RANGANATHAN, J.

1. These are appeals by the Revenue arising out of proceedings under the Bombay Sales Tax Act, 1959 (hereinafter called the). The respondents, Bharat Petroleum Corporation Ltd. (in C.A. No. 1031 of 1979) and Phulgaon Cotton Mills Ltd. (in the four other appeals) are assessees to sales tax. They claimed a set-off, against the sales tax payable by them for the years in question, of certain sums, invoking the provisions of Rules 41 and 41-A framed under the, as they stood at the relevant time. As the wording of these rules, insofar as it is material for our present purposes, is identical and the basis of the claim was also common, it will be convenient to dispose of both sets of appeals by a common judgment and we proceed to do so.

2. The set-off claimed by the assessees was in terms of Section 42 and Rules 41 and 41-A, which may now be referred to

(1) Section 42 reads thus.

"42. Drawback, set-off, refund etc. - The State Government may by rules provide that -

(a) in such circumstances and subject to such conditions as may be specified in the rules a drawback, set-off or refund of the whole or any part of the tax -

(i) * * *

(ii) paid or levied or leviable in respect of any earlier sale, or purchase of goods under this Act or any earlier law, be granted to the purchasing dealer;

(b) * * *

The State Government has notified various rule from time to time in exercise of this power which are collected in Chapter VII of the Rules. Of these we are concerned with Rules 41 and 41-A

(2) Rule 41 (omitted w.e.f. June 24, 1981) was a very long containing several clauses. Insofar as is relevant for our present purposes, it was in the following terms

"41. Drawback, set-off etc. of tax paid by a manufacturer - In assessing the amount of tax payable in respect of any period by a Registered dealer, who manufactures taxable goods for sate (hereinafter in this rule referred to as the Manufacturing dealer), the Commissioner shall grant to him a drawback, set-off or as the case may be, a refund of the aggregate of the following sums, that is to say(e) a sum recovered from the Manufacturing 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 to the other than in Entries 1 to 11 (both inclusive) and 15 therein and in Schedule D other than in Entice 1 to 4 (both inclusive) therein and in Schedule E other than in Entries 1 to and 2 therein, when the purchasing dealer did not hold a Recognition, or when the dealer held a Recognition but effected the purchase otherwise than against a certificate under Section 12 of theprovided 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

Explanation : *

(material portions italicised)

(3) The relevant portion of Rule 41-A, which has been invoked in the case of Phulgaon Cotton Mills Ltd., reads thus;

"41-A Drawback, set-off etc. of tax paid by a manufacturer in respect of purchases made on or after July 13, 1962 - In assessing the amount of tax payable in respect of any period by a Registered dealer who manufacture taxable goods for sale or export (The words "or export" were inserted by a notification dated August 31, 1970) (hereinafter in this rule referred to as the Manufacturing dealer) the Commissioner shall, in respect of the purchases made by such dealer on or after July 15, 1962 of any goods specified in Schedule B, C, D, or E and used by him within the State in the manufacturer of taxable goods (The words "which have in fact .... so manufactured" were substituted by a notification dated January 15, 1976 for the words "for sale or export or in the packing of goods so manufactured for sale or exports".) 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 drawback, set-off or, as 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 tax, as the case may be both on the purchase by him from such 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 Section 11 of the;

(b) to (d) * * *"

(material portions italicised)

(4) There was also a claim under Rule 43-B but we are not concerned with that in the present appeals.

3. Now to turn to the facts which give rise to these appeals.

A Burmah Shell.

4. The Bharat Petroleum Corporation Ltd. is before us as the successor-in-interest of the Burmah Shell Refinery Ltd., which is the assessee with which we are concerned. We shall refer to it as the

refinery to distinguish it from the Burmah Shell Oil Storage and Distributing Company of India Ltd., which will be briefly referred to hereinafter as the marketing company

5. We are concerned with the period from January 1, 1061 to December 31, 1961. The refinery registered itself as a dealer under the and possessed a recognition certificate under Section 25, after having failed in a plea, raised in earlier assessment years, that it was not a dealer and was not required to be registered as such. It has entered into a contract with the marketing company under which it agreed to process and refine crude oil belonging to the marketing company and manufacture kerosene for it. This contract was in the nature of a bailment by the marketing company to the refinery, the refinery taking the crude oil and returning it after purification, as refined kerosene. For the performance of this task it received payments form the manufacturing (sic marketing) company by way of refining charges on the basis of the job-work done from time to time. The refined kerosene was eventually sold by the marketing company and the refinery had nothing to do with the sales. It may be mentioned here that there was no sales tax payable on sales of kerosene till March 31, 1961 but it became liable to sales tax thereafter.

