Holding

The one‑per‑cent deduction under Rules 41 and 41A is to be made on the whole sale price of goods dispatched to out‑of‑state branches, and the rules are valid and not unconstitutional.

Summary

The appellant, a manufacturing dealer, purchased raw materials both within Maharashtra and from other states and claimed set‑off of purchase tax against sales tax under Bombay Sales Tax Rules 41 and 41A. The rules require that the set‑off be reduced by one per cent of the sale price of goods dispatched to the dealer’s out‑of‑state branches. The appellant argued that the one‑per‑cent deduction should be applied only to the portion of sales attributable to locally purchased raw material, contending that the rule otherwise taxed out‑of‑state purchases and sales and was unconstitutional. The Supreme Court held that the rule’s purpose is to relieve manufacturers and ultimately consumers, and that the one‑per‑cent reduction applies to the whole sale price of dispatched goods. The Court found the rule valid, not unconstitutional, and affirmed that the deduction is a permissible concession. Consequently, the appeals of the assessee were dismissed.

Issues considered

The correct method of calculating the one‑per‑cent deduction under Rule 41/41A – on the entire sale price of dispatched goods or only on the portion attributable to locally purchased raw material.
Whether the deduction amounts to an unconstitutional levy of tax on out‑of‑state purchases or sales.
Whether the constitutionality of Rules 41 and 41A can be examined in a reference under Section 61(2) of the Bombay Sales Tax Act.

Legislation cited

Bombay Sales Tax Act, 1959s. 61(2), s. 74
Central Sales Tax Act, 1956s. 8(1), s. 8(2A)

Subjects

sales taxpurchase taxset‑offRule 41Rule 41Aone per cent deductionconstitutionalityinter‑state tradeBombay Sales Tax Act

Judgment

GODREJ & BOYCE MFG. CO. PVT. LTD. AND ORS. ETC. ETC. I A
-----1, v.
COMMISSIONER OF SALES TAX AND ORS. ETC. ETC.

JULY 30, 1992

[S. RANGANATHAN AND B.P. JEEVAN REDDY, JJ.] ', B

Bombay Sales Tax Rules, 1959-Rules 41, 41-A-Set off-Claim by
assessee--Legislative intention of.

Bombay Sales Tax Rules, 1959-Rule 4l(iii) Explanation, Proviso and c

-
Rule 41-A(y}-Set off under-One per cent-Calculation of.

Bombay Sales Tax Act, 195~Section 61(2}-Reference--Whether con-
stitutionality of a rule can be questioned-Rules, 41, 41A of the Bombay Sales
Tax Rules, 195~Validity of.
D
The facts in all the appeals-(C.A.No. 803/1971-~.A.Nos.800-0l of
1977; 3843-47/1983; and 3849-50/1988 were identical and common question
arose.

CA.No.803 of 1977
E
- -f The appellant was a registered dealer under the Bombay Sales Tax
Act, 1959 and it engaged in the manufacture of products, like chocolate,
drinking chocolate, cocoa etc. During the assessment years it purchsed raw
material, packing material and containers both within the State as well as
outside. In respect of the raw material, packing material etc. purchased F
from registered dealers the appellant paid purchase tax to them. On the
raw material etc. puchased from un-registere~ dealers, the appellant paid
.... ~-.
the purchase tax directly to the Governnient. The goods manufactured by
the appellant were liable to sales tax, when sold within the State.

Rule 41 and Rule 41A of the Bombay Sales Tax Rules, 1959 enable G
the manufacturing dealer to claim set-off of the tax paid by him on the
purchase of raw materials from out of the tax payable by him on the sale
~ of goods manufactured from out of the said raw material. The rules further
provide that in respect of manufactured goods despatched by the manufac-
turing dealer to his own place of business or to his agent outside the State H,
683
684 SUPREME COURT REPORTS [1992) 3 S.C.R.

A and actually sold there, the amount of set-off shall be reduced by one per
cent of the sale price of the goods so despatached. Applying said rule the
assessing authorities made a deduction of one per cent of the sale price of
the goods despatched and sold outside the State of Maharashtra.

