2025 (11) TMI 1088 - HC - VAT / Sales Tax

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

M/s. Borosil Glass Works Ltd., Versus The Commissioner of Sales Tax and others, Maharashtra State, Mumbai (Vice Versa)

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 ... Interpretation of Statute - Rule 41-D, sub-Rule (3)(a) of Bombay Sales Tax Rules, 1959 - full set-off is available under Rule 41D main provision or the set off is available after reducing 6 per cent of purchase price under sub-rule 3(a) of Rule 41D on purchases of furnace oil used in manufacture of goods partly sold locally and partly transferred to branches outside the state - HELD THAT:- The logical corollary would be to apply the provisions of Rule 41D(3)(a) of the Sales Tax Rules as it stands, without reading it down, on the purchase of furnace oil in proportion to the finished goods despatched to the branches of Borosil. It is not found legal or proper to go behind the factual findings in the given proceedings, more so, in the absence of any perversity, much less illegality. In fact, both the Tribunal in the Impugned Order dated 30 April 2002 and the Larger bench of the Tribunal in M/s. Pudumjee Pulp have correctly interpreted the Rule and Sub– Rule strictly following the principles of strict interpretation. Considering the expression “goods which are despatched” as it appears in Sub Rule 3(a) of Rule 41D of the Sales Tax Rules, is already expressed. Therefore, any other interpretation would tantamount to reading down the provision and expanding the scope of the Rule and the Sub-Rule which we refrain from doing particularly, not losing sight of the fact that a fiscal statute is dealt with, in the present case. In fact the expression “in respect of” which was interpreted by the Supreme Court in that case also finds reference in Sub-Rule 3(a) of Rule 41D of the Sales Tax Rules and it ought to be interpreted contextually as it appears in the said statutory provision. It is true that the Supreme Court in Swasthik Tobacco [1965 (12) TMI 90 - SUPREME COURT] in interpreting the Rule 5(1)(i) of General Sales Tax Rules, 1939 has interpreted the expression ‘in respect of’ as ‘on’ in that case. However, as far as the present Sub-Rule 3(a) of Rule 41D is concerned, it has to be interpreted only in the context of the language and intent of such Sub-Rule. In N.K. Jain vs. C.K. Shah [1991 (3) TMI 389 - SUPREME COURT], the Supreme Court has categorically observed that in gathering the meaning of a word used in the statute, the context in which that word has been used has significance and the legislative purpose must be noted by reading the statute as a whole and bearing in mind the context in which the word has been used in the statute. The expression “goods which are dispatched” in a manner referred to in clause (iii) of Sub-Rule 2 is the language used in Sub-Rule 3(a) of the said Rule. Such Sub-Rule categorically refers to Sub-Rule 2(iii). Thus, to construe goods which are dispatched in Sub Rule 3(a) shall include goods which will be used in the manufacture of goods in fact sold, would embrace furnace oil. Therefore, a skewed interpretation as sought on the said Sub-Rule 3(a) in Rule 41D of the Sales Tax Rules, if accepted, would render the said Sub Rule redundant and otiose. It is not inclined to differ and /or take a view contrary to that of the Larger Bench decision of the Tribunal in M/s. Pudumjee Pulp. In this view of the matter, it is not agreed with applicant when he submitted that the decision of a Coordinate Bench of this Court in the case Merind Ltd. [2004 (5) TMI 540 - BOMBAY HIGH COURT]. The said decision clearly records that views which are settled for two decades, cannot be overruled unless there is a finding that the earlier view was patently erroneous and that there are compelling reasons. However, as noted there has been no view, much less erroneous view on the specific applicability and the interpretation of Sub-Rule 3(a) of Rule 41D of the Sales Tax Rules to be read in the context of Sub-Rule 2(iii) thereof. In such a complexion, as it is accepted the principle laid down in Merind Ltd. that the long-standing precedents ought not to be disturbed, it is afraid that the ratio of Merind Ltd in the given facts and circumstances is not applicable. The questions referred to in both the references answered in favour of the Revenue/Sales Tax Dept. and against the Assessee/Borosil. 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.