instead of being paid by actual cash tender.

Analysis: Section 4BB allows deduction of tax paid on purchase or sale of raw material or packing material used in the manufacture of notified finished goods. The provision does not prescribe any particular mode of payment. Where tax is assessed on the exempt dealer's turnover and is adjusted against the eligibility amount under the exemption scheme, such adjustment constitutes payment of tax in law. The exemption operates in favour of the dealer and not the goods, and the adjustment mechanism is a recognised form of discharge of tax liability. As the Tribunal found that tax had been assessed at two per cent and adjusted from the eligibility amount, the statutory requirement of payment was satisfied.

Conclusion: The assessee was entitled to set-off under section 4BB, and the question was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Where a taxing statute requires that tax be paid but does not specify the mode of payment, payment by lawful adjustment against an exemption or eligibility account is as effective as payment by cash for the purpose of claiming the statutory benefit.

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