The petitioners' case was that Loe raw material, out or which he
B manufactured the goods, was purchased not only within the State of
Maharashtra but also outside the State of Maharashtra. Similarly the
goods manufactured by him wtre sold not only within the State of
Maharashtra but also outside of the State of Maharashtra. In such a
situation, making a deduction of one per cent of the sale price of the
C manufactured goods despatched and sold outside the State of
Maharashtra amounts in effect to levy of sales tax on purchase of raw
material effected outside the State of Maharashtra. He also contended that
it also amounts the levy of sales tax on goods sold outside the State of
-
Maharashtra. He pleaded for allocation of sale price in proportion in
D which raw material was purchased within and outside the State.

Under section 61(2) of the Bombay Sales Tax Act the following two
questions were referred to the High Court:

(1) Whether on the facts and in the circumstances of the case, the
E Tribunal was correct in law in holding that for the purpose of reducing
set-off under clause (iii) of the Proviso to Explanation to Rule 41 of the
Bombay Sales Tax Rules, 1959, one per cent, should be calculated not on
the entire sale price of the goods despatched by the appellants to their
branches, but only on that part of the sale price of the goods sold outside
F the State which is attributable to the locally purchased raw material on
whicit the appellants were claiming set oft'?
_...ol. ...
(ii) Whether on the facts and in the circumstances of the case, the
Tribunal was correct in law in holding that for the purpose of reducing
G set-off under dause (iii) of the Proviso to .Explanation to Rule 41 and
clause (y) of the proviso tO the Explanation to Rule 41A of the Bombay
Sales Tax Rules, 1959, one per cent shall be calculated not on the entire
sale price of the goods despatehed by the appellants to his branches, but
only on the part of the sale price of the goods sold outside, the State whkh
is. a~ributable to the locally purchased raw material on which the appel-
H lants were claiming set oft'?
GODREJ MFG. CO. v. COMMISSIONER 685

The High Court answered the reference against the assessee-appel· A
lant. The appellant-assessee challenged the judgment of the High Court in
this Court by filling the appeal by special leave.

The appellants reiterated the contentions urged before the High
Court. They submitted that the deduction of one per cent, in effect, B
amounts to taxing the raw material purchased outside the State or to
taxing the sale of finished goods effected outside the State of Maharashtra.

- ~' SLP (C) No. 1377177

The assessment period was April 1, 1957 to March 31, 1958. During C

- this period the Rule in force was Rule 11, which too provided for a benefit
accompanied by a deduction as was provided· by Rule 41. The petitioner
contended that the position under Rule ll(lA) was not different from the
one obtaining under Rule 41; that in case the rule was interpreted in the
manner done by the High Court, it would expose it to the vice of uncon-
stitutionality; that the said deduction in effect amounted to levy of sales D
tax on purchases made outside the State of Maharashtra and had the
effect of impinging upon the charging provisions of the Act.

Dismissing the appeals of the assessee, this Court,

-- f HELD : 1.01. The intention of the rule making authority is to provide E
a relief to the dealers so that ultimately the benefit should percolate to the
consumer public. A manufacturing dealer pays purchase tax when be
purchases raw material and be is again obliged to pay the sales tax when
he sells the goods manufactured by him out of the said raw material. Tax
on both the transactions has the inevitable effect of increasing the price to F
the consumers besides adversely affecting the trade. It is for this reason
that the Rules 41 and 41A of the Bombay Sales Tax Rules, 1959, enable the
manufacturing dealer to claim set-off of the tax paid by him on the
purchase of raw materials from out of the tax payable by him on the sale
of goods manufactured from out of the said raw material. [691G-692A]
G
1.02. The purport of Rules 41 and 41A is inter al~ this: in res~-of
manufactured goods despatched by the manufacturing d~ler to his own
place of business or to bis agent outside the State and actually sold there,
the amount of set-off shall be reduced by one per cent of the sale price of
the goods so despatched. [6928) H
686 SUPREME COURT REPORTS (1992] 3 S.C.R.

