Statutory set-off for input tax cannot be proportionately reduced merely because some finished goods were sold to exempt buyers.

Section 4-BB of the U.P. Trade Tax Act 1948 allowed deduction of tax already paid on raw material and packing material used in manufacturing notified goods, and the provision was construed literally as a beneficial relief measure. The Court held that no statutory basis existed to proportionately reduce the set-off merely because part of the finished goods was sold to tax-exempt purchasers, since the language did not distinguish between taxable and exempt sales. The proportionate apportionment of credit was therefore unsustainable, and the assessee remained entitled to the full statutory set-off.

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Issues: Whether the set-off of tax paid on raw material and packing material under Section 4-BB of the U.P. Trade Tax Act 1948 could be restricted proportionately on the ground that part of the finished goods were sold to tax-exempt purchasers.

Analysis: The provision allowed deduction of tax already paid on raw material or packing material used in the manufacture or packing of notified goods sold in the State or in inter-State trade. The language did not draw any distinction between sales on which tax was collected and sales made to exempt entities. The Court held that the statute did not create any basis for a quantitative apportionment of the set-off with reference to taxable turnover alone. Reliance was placed on the principle that a beneficial provision granting relief for tax already suffered should receive a literal construction, and the fact that some sales were exempt did not justify reduction of the credit when the raw material had been used in manufacture of the goods sold.

Conclusion: The proportionate reduction of the set-off was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The revision succeeded and the assessee retained full entitlement to the statutory set-off with all permissible consequential reliefs.

Ratio Decidendi: Where a statutory set-off provision allows deduction of tax already paid on inputs used in manufacture of goods sold, the relief cannot be curtailed by importing a principle of proportionate apportionment unless the statute expressly provides for it.

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