Bombay HC Ends 22-Year Debate: Borosil Denied Sale Tax Set-Off on Furnace Oil

This reference proceeding involved two connected matters, filed by the Commissioner of Sales Tax. Both arose from different orders of the Maharashtra Sales Tax Tribunal interpreting Rule 41D of the Bombay Sales Tax Rules, 1959. The issue before the tribunal being, whether Borosil was entitled to a full set-off on furnace oil used in the manufacture of goods that were partly sold within Maharashtra and partly dispatched to Borosil’s branches outside the State. Furnace oil is a consumable used in the manufacturing process but does not form part of the finished product.

Appeal Before Tribunal: In one Tribunal order, the Tribunal required a 6% reduction in set-off under Rule 41D(3)(a) for furnace oil proportionate to branch transfers. In another order, the Tribunal had earlier granted a complete set-off without reduction. Borosil argued that furnace oil, being a consumable fully used up in manufacturing, could never fall within the expression “goods which are dispatched” under Rule 41D(3)(a).  The Revenue countered that furnace oil is plainly a manufacturing consumable and not plant and machinery, and therefore the 6% reduction expressly mandated in Rule 41D(3)(a) applied.

Issue Raised: Whether furnace oil used in the manufacture of taxable goods, partly sold within the State and partly dispatched to branches outside Maharashtra, qualifies for full set-off under Rule 41D, or whether the set-off must be reduced by 6% of the purchase price under Rule 41D(3)(a) for goods “despatched” in the sense of branch transfers.

HC Held: The High Court answered both references in favour of the Revenue and against Borosil. Furnace oil is a consumable, not a plant or machinery, and therefore not excluded from apportionment under the second proviso to Rule 41D. The phrase “goods which are dispatched” in Rule 41D(3)(a) must be read in the context of Rule 41D(2)(iii), which includes branch transfers.

The Court accepted the Bench ruling in Pudumjee Pulp, which held that furnace oil has a clear nexus with the goods dispatched to branches, since it is consumed in manufacturing the very goods that are later dispatched. The Court rejected Borosil’s argument that furnace oil cannot be apportioned, noting that the Assessing Officer had already carried out apportionment and no perversity was shown.

Therefore, the HC held that Borosil is not entitled to a full set-off. It clarified that the mandatory 6% reduction under Rule 41D(3)(a) applies to the furnace oil used for goods dispatched to branches outside Maharashtra.

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