A 2.01. The appellant (manufacturing dealer) purchases his raw
material both within the State of Maharashtra and outside the State. In
so far as the purchases made outside the State of Maharashtra are
concerned, the tax thereon is paid to other States. The State of
Maharashtra gets the tax only in respect of purchases made by the
appellant within the State. So far as the sales tax leviable on the sale of
B the goods manufa<:iured by the appellant is concerned, the State of
Maharashtra can levy and collect such tax only in respect of sales effected
within the State of Maharashtra. It cannot levy or collect tax in respect of
goods which are despatched by the appellant to his branches and agents
outside the State of Maharashtra and sold there. [6920-E]
c
2.02. In law (apart from Rules 41 and 41A) the appellant has no
legal right to claim set-oiT of the purcl}ase tax paid by him on his
-
purchases within the State from out of the sales tax payable by him on
· the sale of the goods manufactured by him. It is only by virtue of the said
D Rules, which, are conceived mainly in the interest of public, that he is
entitled to such set-otT. It is really a concession and an indulgence. More
particularly, where the manufactured goods are not sold within the State
of Maharashtra but are despatched to out-State branches and agents and
sold there, no sales tax can be or is levied by the State of Maharashtra.
The State of Maharashtra gets nothing in respect of such sales. The
E rule-making authority could well have denied the benefit of set-otT. But it
chose to be generous and has extended the said benefit to such out-State
sale as well, subject, however to deduction of one per cent of the sale price
of such goods sent out of the State and sold there.[693G-694A]

F 2.03. No valid grievance can be made in respect of such deduction
when the very extension of the benefit of set-otT is itself a boon or a __...l._ ••
concession. It was open to the rule making authority to provide for a small
abridgement or curtailment while extending a concession. [6948]

G 3. There is no unconstitutionality in the rule, apart from the fact that
question of constitutionality may not be open in a reference made under
section 61 (2) of the Bombay Sales Tax Act. The said Rules do not provide for
levy of any tax as such. Their operation is limited to what they say. [69SH]

C.S. T. Bombay v. Bharat Petroliam Corporauon Ltd., (1992] 1 SCR
H 807, distinguished.
GODREJ MFG. CO. v. COMMISSIONER [REDDY, J.) 68,7

CIVIL APPELLATE JURISDICflON: Civil Appeal Nos. 800·801 A
of 1977.

From the Judgment and Order dated 24.2.1976 of the Bombay High
Court in Sales Tax Ref. Nos. 59 and 60 of 1972.
688 SUPREME COURT REPORTS [1992) 3 S.C.R.

A sale price of the goods despatched by the appellants to his branches, but
only on the part of the sale price of the goods sold outside, the State which
is attributable to the locally purchased raw material on which the appel-
lants were claiming set-off."

The appellant, a registered dealer under the Act, is engaged in the
B manufacture of various (ICOducts such as chocolate, drinking chocolate,
cocoa etc. During the assessment years concerned herein, it purchased raw
material, packing material and containers both within the State of
Maharashtra as well as outside. In respect of the raw mateir,al, packing
material etc. purchased from registered dealers the appellant paid pur-
chase tax to them. In so far as such raw material etc. was purchased from
C
-
un-registered dealers, the appellant was liable to and did pay the purchase
tax directly to the Government. The goods manufactured by the appellant
are liable to sales tax when sold within the State.

In exercise of the Rule-making power conferred by Section 74 of the
D Act, Rules have been made by the Government of Bombay. We are
concerned in this case with only two rules namely 41 and 41A. The purport
of both the Rules, in so far as it is relevant for the purposes of these appeals
is concerned, is practically the same notwithstanding a good amount of
phraseological difference between them. Rule 41 applies in respect of
purchases made by a 'manufacturing dealer' like the appellant up to 15th
.E July, 1962. From this date onwards, it is rule 41A that operates. In respect'
of their assessment for the period January 1st, 1960 to December 31, 1960 y
the appellant (manufacturing dealer) claimed set-off under rule 41 whereas

-
for the period January 1st, 1962 to December 31st, 1962 be claimed it under
rule 41A.
I

