35. a) Whether set off on Plant & Machinery can be denied, only because there is no manufac-turing activity in the year of purchases of machinery?

Held : No

b) Can set-off allowed in the year of purchase, can be carried forward in the subsequent year?

Held : Yes

The appellant was assessed for the financial year 1999-2000. This assessment resulted refund of Rs. 13,13,923/-. This refund amount along with the set-off amount around Rs. 38.46 lakhs u/r. 41D of the Bombay Sales Tax Rules, 1959, was carried forward by the assessing authority to next year for the reason of relevant condition for eligibility of set-off not having been fulfilled in the particular assessment period.

The appellant was subsequently also assessed for the financial year 2000-01 under BST Act by the assessment order dated 29-3-2004.

This assessment resulted in a refund in a refund of Rs. 69,98,878/- which was worked out after taking into consideration the set-off amount of Rs. 38,46,951/- and the refund amount of Rs. 13,13,923/- brought forward from earlier year and also set-off amount of Rs. 7,53,555/- held as admissible for the particular year. Against these orders no appeal was filed.

Subsequently, Deputy Commissioner, Nashik Division, proposed to revise the orders by reducing set off u/r. 41D, because according to him since appellant has not carried on any manufacturing activity in these years not eligible for set off.

The appellant had merely done some job work for M/s. Mahindra and Mahindra Ltd. during the periods in question, the appellant had not carried any manufacturing activity of his own. It is later in the year 2002-03 that he started his manufacturing activity.

The appellant also admitted that since in the initial years, he had not carried any manufacturing activity of his own, the Registration Certificate was granted to him as a "reseller" and not as "manufacturer".

According to revising authority and revenue, the appellant has obtained Registration Certificate as a "reseller" and not as a "manufacturer". During the period in question, the appellant had not started his own manufacturing activity, nor had shown any such intention during that period. His sales were principally of scrap, and therefore the proviso to rule 41D(1) squarely disentitles him to set-off.

Tribunal while allowing the appeal appreciated the facts that, appellant has fulfilled all the major conditions for admissibility of set off those were 1) the goods covered under Schedule entry B6 and Schedule C should be purchased from regd. dealers on payment of tax either separately of inclusive. 2) the goods purchased should be used within the State of Maharashtra in the manufacture of goods, and 3) the goods so manufactured should in fact be sold by the claimant dealer in or from Maharashtra. The third condition was fulfilled not the years of purchase, but in the subsequent year. Therefore, apparently there is no valid reason to hold the appellant as disentitled to set off.

The first appellate rejected the appellant’s prayer to carry forward the set-off to that year on the ground that there is no provision in the BST Rules to carry forward such set-off.

In para 7 of the judgment, the reasons to grant the set-off are explained elaborately "as a matter of principle the set-off in respect of tax paid on the inputs has to be adjusted against tax payable if any on the sale of corresponding output. The set-off has to be granted in the assessment for the year in which the sale of manufactured goods is effected, whatever may be the year in which the input was purchased." Further it is observed that "the Tribunal has consistently held that, the set-off has to be quantified on the basis of the verification of the purchases of inputs and this verification of the purchases has naturally to be made in the assessment for the year of purchase. Therefore, the claim of set-off has to be put up in the year of purchase, and the authority has to quantify and grant the set-off in the assessment for the year of purchase, provided the relevant conditions regarding the use in the manufacture and the sale of the manufactured goods are fulfilled, before the point of assessment, though not in the year of purchase itself.

While disallowing the set-off the learned Deputy Commissioner also opined that set-off cannot carried forward, because there is no such provision in the rules. While scrubbing out this remark and opinion Hon. Tribunal has explained that, no Set-off is ordinarily carried forward to the subsequent year's assessment even though the relevant conditions are not fulfilled in the year of purchase itself. However, sometimes, the department authorities do carry forward part of the quantified set-off to the next year, where neither of the conditions regarding the use in manufacture and sale of the manufactured product are fulfilled in the year of purchase and both the events take place after the end of the year of purchase, but before the completion of assessment. Such carried forward set-off is given latter in the assessment of the subsequent year, in which remaining event of sale of the manufactured product takes place. Carrying forward of set-off is merely a matter of procedure, based on reason and to be followed to promote the cause of the law, in the best possible way with least inconvenience to the assessee.

