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8. In order to appreciate the problem in its proper perspective, it would be necessary at the outset to refer to some of the relevant provisions of the Act. The Act levies three kinds of taxes, namely, sales tax, general sales tax and purchase tax. The scheme of the Act, broadly speaking, is to provide, as far as possible, a single point levy. Section 5 provides for exemption from levy of any kind of tax on the sales or purchases of goods specified in Schedule I. Section 6 is the charging section. Section 7 provides for levy of sales tax at the first stage on the sale of goods specified in Part A of Schedule II. Section 8 provides for levy of general sales tax at the last stage on the sale of goods specified in Part B of Schedule II. Section 9 deals with the stage of levy of different kinds of taxes on declared goods, that is to say, declared goods as defined in the Central Sales Tax Act, 1956. Section 10 provides for levy of sales tax and general sales tax (both) on goods specified in Schedule III. The point to be noted at this stage is that in order to ensure, inter alia, single point levy, sections 7, 8 and 10 provide for certain deductions to be made from the dealer's gross turnover of sales of specified goods so as to arrive at the taxable turnover of sales of such goods. Amongst the various kinds of statutory deductions are included deductions in respect of sales effected in favour of three categories of persons, namely, recognised dealer, licensed dealer and commission agent, in case certain conditions are fulfilled. If sales are accordingly effected in favour of such persons, then the selling dealer would be entitled to deduct form his gross turnover the sales of goods effected in favour of such persons and, consequently, he would not be liable to pay tax which would otherwise have been recoverable from him in respect of such transactions. The conditions upon the fulfilment of which the statutory deduction could be made are to be found in section 13 which provides that there shall not be deduction from the turnover of sales, of sales of goods to a licensed dealer, a recognised dealer or to a commission agent as provided in sections 7, 8 and 10 unless such persons issue certificates in the prescribed form. The assessee in the present case is a recognised dealer and we shall, therefore, confine our attention to the provisions as to deductions in respect of sales effected in favour of such dealers. A recognised dealer is a registered dealer who has been granted recognition under section 32 which includes a recognition deemed to have been granted under the Act [see section 2(23) and (24)]. Recognition under section 32 is granted in a prescribed form and on the fulfilment of and subject to certain conditions to a registered dealer who manufactures taxable goods for sale. The vendor of taxable goods to a recognised dealer would be entitled to deduct from the turnover of his sales the sales in favour of recognised dealer, provided the recognised dealer certifies in the prescribed form 19 that the goods, other than prohibited goods, sold to him are purchased by him for use by him as raw or processing materials or as consumable stores in the manufacture of taxable goods for sale by him within the State of Gujarat [see section 13(1)(B) read with form 19].

18. The question, which immediately confronts itself for consideration is : what was the need of providing for rules being framed by the Government for the purpose of granting a drawback, set-off or refund ? The answer is not difficult to find if the object, purpose and scheme of the Act discussed above is borne in mind. The Act levies different kinds of taxes on sales and purchases of goods with the end in view of collection of revenue. While enacting the Act, however, the legislature was conscious of the diverse factors such as that though the tax was payable by the dealer, the incidence of tax and the consequential economic burden would fall upon the ultimate consumer, that there was need to safeguard the interests of trade and industry within the State which should not be subjected to such a burden as to put them out of existence or out of market in competition with the trade and industry outside the State and that the goods upon which tax could be levied were of wide variety, for example, goods of vital necessity to the consuming public within the State, goods which figure prominently in inter-State trade or commerce or in the course of foreign trade and goods which are to be used by a manufacturer as raw or processing materials or consumable stores in the manufacture of taxable goods. With a view to taking care of all these diverse factors, the legislature has devised a scheme which provides several safeguards. It is not as if every transaction of sale or purchase is made liable to be taxed under the Act. Sales or purchases of taxable goods made by a dealer in the course of business of buying or selling, which constitute him a dealer, alone are liable to be taxed, provided his turnover exceeds the prescribed limits. The provision aiming at single point levy, of which statutory deductions are an integral part, and the provisions relating to exemptions and taxes being levied at reduced rates in respect of certain commodities, also underline the same objective. Besides specifying in Schedule I goods on the sales or purchases of which no tax shall be payable subject to the conditions and exceptions, if any, set out against those goods, power has been given to the State Government under sub-section (2) of section 5 to add to or enlarge any entry in Schedule I, or to relax or omit any condition or exception specified therein by notification in the official Gazette. Under sub-section (1) of section 49, specified classes of sales or purchases are exempted from the payment of the whole of the tax subject to certain conditions and under sub-section (2) the State Government is empowered, "if it considers it necessary so to do in the public interest", to exempt any specified class of sales or purchases from payment of the whole or any part of any tax payable under the provisions of the Act, by notification in the official Gazette, subject to such conditions as it might impose. Even those safeguards were, however, not considered sufficient because the legislature could not possibly have contemplated each and every contingency which may arise and the diverse factors which may have their inter-play in the modern complex commercial transactions. Section 51 was, therefore, enacted whereunder power was given to the State Government to frame rules providing for grant of a drawback, set-off or refund in such circumstances and subject to such conditions as may be specified. An illustration based upon the very rule which is under consideration herein will highlight this point. Take the case of a recognised dealer, who purchases from an unregistered dealer goods for use by him as raw or processing materials or consumable stores in the manufacture of taxable goods for sale by him locally. In such a case, the purchasing dealer would have to pay purchase tax to the Government under section 15 and he would not be able to get the advantage of purchasing goods without payment of tax upon furnishing the relevant certificate and the result, therefore, would be that his manufacturing cost would, to that extent, rise. This might, in conceivable cases, make it difficult for him to stand in competition in the market of manufactured goods. In order to meet with such or similar situations, for which the Act itself makes no provision, the State Government has been invested with the power to frame rules to grant a drawback, set-off or refund, as the case may be, under such circumstances and subject to such conditions as it may think fit to specify, and the State Government, in exercise of the powers, has enacted rule 42 inter alia to take care of the situation covered by the above illustration. It would thus appear that the provisions relating to the grant of a drawback, set-off or refund, as the case may be, to a dealer under certain circumstances and subject to certain conditions, are an integral part of the taxation structure under the Act (see Commissioner of Sales Tax v. Burmah Shell Refineries Ltd. [1978] 41 STC 337 and Commissioner of Sales Tax v. Bharat Pulverising Mills Pvt. Ltd. [1976] 38 STC 491).

