Full set-off under sales tax rules cannot be cut down by implied apportionment in composite manufacturing processes.

Rules 41 and 41A of the Bombay Sales Tax Rules were construed as granting full set-off where tax-paid raw materials were used in a composite manufacturing process yielding taxable goods, even if the process also produced another product or by-product. The Court rejected any implied apportionment formula based on turnover or by-product value and held that relief could not be curtailed unless the rules expressly so provided. It also rejected the argument that the taxable goods had to be sold by the same manufacturer. Full set-off was therefore available on the purchases used in manufacture.

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Issues: Whether the assessees were entitled to full set-off under Rules 41 and 41A of the Bombay Sales Tax Rules for the tax paid on raw materials used in a manufacturing process that yielded both taxable and other products, or whether the set-off had to be restricted on a proportionate basis to the turnover of the taxable output.

Analysis: Section 42 of the Bombay Sales Tax Act, 1959 empowered the State to grant drawback, set-off or refund by rule. Rules 41 and 41A granted relief where goods purchased on payment of tax were used in the manufacture of taxable goods for sale. The Court held that the rules did not require exclusive use of the purchased goods only for the manufacture of taxable goods, nor did they permit a proportionate curtailment of relief merely because the manufacturing process also yielded another product or by-product. Where the entire purchased material was used in a composite process and the same material had gone into the taxable product as well as the other product, there was no basis for reading an implied apportionment formula into the rules. The Court also rejected the contention that relief depended on the manufactured taxable goods being sold by the same manufacturer.

Conclusion: The assessees were entitled to full set-off of the tax paid on the purchases of sulphuric acid and cotton, and not merely a proportionate set-off. The Revenue's appeals were dismissed.

Ratio Decidendi: Where the statutory conditions for set-off are satisfied and the purchased goods are used in a composite manufacturing process producing taxable goods, the relief cannot be reduced by importing an implied rule of apportionment based on turnover or by-product value unless the rule itself so provides.

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