Finding that the pro-rata apportionment between local sales and branch sales has been done by the AO, and the same was factually decided by the Maharashtra Sales Tax Tribunal, the Bombay High Court clarified that the furnace oil used as a consumable in the manufacture of finished products would constitute a part of the goods which are dispatched to the branches of Borosil. Hence, the Court ruled that Borosil is not entitled to a complete set off or adjustment of sales tax paid under Rule 41D of the Sales Tax Rules, on the purchase of furnace oil without any reduction in relation to branch transfers.
The ruling came while observing that just like raw material and packing material, the furnace oil also has a nexus with the goods manufactured, since it is consumed in the machinery but cannot be equated with the machinery itself. Further, since the manufactured goods are dispatched to the branches, the price of the furnace oil used in such goods also has a nexus to the goods dispatched to the branches of Borosil.
While clarifying that the quantum of raw material, packaging material, and furnace oil to be used would depend upon the quantity of goods to be manufactured, the Court held that set-off is available to Borosil after reducing certain percentage of purchase price under Rule 41D(3)(a) of the Sales Tax Rules on purchase of furnace oil partly transferred to branches of Borosil outside the State.
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna observed that plant & machinery do not get consumed in the process of manufacturing the finished product, and the purchase price of such machinery, i.e. boiler, that remains a fixed asset, will have no nexus with the goods dispatched.
Moreover, when the plant and machinery, along with its components and accessories, are expressly excluded from the second proviso to Rule 41D of the Sales Tax Rules, the Bench clarified that the principle applicable to plant and machinery should not be applied to furnace oil to equate furnace oil with plant and machinery.
The Bench referred to Rule 41D of the Sales Tax Rules to emphasise that it contemplates bifurcation for set-off in the proportion of taxable goods and tax-free goods, in the event the manufacturing process results in taxable goods, as in the present case. However, the said Rule 41D does not provide for bifurcation in the case of plant and machinery, its parts and components.
Accordingly, the Bench observed that furnace oil, and plant & machinery, i.e., Boiler in the present case, along with its components and accessories, fall within different classification entries. Thus, these are distinct and different and cannot be intermingled or mixed, and the furnace oil is not synonymous with plant and machinery, to make it fall within the framework and ambit of Rule 41D of the Sales Tax Rules to claim a complete set-off.
Briefly, the dispute before this Court in the form of Sales Tax References (STR) has arisen from the proceedings preferred by the applicant (Borosil) against the judgment, whereby the Maharashtra Sales Tax Tribunal has allowed set off to Borosil by reducing 6% of the purchase price from the taxes paid on the purchase of furnace oil, which is used in the manufacture of taxable goods transferred to the branches of Borosil, under Rule 41D of the Bombay Sales Tax Rules, 1959.
Essentially, the Revenue Department had challenged the judgment of the Tribunal, whereby it had held that Borosil is entitled to a complete set off under Rule 41D on the purchase of furnace oil without any reduction in relation to branch transfers.
Case Relied On:
M/s. Pudumjee Pulp and Paper Mills Ltd. vs. State of Maharashtra [Second Appeal No. 1010 of 2000 decided on 30 September 2005]
Case Distinguished:
Hanuman Vitamins Food Pvt Ltd. vs. The State of Maharashtra [SA No. 407 of 1986-decided on 19 February 1988]
M/s. International Chemicals Co. vs. State of Maharashtra [Second Appeal No. 1466 of 1980 decided on 7 August 1981]
M/s Century Rayon vs. The State of Maharashtra [Second Appeal No. 918,919,920 and 1543 of 1979 decided on 25 January 1984]
M/s. Mahalaxmi Steel Industries vs. State of Maharashtra [Second Appeal 1297 of 1991 decided on 23 April 1993]
Appearances:
Advocates Ishaan V. Patkar, Vinit V. Raje, and Roshni Naik, for the Applicant/ Taxpayer
Advocates Jyoti Chavan and Himanshu Takke, for the Respondent/ Revenue
