Bombay High Court: Borosil Must Apply 6% Reduction on Furnace Oil Tax Refund

Let's dive into a recent court decision involving Borosil Glass Works Ltd. and the Commissioner of Sales Tax in Mumbai. The case revolves around whether Borosil can get a full tax refund for furnace oil used in manufacturing goods that are partly sold locally and partly sent to branches outside the state.

The Main Question

The main issue in the case is about Rule 41-D of the Bombay Sales Tax Rules, 1959. The question is whether Borosil should get a full refund or if they need to reduce it by 6% when the furnace oil is used for goods sent outside the state.

Borosil's Argument

Borosil, represented by Mr. Ishaan Patkar, argued that the furnace oil should not be subject to the 6% reduction. They believe furnace oil is something used up in manufacturing and doesn't directly become part of the goods sent out. They relied on previous court decisions, saying the rule has been understood differently for over 22 years.

"Furnace oil is something used up, not a part of the goods sent out," argued Mr. Patkar.

The Sales Tax Department's Stand

Ms. Jyoti Chavan, representing the Sales Tax Department, countered that the law is clear. Furnace oil is different from plant and machinery and falls under items that get used up. Thus, it should be subject to the 6% reduction according to the rules.

"The law is clear on this matter," said Ms. Chavan. "Furnace oil is something that gets used up and is subject to the reduction."

Court's Decision

The court, led by Justices M.S. Sonak and Advait M. Sethna, sided with the Sales Tax Department. They agreed that the furnace oil should have the 6% reduction applied. The court found no reason to change the existing interpretation of the law.

"The rule is clear, and the reduction applies," the court concluded.

Why It Matters

This decision impacts how businesses like Borosil can claim tax refunds on items used up in manufacturing. It clarifies that furnace oil, being something that gets used up, doesn't get the same treatment as plant and machinery.

Summary of the Verdict

The court ruled in favor of the Sales Tax Department, deciding that Borosil must apply a 6% reduction to the tax refund for furnace oil used in goods sent outside the state. This decision reinforces the current understanding of tax laws regarding consumables.