Rule 41D(3)(a) applied as written: furnace oil set-off allowed only after 6% reduction proportionate to outward inter-branch dispatches

Bombay HC held that Rule 41D(3)(a) of the Bombay Sales Tax Rules must be applied as written, allowing set-off for furnace oil only after reducing 6% of purchase price in proportion to finished goods dispatched to out-of-state branches. The court upheld the Tribunal and Larger Bench interpretation, rejecting attempts to read down or expand the sub-rule, and declined to disturb established precedent. Questions were answered in favour of the Revenue and against the assessee.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether, under Rule 41D of the Bombay Sales Tax Rules, 1959 (particularly sub-rule (3)(a)), set-off in respect of purchases of furnace oil used in manufacture is available in full or only after reducing 6% of the purchase price where manufactured goods are partly sold locally and partly dispatched to branches outside the State (branch transfers covered by sub-rule 2(iii)).

2. Whether furnace oil is to be treated like plant and machinery (and thereby excluded from apportionment under the proviso to Rule 41D applicable for the period in question) or is a consumable capable of apportionment under sub-rule (3)(a).

3. Whether long-standing precedents that permitted full set-off on account of asserted impossibility of apportionment/non-segregability of furnace oil can be departed from, and if so, whether the Larger Bench decision interpreting Rule 41D(3)(a) displaces those earlier views.

4. Whether factual findings of apportionment made by the assessing and appellate authorities (and accepted by the Tribunal) are open to review in the reference on questions of law, including alleged mathematical or practical impossibility of apportionment.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Proper interpretation of Rule 41D(3)(a) - full set-off v. reduction by 6% for branch transfers

Legal framework: Rule 41D(1) grants drawback/set-off for purchases specified in Part II of Schedule C used in manufacture, "subject to the reduction specified in sub-rule (3)". Sub-rule (2)(iii) defines "export" to include despatches to a dealer's own place of business outside the State (branch transfers) on production of Form 31C. Sub-rule (3)(a) (as amended) provides that the aggregate sum shall be reduced by 6% of the purchase price in respect of goods despatched as contemplated by sub-rule (2)(iii).

Precedent treatment: The Tribunal's Larger Bench interpreted sub-rule (3)(a) to apply to furnace oil and to require reduction of 6% in cases of branch transfers; prior coordinate decisions had on occasions treated furnace oil as non-apportionable and allowed full set-off.

Interpretation and reasoning: The Court reads sub-rule (3)(a) in context with sub-rule (2)(iii) and the proviso excluding plant and machinery from apportionment. The statutory text expressly contemplates reduction for branch despatches; words like "goods which are despatched" must be read with the definitions and surrounding provisions rather than in isolation. Furnace oil, being consumed in manufacture and having nexus with manufactured goods, falls within "goods which are despatched" for purposes of sub-rule (3)(a). Reading the sub-rule otherwise would render it otiose and require judicial supply of omitted language, which is impermissible in a fiscal statute.

Ratio vs. Obiter: The interpretation of sub-rule (3)(a) to include consumables like furnace oil in the 6% reduction is ratio of the decision on the reference question; related observations about statutory construction principles cited are supportive ratio, not mere obiter.

Conclusion: Set-off in respect of furnace oil used in manufacture and partly dispatched to branches is available only after reducing 6% of purchase price pursuant to Rule 41D(3)(a) as read with sub-rule (2)(iii).

Issue 2: Whether furnace oil is to be equated with plant and machinery (thus excluded from apportionment)

Legal framework: The proviso to Rule 41D (as in force for the assessment period) excludes plant and machinery (and parts/components/accessories) from apportionment between taxable and non-taxable goods; classification entries distinguish consumables (including furnace oil) from plant and machinery/boiler.

Precedent treatment: Coordinate Tribunal decisions (New Era Fabrics; Polyolefins) treated furnace oil/fuel as distinct from plant and machinery; an earlier decision (Hanuman Vitamins) treated a solvent (hexane) as akin to plant/machinery in its peculiar facts.