Another reason assigned while disallowing the claim of assessee was that, his sales consist exclusively of the scrap generated in the process of job work and, therefore, by virtue of the first proviso to rule 41D(1), no set-off would be admissible. This reasoning of appellate Deputy Commissioner and revenue was brushed aside with the observations that "This proviso refers to the sales of manufactured goods, in the context of which the set-off is claimed. In the present case, appellant has not claimed the set-off in the context of the sales of scrap generated in the process of job-work. He has claimed the set-off in the context of the sales of manufactured goods, which are effected in the year 2002-03, arising from out of his own manufacturing activity. In that view of the matter, the said proviso will not have any application here.

[Pranay Shares and Securities Ltd. Appeal Nos. 20A & 20B of 2005 decided on 7-10-2006. Judgment of 3rd Bench by Shri G. G. Kochrekar, Member. Shri P. V. Lele Advocate appeared for the appellant]

36. Whether "Atomise Gold Powder" is taxable u/e C-I-10 or under C-II-152

Held : Taxable u/e C-I-10

The appellant imported "Atomize Gold Powder" from USA and sold it locally treating it to be covered u/e
C-1-10. The Gold Powder is used to fill the gaps in the mechanically prepared gold ornaments or for polishing.

The assessing authority, while assessing the appellant for the period 1-4-1997 to 31-3-1998 taxed the sale @13% being covered by entry C-II-152, Assessed rate of tax was confirmed in First Appeal.

In Second Appeal before the Tribunal, after referring to the dictionary meaning of ‘Atomize, and ‘Bullion, Tribunal came to the conclusion that the goods sold by the appellant are squarely covered u/e C-I-10. The entry 10 in Schedule C Part 1 is "Bullion and specie". The explanation to this entry explains what is "Bullion". It explains that bullion in this entry means gold and silver of fineness of not less than fifty per cent.

Dictionary meaning of ‘ATOMIZE’, is … to change (a liquid) into a spray of very small drops, a to separate into atoms. Figurative to reduce (anything) to small particles or units; fragmentize.

BULLION (bul’yan) uncoined gold or silver in the form of bars and ingots, gold or silver in the mass, coin, plate, or the like, considered only with reference to metallic value.

Hon'ble Tribunal also referred to Encyclopedia of Wikipedia and found ‘Mass’ is property of physical object that quantifies the amount of matter, Similarly, same encyclopedia describe ingot as the mass of the metal or semi conducting the material, heated past its melting point and then cast into shape which is easy to handle.

After referring to the phrase ‘bullion’ occurring in its statute and decision of Supreme Court reported in 45 STC page 58 found that, bullion means gold or silver in mass and it connotes gold or silver regarded as raw material and it may be either in the form of raw gold or silver or ingots or bars of gold or silver.

Hon'ble Tribunal also referred to the rule of interpretation in the said judgment and followed the same and came to the conclusion that;

Atomize Gold Powder in question is used to fill the gaps in mechanically prepared gold ornaments or for the purpose of gold polishing. Admittedly purity of Atomize Gold Powder is 99.9% i.e. almost 100% pure. It is also not disputed that Atomize Gold Powder in question is of the fineness of not less than 50%.

Atomized Gold Powder in question being a gold in a mass, considered only with reference to metallic value, certainly used as a raw material for the purpose stated above, it is to be treated as pure and simple gold metal but it is reduced to small particles or units to make possible the intended use to fill the gaps in machine made ornaments or for polishing purpose. The traders community conversant with the subject matter also treated it accordingly. As such the word ‘bullion’ appearing in Schedule C Part 1 Entry 10 of the Bombay Act certainly takes into its ambit Atomized Gold Powder in question.

[M/s Viplav Trading Ltd., S. A. No. 2300 of 2003 decided on 20-10-2006 Judgement delivered by Shri S. R. Khanzode Member of Fourth Bench. Shri G. P. Mehta CA appeared for the appellant]

37. When there is no material before the revising authority to hold that there was any impropriety or illegality no revision order is tenable in the eyes of law

The appellant was running a printing press. The assessment of the dealer was completed u/s. 33(2) of the B.S.T. Act, by accepting the returns. Except the returns, there was no material on the record, however revising authority issued a notice in Form 40 proposing to revise the assessment order on the ground that receipts amounting to Rs. 2,56,993/- were not an account of works contract, but those were in respect of sales effected by the appellant.