F Rules 41 and 41A provide for set-off of the purchase tax paid by the
manufacturing dealer on the raw material, packing material etc. as against
the sales tax payable on the sale of the goods manufactured by him. It
would be appropriate at this stage to read both these rules, in so far as
they are relevant for our purpose:
G 41. "Drawback, set-off, etc. of tax paid by a manufacturer (In
respect of purchases up to 15.6.62). In assessing the amount of
tax payable in respect of any period by a Registered Dealer,
who manufactures taxable goods for sale (hereinafter in this
rule referred to as the "Manufacturing dealer") the Commis-
H sioner shall grant him a drawback, set off or as the case may
+

GODREJ MFG. CO. v. COMMISSIONER [REDDY, J.] 689

be, a refund of the aggregate of the following same, that is to A
--,(
say:

(b) ...........

.(c) ...........
B
(d) ...........

(e) a sum recovered from the manufactl!fing dealer by another
-~
Registered dealer by way of sales tax or general sales tax or
both, as the case may be, on the purchase by him, of goods
from such Registered dealer, being goods specified in Schedule c
- C to the Act other than in entries 1 to 11 (both inclusive) and
15 therein and in schedule D other than in entries 1 to 4 (both
inclusive) therein and in Schedule E other than in entries 1 and
2 therein, when the purchasing dealer did not hold a Recogni-
tion or when the dealer held a Recognition but effected the
D
purchase otherwise than aginst a certificate under section 12
of the Act; provided that such goods are used by him in the
manufacture of taxable goods for sale or in the packing of
taxable goods manufactured by him for sale .........

---r Explanation: For the purposes of this rule the word "sale" with E
all its grammatical variations, shall include the sale of manufac-
tured goods (despatched by the dealer in his own place of
business or to his agent outside the State and (actually sold
~
there).

Provided that where such despatch has been made to his F
~ place of business or to his agent outside the State but within
India (i) such despatch shall have taken place within nine
months of the date of purchase of the goods so used;

(ii) the dealer, or his manager .or agent as the case may be, is
G
registered under the Central Sales Tax Act, 1956, in respect of
place of business of which the goods are so despatched; and
·---..,>--{
'\
(iii) the amount of drawback, set-off or refund as the case may
be, shall be reduced by 1 per cent of the sale price of the goods
so despatched. H
690 SUPREME COURT REPORTS (1992] 3 S.C.R.

A Provided further that if the dealer shows to the satisfaction of
the Commissioner that not more then 1 per cent of the toti¥
value of the finished goods so despatched was comprised of
goods in respect of which the drawback, set off or refund is
claimed, the Commissioner shall not so reduce the amount of
drawback, set-off or refund."
B
"41-A (1) Drawback, set-off, etc. of tax paid by a manufacturer
in respect of purchases made (during the period from 15th July
1962 to the·day immediately preceding the notified day (both
days inclusive)] ~ In assessing the amount of tax payable in
c respect of any period by the Registered dealer (who manufac-
tures taxable goods for sale or export] (hereinafter in this rule
refe.rred to as the "Manufacturing dealer"), the Commissioner
shall, in respect of the purchases made by such dealer [during
-
the period from 15th July 1962 to the day unmediately preced-
ing the notified day (both days inclusive)] of any goods specified
D in Schedule B,C,D or E and used by him within the State in
the manufacture of taxable goods [which have, in fact, been
sold by him.(and not given away as samples or otherwise) or
which have been exported by him or used by him in the packing
of goods so manufactured] grant him a draw-back, set-off, ~s
E the case may be, a refund of the aggregate of the following
sums, that is to say:

(a) a sum recovered from the Manufacturing dealer by other
Registered dealers by way of sales tax, or general sales or, as
the case may be, both, on the purchase by him from such
·.-...
F Registered ·dealers, when the Manufacturing dealer did not
hold a Recognition or when he held a Recognition but effected
the purchase otherwise than against a certificate under sections
11 of the Act.