Interpretation and reasoning: The rule's language and schedule classification mark a clear legislative distinction between consumables and plant/machinery. Boiler (machinery) is not the same as furnace oil (fuel consumed in the process). The proviso's explicit exclusion of plant and machinery demonstrates the legislative intent to treat consumables differently; thus furnace oil cannot be equated to plant and machinery absent clear textual basis.

Ratio vs. Obiter: The holding that furnace oil is a consumable distinct from plant and machinery and thus subject to sub-rule (3)(a) reduction is ratio; discussion of particular precedents and their factual limits is explanatory but directly supports the ratio.

Conclusion: Furnace oil is a consumable distinct from plant and machinery and is not covered by the proviso that excludes plant and machinery from apportionment; therefore furnace oil falls within the ambit of sub-rule (3)(a) reduction for branch despatches.

Issue 3: Validity of departing from long-standing precedents that allowed full set-off due to asserted impossibility of apportionment

Legal framework: Principles restrain courts from lightly overruling long-standing views absent demonstrable error or compelling reasons; but where an issue of statutory interpretation was not previously adjudicated, a later correct interpretation may govern.

Precedent treatment: Some earlier authorities allowed full set-off on grounds of non-segregability/impossibility of apportionment; the Larger Bench addressed the interpretative issue of sub-rule (3)(a) and treated furnace oil as apportionable for the purpose of the 6% reduction.

Interpretation and reasoning: The Larger Bench found the specific application of sub-rule (3)(a) to furnace oil had not been the subject of prior adjudication over decades; where the textual construction supports reduction and prior full-set-off decisions rested on distinct factual matrices (and in some instances on lack of prior focus on sub-rule (3)(a)), there is no bar to applying the correct statutory interpretation now. Moreover, in the present case assessing and appellate authorities had performed apportionment, and those factual findings travelled to the Tribunal; absent perversity or illegality, those findings are not to be disturbed in a reference on law.

Ratio vs. Obiter: The conclusion that earlier rulings permitting full set-off do not bind where they arose from different factual contexts and where the statutory text supports a contrary interpretation is ratio; discussion of when stare decisis applies is supporting ratio.

Conclusion: Long-standing precedents permitting full set-off do not preclude application of sub-rule (3)(a)'s 6% reduction where the correct textual interpretation so requires and where the factual matrices differ; the Larger Bench interpretation is accepted as correctly applying the statutory text.

Issue 4: Scope for review of factual apportionment findings in reference proceedings

Legal framework: References on questions of law are limited in scope; findings of fact by assessing and appellate authorities (including apportionment calculations) are binding unless shown to be perverse or illegal.

Precedent treatment: The assessment order recorded an apportionment between local sales and branch transfers; appellate authority confirmed the assessment; Tribunal considered these factual findings.

Interpretation and reasoning: It is not appropriate in a reference court to re-weigh or re-compute apportionment absent a showing of perversity. The assessing officer and appellate authority carried out the statutory exercise; the Tribunal's interpretation of sub-rule (3)(a) applies to those factual findings.

Ratio vs. Obiter: The principle that factual apportionment findings will not be disturbed on a reference of this nature absent perversity is ratio on the procedural limitation of the reference.

Conclusion: The mathematical and factual apportionment carried out by revenue authorities and affirmed on appeal are not liable to be set aside in the reference; the legal question is the applicability of the 6% reduction, which must be applied to the apportionment arrived at by the authorities.

Final Conclusion: Applying Rule 41D read as a whole, including sub-rule (2)(iii) and sub-rule (3)(a), and construing the statutory language in context, set-off in respect of furnace oil used in manufacture and partly despatched to branches outside the State is allowable only after reducing 6% of the purchase price as mandated by sub-rule (3)(a); furnace oil is a consumable distinct from plant and machinery and is therefore subject to the reduction; factual apportionment made by authorities stands unless shown to be perverse.

---