In revision proceeding appellant submitted evidence in support of his claim that receipts were on account of works contract and not sale. The revising authority relying on the judgment of the Kerala High Court in case of P.T. Varghese (37 STC 171) and the Allahabad High Court in the case of Uma Art Press (56 STC 300) held that the transactions are of sales and levied tax at 13%. Interest u/s 36(3)(b) was charged and a sum of Rs. 55,506/- was demanded from the appellant.

The first appellate authority distinguished the judgment of the Bombay High Court in case of M/s. Sarvodaya Printing Press (93 STC 387) and confirmed by the Hon’ble Supreme Court in (114 STC 242) relied by the appellant on the ground that the appellant had no right to use the printed books, which were to be destroyed and there was chattel qua chattel transfer of property. He confirmed the levy of tax but modified the levy of interest by restricting it up to the date of passing the assessment order.

Before the Tribunal, appellant submitted that in the matter of revision, the burden lies on the revenue to establish from the record that there is impropriety or illegality in the order sought to be revised, however no case has been made out for revision, particularly so that transfer of property in the goods have taken placed.

During the course of hearing, the specimen of said printing materials including ballot paper, hand bills making propaganda of the candidates, etc. to show that the printed material was not a standard goods and was not capable of any use to any other person, that it had no commercial value and if rejected, it was nothing but scrap.

After perusal of record and hearing both the sides Hon'ble Tribunal came to the conclusion that, in the matter of revision, the burden lies on the revenue to establish from the record that there is impropriety or illegality in the order sought to be revised. On perusal of record including the order of revision and appeal order, Tribunal could not find any material before the revising authority, except returns filed. There was no material before the revising authority even to prima facie to hold that there was any impropriety or illegality to revise the order.

[M/s Quality Printers, S.A. No. 1923 of 2004 decided on 20-10-2006. Judgment of 1st bench by Shri G. D. Parekh, President MSTT. Shri P. V. Surte, Advocate, appeared for the appellant]

38. Whether local purchases or OMS purchases ?

The appellant came with the grievance that assessing authority made error in treating inter-State purchases as local purchases and taxing the same u/s 13 treating them as from URD.

The facts leading to this question were, the appellant was engaged in the actively of doing job work for M/s Johnson & Johnson Ltd. For that purpose the appellant received raw material from M/s. Reliance Industries Ltd., Surat worth Rs. 434715/- on behalf of M/s. Johnson & Johnson Ltd. for use in the job work assigned by M/s. Johnson & Johnson Ltd. The goods are directly dispatched by M/s Reliance Industries Ltd. to the appellant and they are received by the appellant himself which was evident from the copies of the sale invoice, transport receipt and the Octroi receipt containing the acknowledgment given by the appellant. However these goods could not be used in the job of processing undertaken for M/s. Johnson & Johnson Ltd. The appellant has retained the goods for his own use. The credit note for Rs. 4,34,715/- is raised on 17-11-1998 in favour of M/s Johnson & Johnson Ltd. being the amount credited towards raw materials received by the appellant under Invoice No. 79836 dated 13-6-1998 of M/s. Reliance Industries Ltd. The appellant treated these purchases as purchases from outside the State. The assessing authority treated as purchases as purchases from unregistered dealer and taxed the same u/s 13.

The goods are thus purchased by the appellant from M/s. Johnson & Johnson Ltd. when the goods were lying with the appellant himself in the State of Maharashtra. Therefore, they are the local purchases effected by the appellant within the State. The assessing authority has correctly observed in the assessment order that till the goods reached the assessee it was the property of M/s. Johnson & Johnson Ltd. and not of the assessee. Later on the assessee has retained the same goods himself and raised a credit note to M/s. Johnson & Johnson Ltd. Mumbai. It is admitted fact that the goods are purchased locally from M/s. Johnson & Johnson Ltd. However, no reason is assigned by the assessing authority for treating the purchases from unregistered dealer. M/s. Johnson & Johnson Ltd. is registered under the B.S.T. Act holding the Registration Certificate No.400036/S/10 which is evident from the copy of the sale invoice of M/s. Reliance Industries Ltd. itself. The appellant has raised a credit note of Rs. 4,34,750/- on account of goods retained by himself. If the goods are purchased from the dealer registered under the B.S.T. Act and when the transfer of property in goods to the appellant for valuation consideration is not in dispute.