6. For the above purification process, the refinery needed to use sulphuric acid. During the calendar year 1961, it purchased 3048.760 MT of acid for Rs. 3, 52, 742 from Dharmsi Morarji Chemical Co. Ltd. (hereinafter referred to as "Dharmsis") under an agreement dated June 9, 1955 which was to remain to force for a period of ten years from January 1, 1966 (Sic). On the sulphuric acid it so purchased, a sales tax of Rs. 13, 421.15 (Rs. 15, 107.72, according to the High Court) was recovered from it by the Dharmsis, as the refinery did not purchase it on the strength of the recognition certificate held by it as the certificate could have been utilised only if the goods purchased had been intended to be used by it in the manufacture of goods for sale itself whereas the manufactured kerosene was sold by the marketing company. When the sulphuric acid was used in the refining process, the crude oil got refined and purified but the impurities therein precipitated into the acid and yielded "acid sludge". The refinerys contract with the Dharmsis provided that the acid sludge should be sold by the refinery to the Dharmsis which apparently, had its own used for the sludge. Accordingly the refinery sold 3541.985 MT of the acid sludge, during the relevant period, for Rs. 68, 108 - the correctness of this figure was unsuccessfully contested before the High Court - and on this amount it paid sales tax. The record does not show the amount of sales tax paid by the refinery on this account, but having regard to the nature of the commodity and turnover involved, it must admittedly have been a very small amount.

7. Having done this, the refinery claimed that, as against the sales tax paid by it for the period in question (including the tax paid on the acid sludge), it was entitled to a set-off (and a refund, it need be) of the amount of Rs. 13, 421.15 paid by it as sales tax on its purchase of sulphuric acid. Its argument is that it is entitled to this refund a all the conditions set out in clause (e) of Rule 41 were fulfilled this-wise(a) It is a manufacturer as the process of refining carried out by it falls within the wide definition of manufacture contained in Section 2(17) of the Act, viz.

"2(17) manufacture with all its grammatical variations and cognate expressions, means producing, making extracting, altering, ornamenting, finishing or otherwise treating, or adapting any goods, but does not include such manufacturers or manufacturing processes as may be prescribed." *

It is also a registered dealer.

(b) It manufactured taxable goods for sale. The acid sludge manufactured by it was taxable throughout the year the and the pure kerosene manufactured by it was taxable w.e.f. April 1, 1961 onwards.

(c) Tax had been recovered from it on its purchases of sulphuric acid from the Dharmsi who are registered dealers as the purchases and not been effected on the basis of a recognition certificate.

8. The Sales Tax Officer allowed the set-off only to the extent of Rs. 1101.40 without giving any details as to the manner in which this figure had been arrived at. On appeal, the Appellate Assistant Commissioner held that the assessee was entitled to no set-off at all under Rule 41 as what was manufactured by the assessee was kerosene and not acid sludge and the kerosene was sold not by the assessee-manufacturer but by some other company. The Appellate Tribunal, however, allowed the assessees claim in full and its view was upheld, on reference, by the High Court, Hence the present appeal.

B. Phulgaon Cotton.

9. In the case of Phulgaon Cotton Mills, are we are concerned with four accounting periods July 1, 1973 to June 30, 1974, July 1, 1974 to June 30, 1975, July 1, 1975 to June 30, 1976 and July 1, 1976 to June 30, 1977. The issue as to the application of Rule 41-A arises in the following circumstances.

10. The assessee purchased raw unginned cotton from agriculturists and unregistered dealers. The cotton was ginned, yielding ginned cotton and cotton seeds. On the issues raised in the assessments was as to whether purchase tax should be paid on the total value of the raw cotton purchased or on the said purchase price less the value of the cotton seeds obtained therefrom. This question was answered against the assessee and is no more issue before us.