Explanation:- For the purposes of this rule, [the expression
G
'export' shall include-]

(i) a sale in the course of inter-State trade or commerce, or in
the course of the export of the goods out of the territory of
India, where such sale occassions the movement of the goods
H from the State of Maharashtra, and
GODRFJ MFG. CO. v. COMMISSIONER [REDDY, J.] 691

[(i-a) despatches made by the manufacturing dealer to a A
person outside the territory of India, with a view to selling the
goods to the said person and the said goods have actuaUy been
sold to him within a period of three years from the date ·of
despatch, and)

(ii) despatches made by the Manufacturing dealer to his B
own place of business or to his agent outside the State and
[which have, in fact been sold (and not given away as samples
or otherwise) or used in the manufacture of goods which have
in fact been sold (and not given away as samples or otherwise.)]
c
- Provided that, where such despatch has been made to his
own place of business or to his agent, outside the State but
within India ..........

(Y) the amount of draw-back, set-off, or as the case may
be refunds shall be reduced by a sum calculated in accordance D
with the following formula, namely:-

D multiplied by R
JOO

'D' means (the sale price of the goods despatched which have
E
in fact, been sold (and not given away as samples or otherwise

- or the value of the goods despatched for use in the manufacture
of goods which have, in fact, been sold (and not given away as
samples or otherwise) and 'R' means the rate of tax in force
on the sale at the time of despatch of goods,_ in the course of F
inter-state trade or commerce, of the same goods under section
8(1) or as the case Qlay be, section 8(2A), of the Central Sales
Tax Act, 1956;] ......"

A reading of the Rules manifests the intention of the rule making
authority. It is to provide a relief to the dealers so that ultimately the G
benefit should percolate to the consumer public. A manufacturing dealer
like the appellant pays purchase tax when he purchases raw material and
he is again obliged to pay the sales tax when he sells the goods manufac-
tured by him out of the said raw material. Tax on both the transactions has
the inevitable effect of increasing the price to the consumers besides H
692 SUPREME COURT REPORTS [1992] 3 S.C.R.

A adversely affecting the trade. It is for this reason that the aforesaid Rules )----
enable the manufacturing dealer to claim set-off of the tax paid by him on
the purchase of raw materials from out of the tax payable by him on the
sale of goods manufactured from out of the said raw material. The Rule
further provi1es - and it is that aspect which is relevant in these appeals -
B that in respect manufactured goods despatched by the manufacturing
dealer to his own place of business or to his agent outsid.e the State and
actually sold there, the amount of set-off shall be reduced by one per cent
of the sale price of the goods so despatched. This is the result flowing from
a combined reading of clause (e) of Rule 41 read with the Explanation and
the Proviso appended to the Explanation. Same is the position flowing from
C the relevant portions of Rule 41A.

The contention of the appellant - which found favour with the Sales
Tax Tribunal - runs thus; the appellant purchases the raw material required
by him partly within the State of Maharashtra and partly from other States.
D Similarly, only a protion of the goods manufactured by him is sold within
the State of Maharashtra. Bulk of them is sold outside the State of
Maharashtra, though within the Country. Rule 41 provides for setting off
the purchase tax paid by the appellant on the raw material purchased by
him within the State of Bombay. No set-off is given in respect of the tax
paid by the appellant on the purchases of the raw material made by him
E outside the State of Maharashtra evidently for the reason that such tax is
paid to such other States. In such a situation providing for deduction of
one per cent of the sale price of the goods despatched to outside-State
branches from out of the set-off -amount is unjust and impermi.ssible. The
manufactured goods came out of the raw material purchased both within ·
F and outside Maharashtra and not exclusively out of raw material purchased
--·
within the State of Maharashtra. At any rate, the. Rules properly inter-
preted would mean that "the percentage which was to so deducted was one
per cent of the sale price of the raw materials which bad gone into the
manufacture of the finished goods (and of the containers and packing-
materials used in marketing the finished goods) and such sale price was to
G be arrived at by a proportionate allocation of the percentage which such
raw materials (packing materials and containers) bore to the sale price of
the finished goods". {This is how the appellants' contention is set out inthe
judgment of the High Court.) Applying such a deduction to the entire sale
price of the manufactured goods sent to out-State branches, in effect,
amounts to levy of tax on the raw material purchased outside the State or
H in any event amorits to levy of tax on sales of finished goods effected
GODRFJ MFG. CO. v. COMMISSIONER [REDDY, J.] 693

outside the State of Maharashtra which is clearly beyond the competence A
---{ of the State Legislature.