[M/s Empire Plastics S.A. No.143 of 2004 decided on 31-10-2006. Judgment of Second Bench by Shri D.H. Sali, Member. Shri D. V. Parekh appeared for the appellant]

39. a. Whether assessment order passed u/s 33(2) can be revised u/s 57?

Held : No

b. Whether claim of inter-State Sale against the declaration can be allowed without verification, while accepting returns u/s 33 (2)

Held : Yes

The appellant is a manufacturer of packing machinery. The assessment for the period 1994-95 was completed under section 33(2) of the B.S.T. Act by accepting returns filed by the appellant. Resulted of assessment was refund of Rs. 81,669/- under B.S.T. Act and in demand of Rs. 81,853/- under the C.S.T. Act.

Revising authority, intended to verify the correctness of refund order, hence issued notice in Form 36 directing the appellant to produce the book of account. In response appellant replied that since assessment has been completed under section 33(2) of the B.S.T. Act and there is no question of re-opening the assessment.

The revising authority, then issued notice in Form 40 along with the gist on 8-11-2000 and proposed to disallow the labour charges and resale claim.

According to the revising authority, as the appellant failed to adduce any evidence in support of the labour charges, which were allowed by the assessing authority, came to the decision to disallow the same by 10%. Resale claim was disallowed fully. Further, in the order under CST Act, levy of sales tax at 4 per cent on the sale outside the State of Maharashtra as done by the assessing authority is not correct for want of production of ‘C’ forms. Consequently, revising authority has modified the earlier order and raised additional demand of Rs. 22,923/- and Rs. 15,56,749/- under the BST Act & CST Act respectively.

First appellate authority was pleased to set-aside the revision order and remanded the matter back to the revising authority to decide the case on merit in accordance with law.

Being not satisfied with this order, appellant came in Second Appeal before the Tribunal. In appeal appellant challenged the jurisdiction of the revising authority to invoke the power under section 57 of the BST Act since the assessment has been completed under section 33(2).

According to the appellant, 1) Once the assessment has been completed under section 33(2) by accepting the returns, there is absolutely no scope for revision. There is neither legality nor propriety to direct the appellant to produce the book of account and then to issue notice in Form 40 on the basis of scrutiny of the book of account. 2) The revising authority can call for the examine the record under section 57 of any order passed by any officers and person subordinate to him. 3) The record before the assessing officers while completing the assessment under section 33(2) was only the returns filed by the appellant. 4) The account books or any other documents cannot be part of record on the basis of which the assessment has been completed under section 33(2) of the BST Act.

Therefore, no scope to initiate proceeding under section 57 on the basis of book of account, etc.

The appellant also argued that, the revising authority can come to the conclusion only on the basis of the record available and that the assessment order passed by the assessing officers if suffers from irregularity, illegality and impropriety then only revision proceedings can be initiated.

The first appellate authority in the order observed that, the assessing officers had issued notice in form 27, therefore, it was wrong on the part of assessing officer to complete assessment under section 33(2) and it was incumbent on him to proceed under sections 33(3) and 33(5) of the BST Act.

In the background of this observations, appellant has drawn attention of the Tribunal to the concerned proceeding sheet and pointed out that though there is mention of issue of notice in Form 27, the said endorsement does not bear the initial of the concerned officer as it appears in respect of other noting on the said proceeding sheet. Further no copy
of notice in Form 27 is available on record.

Hon'ble Tribunal, thereon, opined that, in fact the notice in Form 27 must not have been issued and, therefore, there is no substance in the contention of the learned appellate authority that it was incumbent for the assessing officer to proceed under section 33(3) instead of 33(2).

To support the revision under CST Act, revenue supported the reasons cited by the first appellate authority, which was, without production of C form, the rate of tax cannot be restricted to 4 per cent and there is no question of acceptance of inter-State sales under section 33(2) without production of C form. He has, therefore, prayed for dismissal of the appeals.