11. The assessee manufactured, yarn and cloth form the ginned cotton. Besides cotton and yarn, cotton waste and yarn waste were also obtained in the course of the manufacture and these were also sold by the assessee. Some quantity of the fabrics produced by the assessee were also exported. During the period July 1, 1973 to June 30, 1974 and July 1, 1974 to June 30, 1975, the assessee had paid sales tax on the purchase value of the entire raw cotton purchased by it. It therefore, claimed a set-off under Rule 43-AB in respect of the three periods other than between July 1, 1974 and June 30, 1975 but we are not concerned with this claim. The Sales Tax Officer allowed only partial relief to the assessee under Rule 41-A. He permitted a set-off not of the entire purchase tax paid by the assessee on the raw cotton purchased by it but only of a part thereof proportionate to the extent of yarn sales. The Appellate Tribunal however upheld the contention of the assessee. It allowed a set-off of the entire purchase tax paid by the assessee on the raw cotton, machinery and other purchases which had been used in the process of manufacture of cotton waste. In doing so it followed the principle of the decision of the High Court in the case of Burmah Shell Refineries (C. S. T. v. Burmah Shell Refineries Ltd., 1978 (41) STC 337 (Bom [LQ/BomHC/1977/393] HC)) It observed.

"21. ... When the raw cotton is ginned or ginned cotton is used in the process of manufacturing yarn, there is bound to be cotton waste. In view of these facts, the appellant will also be entitled to full set-off so far as the purchase of cotton are concerned, which have resulted in the production of taxable commodity i.e. cotton waste. Each and every ounce of cotton is used in the manufacture of cotton waste which is a taxable commodity. The question of therefore allowing proportionate set-off far as the purchases of cotton or machinery which are used in manufacturing of cotton waster does not arise. The appellant is entitled to full set-off so far as purchases of cotton machinery and other purchases. Which are used in the manufacture of cotton waste, a taxable commodity. There is no conflict in the decisions given by the Tribunal in earlier rulings given in the appellants own cases. No such argument of production of cotton waster by product simultaneously was canvassed. All that was canvassed was that yarn waste was taxable by-product. Hence, full set-off on purchase of cotton be allowed. Tribunal negatived this contention by pointing out that there is no simultaneous production of yarn and cloth. first yarn is manufactured and then cloth. Thus question of referring this issue to larger bench does not arise. The cases will have, therefore, to go back to the Assistant Commissioner for deciding the quantum of set-off admissible under Rule 41-A on these bases for all the periods." *

The Tribunal, however directed that the deductions should be so allowed as not to result in double deduction of the same amount of purchase tax.

12. Aggrieved by the order of the Tribunal, the Commissioner of Sales Tax filed petitions for special leave to appeal to this Court therefrom as no useful purpose would be served by approaching the High Court on reference in view of the decision of that Court in the Burmah Shell Refineries case (C. S. T. v. Burmah Shell Refineries Ltd., 1978 (41) STC 337 (Bom [LQ/BomHC/1977/393] HC) on the point at issue having gone against the revenue. Leave was granted by this Court on September 3, 1990 and hence the four civil appeals by the Revenue in the case of Phulgaon Cotton Mills Limited.

13. Before dealing with the issue on the interpretation of Rules 41 and 41-A which has been debated before us, we wish to point out the difficulties encountered by us as the facts in the case of Phulgaon Cotton Mills are not quite clear from the record. From the Tribunals order, it is seen that, during the periods July 1, 1975 to June 30, 1976 and July 1, 1976 to June 30, 1977 the assessee purchased no raw cotton from unregistered dealers and no purchase tax was levied thereon. Nevertheless, some relief under Rule 41-A was allowed by the officer in the assessments for these periods as well. The basis on which a claim was made, and partially allowed under Rule 41-A in respect of these periods is not know. Also, the Tribunal has allowed full relief on the basis that since cotton was used in the manufacture of cotton waste, the assessee was entitled to relief in respect of purchase tax paid on raw cotton though for these years there was on such tax. But the order of the Tribunal refers to "set-off so far as purchases of machinery and other purchase" indicating that perhaps some purchase tax had been paid in respect of those purchases and set-off had been sought in respect thereof. But even assuming this, the discussion regarding cotton waste appears to be pointless since, admittedly, the yarn manufactured was liable to sales tax and on the Tribunals reasoning, this was sufficient to enable the assessee to claim set-off of the purchase tax paid on cotton, machinery and other materials used in the manufacture. But these aspects have not been touched upon before us. The arguments before us as we shall refer presently revolved round a very simple issue. We shall discuss this issue and leave the other aspects touched upon above to be clarified, if need be when the assessment is finally redone in the light of our judgment.

