Furnace oil set-off under sales tax rules is subject to statutory reduction when linked to branch transfers outside the State.

Rule 41D of the Bombay Sales Tax Rules, 1959 was construed to require reduction of set-off where goods used in manufacture were linked to despatches outside the State. Furnace oil, as a consumable and not plant or machinery, did not fall within the exclusion in the second proviso, and the statutory 6% reduction under Rule 41D(3)(a) remained applicable. The Court rejected the argument that apportionment was impossible, noting that apportionment had in fact been made and no perversity was shown. The operative principle was that a fiscal set-off provision must be applied according to its text and context, and consumables with a nexus to inter-State branch transfers can attract the prescribed reduction.

---

---

Issues: Whether, on a correct interpretation of Rule 41D of the Bombay Sales Tax Rules, 1959, the assessee was entitled to full set-off on furnace oil used in manufacture of goods partly sold locally and partly transferred to branches outside the State, or whether the set-off had to be reduced by 6% of the purchase price under Rule 41D(3)(a).

Analysis: Rule 41D granted set-off subject to the reduction prescribed in sub-rule (3), and the second proviso specifically excluded plant and machinery, and their parts, components and accessories, from the apportionment provision. Furnace oil was treated as a consumable used in manufacture and not as plant or machinery. Sub-rule (3)(a), when read with sub-rule (2)(iii), applied to goods despatched to branches outside the State, and the expression "goods which are dispatched" had to be construed in that context. The Court held that furnace oil had a sufficient nexus with the goods so dispatched and that the statutory language did not justify ignoring the 6% reduction or reading furnace oil into the exclusion for plant and machinery. The plea of impossibility of apportionment was rejected in view of the factual findings that apportionment had in fact been made and there was no perversity in the determination.

Conclusion: The assessee was not entitled to full set-off on furnace oil without reduction. The 6% reduction under Rule 41D(3)(a) was held applicable, and the answer was in favour of the Revenue.

Ratio Decidendi: A fiscal set-off provision must be construed according to its text and context, and where the rule expressly links the reduction to goods despatched outside the State, a consumable used in manufacture may be subjected to the statutory reduction if it has a nexus with such despatches.

---