The High Court did not agree with the appellant. It was of the
opinion that "on a plain reading of the Explanation and the first proviso
thereto, it is not possible to accept the contention advanced before us by
the respondents. Even viewed from the· angle of ordinary legal notions, it B
is obvious that what in fact are despatached by the manufacturing dealer
are the finished goods. The raw material which have gone into manufacture
of the said goods are not despatched, some of theip. can no more be in
--~
existence having been consumed in the process of manufacture and others
have completely altered in their composition, nature and form and are no C
more raw materials preserving their individuality in the form which they
bore when they were purchased. Similarly in the case of packing mateirals
and containers........

Sri· Bobde appearing for the appellants reiterated the contentions
urged before the High Court. He submitted that the deduction of one per D
cent, in effect, amounts to trucing the raw material purchased outside the
State or to taxing the sale of finished goods effected outside the State of
Maharashtra. _We cannot agree. Indeed, the whole issue can be put in
simpler terms. The appellant (manufacturing dealer) purchases his raw
material both within the State of Maharastra and outside the State. In so
far as the purchases made outside the State of Maharashtra are concerned, E
the tax thereon is paid to other States. The State of Maharastra gets the
tax only in respect of purchases made by the appellant within the State. So

-
far as the sales tax leviabte on the sale of the goods manufactured by the
appellant is concerned, the State of Maharashtra can levy and collect such
tax only in respect of sales effected within the State of Maharashtra. It F
cannot levy or collect tax in respect of goods which are despatched by the
appellant to his branches and agents outside the State of Maharashtra and
sold there. In law (apart from Rules 41 and 41A) the appellant has no legal
rgiht to claim set•off of the purchase tax paid by him on his purchases
within the State from out of the sales tax payable by him on the sale of the
goods manufactured by hlm. It is only' by virtue of the said Rules - which, G
as stated above, are conceived mainly in the interest of public - that he is
entitled to such set-off. It is really a concession and an indulgence. More
\
particularly, where the manufactured goods are not sold within the State
of Maharashtra but are despatched to out-State branches and agents and
sold there, no sales .tax can be or is levied by the State of Maharashtra. H
694 SUPREME COURT REPORTS (1992) 3 S.C.R.

A The State of Maharashtra gets nothing in respect of such sales effected
outside the State. In respect of such sales, the rule-making authority could
well have denied the benefit of set-off. But it chose to be generous and has
extended the said benefit to such out-State sales as well, subject, however
to deduction of one per cent of the sale price of such goods sent out of
the State and sold there. We fail ~o understand how a valid grievance can
B be made in respect of such deduction when the very extension of the
benefit of set-off is itself a boon or a concession. It was open to the rule
making authority to provide for a small abridgement or curtailment while
extending a concession. Viewed from this angle, the argument that provid-
ing for such deduction amounts to levy of tax either on purchases of raw
c material effected outside the State or on sale of manufactured goods
effected outside the State of Maharashtra appears to be beside the point
and is unacceptable. So is the argument about apportioning the sale-price
with reference to the proportion is which raw material was purchased
within and outside the State.
D It is not necessary for us to discuss the position obtaining under Rule
41A separately inasmuch as it is agreed by the learned counsel for the
appellant Sri Bobde that the position obtaining under both the rules, in so
far as the aspect in controversy is concerned, is substantially the same,
notwithstanding the phraseological difference between both the rul~s.
E
S.L.P. (C) No. 1377177:

Leave Granted.

F
The period concerned in this appeal (by Hindustan Lever Limited) is
April 1, 1957 to March 31, 1958. During this period the Rule in force was
-
Rule 11, which too provided for a similar benefit accompanied by a
deduction as is provided by Rule 41. Sub-rule (lA), which alone is relevant
for our purpose, reads as follows:

"Grant of drawback, set-off or refund of sales tax or general sales
G tax or purchase tax in certain cases.