14. Shri Dholakia, learned counsel for the State of Maharashtra, submits that the issue in these appeals is a very simple one. Rules 41 and 41-A are intended to give relief to a dealer in respect of purchase of goods which are used in the manufacture of taxable goods for sale, the clear idea being that where the manufactured goods will also be liable to sales tax in the hands of the manufacture there should be a relied of the taxes paid by him on the goods purchased by him for use in such manufacture, so as to avoid double taxation. In the Bharat Petroleum case (The words "or exports" were inserted by a notification dated August 31, 1970) the manufactured goods viz., pure kerosene were neither sold by the respondent so as to attract sales tax in his hands nor, indeed, liable to sales tax at all for the first there months. So also, in the case of Phulgaon cotton Mills, the cotton purchased on payment of tax was used for the manufacture of cloth which was not liable to sales tax. A set-off cannot be allowed merely because a by-product or waste product (viz. the acid sludge in the one case and the cotton waste in the other) was sold for a nominal turnover which was subject to tax. Even assuming that the sulphuric acid or cotton purchased can be said to have been used for the manufacture of two commodities (viz. kerosene and acid sludge in the one case and cloth and cotton waste in the other), the set-off under the rules relied upon should be split up proportionately and allowed only to a proportionate extent, the proportion being decided on the basis of the respective turnovers of the taxable and non-taxable goods. He submits that though the rules do not specifically provide for such a bifurcation, an apportionment of such nature is almost invariably implicit in a tax law and is also consonant with the object and purpose of the rules. He, therefore, submits that the High Court and Tribunal ought to have restricted the relief only to a proportionate extent as done by the sales tax officer. He points out that the basis on which the apportionment was made by the officer had been specifically challenged before the appellate authorities and is not in issue before us.

15. On the other hand, Sri Bobde, learned counsel appearing for Bharat Petroleum laid stress on two aspects of the rule. First, he points out that, under the rule, it is not a requirement that the manufactured good have to be said by the manufacturing dealer himself. The fact is that the kerosene constituted taxable goods after April 1, 1961 and was sold by the marketing company. The second aspect of the rule is that, admittedly, the sulphuric acid purchased was wholly used in the manufactured of two items - kerosene and acid sludge - one of which viz, the sludge was taxable and also subjected to tax. Once this condition is fulfilled, the amount of set-off is specified in the rule itself as the amount of purchase tax paid on the goods so sued and cannot be scaled down proportionately merely because, according to the department, the turnover of the taxable goods is insignificant, Sri Rana, learned counsel appearing for the Phulgaon Cotton Mills, adopts this argument mutatis mutandis.

16. We have given deep though to these contentions and we have come to the conclusion that plausible and attractive as the argument urged on behalf of the State is, the conclusion arrived at by the High Court and the Appellate Tribunal has to be upheld. But before dealing with this aspect, we may dispose of two minor questions. The first which arises in the Bharat Petroleum case is whether Rule 41 contemplates that the goods purchased by the dealer should be used for manufacture of taxable goods for sale by him. The High Court has given good reasons, with which we are inclined to agree, for holding that no such restrictions can be read into this rule but this contention is of no significance in view of our conclusion that the assessee would be entitled to the set-off claimed even on the basis of the taxable sales of acid sludge effected by it. The other point is whether the assessees can be said to manufacture "acid sludge" and "cotton waste" respectively. It is suggested for the State that the assessees are purchasing acid and cotton for the manufacture of kerosene and yarn/cloth respectively and it is ludicrous to suggest that the assesses are purchasing sulphuric acid and cotton for manufacturing acid sludge and and cotton waste. Put like that the assessees contention seems a little artificial. But the contention is not really absurd. For, the assessees do purchase sulphuric acid and cotton for use in a manufacturing process which yields not only kerosene and yarn/cloth but also acid sludge and cotton waste. As pointed out in State of Gujarat v. Raipur Manufacturing Co. Ltd. ( 1967 (19) STC 1 [LQ/SC/1966/222] : 1967 AIR(SC) 1066 : 1967 (1) SCR 618 [LQ/SC/1966/222] ) where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business and is also sold regularly from time to time, an intention can be attributed to the manufacturer to manufacture, and sell not merely the main item manufactured but also the subsidiary products. There is also no evidence on record to suggest, at least so far as acid sludge is concerned, that it is not a commercial commodity with a market but an item of waste. The contract with the Dharmsi speaks to the contrary and moreover, as pointed out by the High Court, the assessee had been practically compelled by the department to apply for and obtain a recognition certificate for the manufacture of sludge and it has also paid tax as dealers in acid sludge. These two contentions have, therefore, to be rejected.