This argument of revenue is rejected for the reason, that the power as regard assessment, reassessment, revision, appeal, etc. given to the Commissioner and officers working under him under the CST Act are mutadis-mutandis of that of BST Act as provided under section 9(2) of the CST Act, hence when the assessment under CST Act was also completed under section 33(2), there is no question of further verification.

Agreeing with the submission of appellant, Hon'ble Tribunal said that, "It is observed that there was absolutely no material before the revisional authority to invoke the jurisdiction under section 57 and issuance of notice in Form 36 was with a view to make fishing inquiry, which is not permissible in the eye of law. The revision is ab initio void. There is, therefore, no question of remanding the matter for fresh revision." With this revision order was set aside.

[Midas Equipment SA Nos. 120 & 121 of 2002 decided on 19-1-2007. The judgment is delivered at First bench by Shri G. D. Parekh President MSTT. Shri D. V. Shintre Sales Tax Practitioner appeared for the appellant.]

40. The appellant had filed determination applica-tion for classification under the B.S.T. Act 1959 of its product "Krupa Hair Tonic" sold vide bill No. 737 dated 21-9-2002. The Commissioner of Sales Tax vide his order dated 26-10-2006 determined that impugned product was covered by entry C-II-34 (for Cosmetics) of the BST Act, 1959. The said determina-tion was challenged before the M.S.T. Tribunal

Compiled by Shri Kiran G. Garkar CA

The Tribunal noted that Technical and Licence Officer, Food and Drug Administration Act, Maharashtra State has given certificate that impugned product is medicinal formulation having preventive and curative usage and its ingredients are mentioned in
‘Bhav-Prakash’ and ‘Ayurvedic Saar Sangrah’.

The Tribunal opined that this certificate along with clarification received from Central Excise Department is pointer towards classification of the product. The entry for ‘Drugs and Medicines’ under the BST Act at no point conflicts with these two acts. It also relied on M/s Shah and Co. (28 STC 05), M/s Dandawala (88 STC 459), M/s B.P.L. Pharmaceuticals (104 LTC 164) and M/s Puma Ayurvedic Herbal P. Ltd. (145 STC 200) The M.S.T.T. Judgment in T.T.K. Pharma Ltd., Appeal No.146 of 1998 dated 9th October, 2001 was also relied. In all these cases, Courts/Tribunal have highlighted parameters to decide whether the given product is medicinal product. Instead of relying only on technical issues, common parlance test should be applied. In M/s Puma (cited supra), Supreme Court has given two tests. First one, is the product commonly considered as ‘medicine’? Secondly, whether its ingredients are as mentioned in authoritative books/ samhita of Ayurveda?

The Tribunal then ventured through various certificates given by heads of Ayurvedic medical colleges- Podar, Worli, Sion, and Goa and mentioned that even the Supreme Court respects the certificate given by the dean of Podar Medical College who is also the Director, Ayurveda, Maharashtra State. Regarding copies of prescriptions and letters from customers, the Tribunal has stated that these were viewed by Commissioner with biased attitude.

In budget speech of 2002-03, FM had committed to tax Ayurvedic medicines, uptil then taxed as Cosmetics, at 9% as ‘Drugs and Medicines’. Accordingly entries C-II-34 and 37 were amended on 4-5-2002. The Tribunal relied on the judgment of the Karnataka High Court in M/s M.R.F. Ltd. reported in 105 STC 68 for reliance on such budget speech.

The Department had not established that in spite of this amendment, the impugned product has to be classified as Cosmetics. In fact, reliance placed by the Commissioner on Larger bench decision of M/s Merind (Appeal No. 35 of 1998 dated
15-2-2001) was also of no use as the decision is reversed by Bombay High Court while deciding Reference Application 21 of 2003 on 5-5-2004.

The decision is given by Hon’ble member in Marathi. It is digested in English for easy reference. But I urge the members to go through original decision itself.

[M/s. Krupa Aushadhalaya, Appeal No.98 of 2006 decided on 31st January, 2007. Member Shri. S.R. Khanzode of Fourth Bench delivered the judgment. Advocate Shri. V.P.Patkar appeared for the appellant.]