(lA) In assessing the amount of sales tax payable by a ,
registered dealer who manufact•~res or processes any goods for ;----.....
sale in respect of any period, the collector shall grant him a
H drawback, set-off or refund as the case may be, of an amount

. ~ r
GODREJ MFG. CO. v. COMMISSIONER [REDDY, J.] 695

equal to the aggregate of the sums A
(i) recovered from the dealer by other registered dealers by
way of sales tax or general sales tax;

(ii) calculated in the manner specified in sub rule (1) of rule
11-A; and B
(iii) payable as purchase tax under clause (a) of setion 10 of
the purchase of such goods by the dealer;

after deducting therefrom one per cent, and in the case of
C

-
goods falling under entry 23 or 24 Schedule B to the Act, one
quarter per cent of the sale price of any goods manufactured
or processed where the sale of the goods takes place at any
place in India outside the State of Bombay, the goods having
been transported to such place on or after the 1st day of July,
1957; D
Provided -

(a) such goods have been used as raw materials processing
materials, fuel, lubricants, containers or packing materials in
the manufacture or processing of any goods specified in entries E
19 to 80 (both inclusive) of Schedule B to the Act for sale; ·

(b) and the goods so manufactured or processed are not the

- goods on the sale of which no sales tax is payable under rule
5 or clause (i) of rule 7."

It is not suggested by Dr. Pal, the learned counsel for the petitioner
F
that the position under Rule ll(lA) is in any manner different from the
one obtaining under Rule 41. Besides reiterating the submissions made by
the counsel for the appellant in the aforesaid group of appeals, Dr. Pal
submitted that in case the rule is interpreted in the manner done by the
High Court, it will expose it to the vice of unconstitutionality. According G
to Dr. Pal too, the said deduction in effect amounts to levy of sales tax on
purchases made outside the State of Maharashtra and has the effect of
impinging upon the charging provisions of the Act. We are however, unable
to'see any unconstitutionality in the rule apart from the fact that such a
question may not be open in a reference made under section 61(2) of the H
696 SUPREME COURT REPORTS (1992] 3 S.C.R.

A Act. To put the matter beyond any doubt, Mr. Dholakia appearing for the
State of Maharashtra stated before us that the State would never demand
or recover any tax, on the basis of or by virtue of any Qf the said Rules,
which is not otherwise due. Indeed, none of these Rules provide for levy
of any tax as such. Their operation is operation is limited to what they say.
B The counsel for the appellant relied upon the recent decision of this
court in Civil Appeal No.1031 of 1979 etc. decided on February 18, 1992
by a Bench comprising one of us Ranganathan, J. sitting with V.Ramas-
wami and S.C. Agarwal, JJ. The said decision also deals with rule 41 but
the point arising therein was wholly different than the one concerned
C herein. We may refer to the facts in Civil Appeal No.1031 of 1979 wherein
the respondent was Bharat Petroleum Corporation Limited. Its main ac-
tivity was refining the crude oil which belonged to another company. The
respondent-dealer agreed to refine the crude oil belonging to such other
company and to deliver the kerosene derived out of it to it. That other
-
company alone effected the sale of such kerosene, and not the respondent-
D dealer. Sulphuric acid was one of the raw material required by the respon-
dent-dealer, on purchase of which it paid tax. The process of refining
yielded acid sludge which was regularly sold by the respondent dealer to
its own purchasers. The respondent dealer sought to set-off the purchase
tax paid by it on purchase of sulphuric acid from out of the sales tax
E payable by it on the sale of acid sludge. This was denied by the Revenue.
It is this Controversy which came to this court. On a literal reading of rule
41 and having regard to the fact that acid sludge was regularly yielded by
the manufacturing process undertaken by the respondent-dealer which was
sold by it in its regular course of business, this court held that the respon-
dent-dealer was entitled to such set-off. We are unable to see any bearing
F the said principle has upon the issue in controversy in these appeals.
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For the above reasons, the Civil Appeals fail and are dismissed with
costs.

V.P.R. Appeals dismissed.

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