17. Turning now to the main question, we are inclined to agree with respondents counsel that they are entitled to a set-off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively. The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale. Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial though we may point out that in the Bharat Petroleum case, the kerosene was also taxable for nine months in the year and in the case of Phulgaon Cotton Mills, yarn was also manufactured and it was subject to tax. Sri Dholakia contends for an implicit principle of apportionment on the basis of turnovers of various items of goods manufactured and restriction of the quantum of set-off to a proportion based on the turnover of taxable goods to the total turnover. He cited certain decisions under the Income Tax and Sales Tax Acts in support of this contention. Anglo-French Textiles Co. Ltd. v. CIT ( 1954 (25) ITR 27 [LQ/SC/1953/110] : 1954 AIR(SC) 198), Tata Iron & Steel Co. v. State of Bihar 1963 AIR(SC) 577 : 1963 (S1) SCR 199 : 1963 (48) ITR 123 [LQ/SC/1962/310] ) and CIT v. Best & Co. ( 1966 (60) ITR 11 [LQ/SC/1965/298] : 1966 AIR(SC) 1325 : 1966 (2) SCR 480 [LQ/SC/1965/298] ) We do not think these cases are of assistance. The first two cases dealt with the question as to when profits and gains can be said to accrue or arise to a manufacturing business and the third held that when a receipt is a composite one of capital and revenue nature, it is open to the revenue to apportion the same and bring the latter to tax. These are situations in which the taxable element is severable. Under the rules presently under consideration also, situation are conceivable where such severance is implicit. For instance, suppose the cotton purchased is utilised partly for manufacture of cloth that is taxable and partly for manufacture of cloth that is not taxable or partly for the manufacture of yarn which is taxable and is sold and partly for manufacture of cloth which is not taxable, it is clear that only some of the is utilised fort he first purpose and some for the second purpose and so only the purchase tax paid in respect of the quantity utilised for the first purpose will be eligible for set-off. But the type of user with the which we are concerned is a composite one in which it is not possible to the correlate any part of the purchased goods as having gone in for the purpose of manufacture of taxable goods. The position in pictures duly brought out in the case of Bharat Petroleum. The entire sulphuric acid purchased has no doubt been used in the manufacture of kerosene though the perhaps not a drop of acid clings to the kerosene manufactured. Equally the entire sulphuric acid has gone into the composition of the acid sludge. The 3048.760 MT of acid have dissolved the impurities in the crude oil an conglomerated with them to constitute 3541.485 MT of acid sludge. Having regard to the nature of interactions here, it is incontrovertible that the entire the sulphuric acid purchased has gone into the manufacture of the sludge. The rules do not require that the purchased goods must have been used only for the manufacture of taxable goods for sale. In this situation, it is not possible to cut down the quantum of relief clearly outlined in the rule on the basis for the relief provided is not very clear cut. Various reliefs have been provided in a group of rules which come in for application in various situations. The relief may be based on the principle that the manufactured product is taxed either in the hands of the same assessee or in some one else hands, or that the manufactured goods are exports which may yield no tax but earn foreign exchange, or even that the purchases are utilised for the manufacturer of goods in the State thus contributing to the industrial development of the State. It is, therefore difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on the which tax has been paid. In this background the straight forward answer to the question raised lies in the literal interpretation of the language of the rules without straining to discover some doubtful principle for denying relief.

18. For the above reasons, we agree with the view taken by the High Court and followed by the
19. Tribunal and dismiss these appeals. We, however, make no order regarding costs.