Conditions. - (1) The assessee is a registered dealer as defined in clause (25) of section 2 of the Act, (2) the goods purchased are taxable goods other than those falling within the category of prohibited goods as defined in clause (21) of section 2 of the Act :

Provided that ............................

Provided further that ....................

Provided also that .......................

(3) the said goods have been used by the assessee within the State, as raw or processing materials or as consumable stores in the manufacture of taxable goods as defined in clause (33) of section 2 of the Act, and (4) the goods so manufactured have been sold by the assessee in the State of Gujarat or in the course of inter-State trade or commerce or of export out of the territory of India or have been transported by the assessee outside the State of Gujarat but within India, to his own place of business, or to the place of business of his agent, and sold there.

21. The purpose of introducing conditions Nos. (1) and (2) is apparent. Unless the assessee is a registered dealer and unless the goods purchased by him are taxable goods, the question of granting him a drawback, set-off or refund, as the case may be, in the course of his assessment proceedings cannot possibly arise.

22. The third condition has two limbs. First, the goods in question must have been used by the assessee as raw or processing materials or as consumable stores in the manufacture of taxable goods and, second, such use must have been made by the assessee within the State. This condition is analogous to, though not identical with, the provisions of section 13(1)(B). The said sub-section, as we have seen earlier, inter alia, provides for a certificate in the prescribed form 19 being furnished by a manufacturer, who is a recognised dealer, to a registered dealer from whom he purchases goods, other than prohibited goods, to the effect that the goods are purchased by him for use by him as raw or processing materials or as consumable stores in the manufacture of taxable goods for sale by him within the State of Gujarat. Upon furnishing such a certificate, the recognised dealer can purchase such goods without payment of any tax because under section 7, 8 or 10, as the case may be, the selling dealer is entitled to deduct the sale of such goods from his gross turnover. We have also seen the twofold object of granting recognition to the purchasing dealer and consequential deduction to the selling dealer. It is possible, however, to envisage situations in which the provisions of section 13(1)(B) cannot be availed of by a manufacturer who is a recognised dealer. Take, for example, the case of a recognised dealer who purchases raw materials from a dealer who is not a registered dealer, for the purposes specified in section 13(1)(B). Take also, for example, the case of a recognised dealer who purchases raw materials from a registered dealer on payment of tax because he is unable to certify at that stage that the goods sold to him are purchased by him for use by him as raw materials in the manufacture of taxable goods for sale within the State of Gujarat but who ultimately sells the manufactured goods within the State of Gujarat. In both the above-mentioned cases, the recognised dealer will have paid tax on the raw materials, although if he had purchased the raw materials from a registered dealer, in the first case, or upon furnishing certificate, in the second case, he could have purchased those goods without payment of tax. By virtue of the third condition read with the first part of the fourth condition prescribed in rule 42, such a recognised dealer would be entitled to claim a set-off of the whole of the tax in respect of the purchases of raw materials made by him and thereby he would be placed in the same position as if he had purchased the raw materials from a registered dealer or against a certificate in form 19. This, however, is not the only category of cases which would be covered within the ambit of rule 42, for the third condition has a broader sweep and it takes in the case even of a manufacturer who is not covered by section 13(1)(B). Whereas for the applicability of section 13(1)(B) the manufacturer must be a recognised dealer, for the purposes of the satisfaction of the third condition read with the first condition the manufacturer need not be a recognised dealer but only a registered dealer. Another important point of distinction is that whereas under section 13(1)(B) read with form 19 the recognised dealer has to certify that the finished product, which is taxable goods, has been manufactured by him for sale within the State of Gujarat, for the purposes of the satisfaction of the third condition it is not necessary that the finished product, which is taxable goods, must have been sold in the State of Gujarat. It is sufficient if it is shown that the goods purchased by the manufacturer, be they raw or processing materials or consumable stores, have been used by him within the State. In fact, the fourth condition to which we shall immediately turn specifically contemplates the manufactured goods being sold in the State of Gujarat or being transported outside the State of Gujarat but within India to the manufacturer's or his agent's place of business and sold there. Of course, by reason of the proviso, which falls for interpretation herein, the extent of relief by way of set-off would not be similar in the two class of cases, namely, cases where the manufactured goods are sold within the State and cases where such goods are sold outside the State but within India. The relief in the latter class of cases will be granted after making certain deductions. That aspect will be examined later. Suffice it to say for the present that it would appear that the third condition places a manufacturer, who is a registered but not a recognised dealer and who manufactures taxable goods for sale within the State of Gujarat, in the same position as a recognised dealer, so far as the relief in respect of tax paid on the purchases of goods covered by section 13(1)(B) is concerned, provided other conditions specified in rules 42 and 47 are satisfied. Not only that but the third condition, when read with the last part of the fourth condition and the proviso, also takes in cases not covered by section 13(1)(B) such as when finished product being taxable goods is sold outside the State of Gujarat and provides for relief in respect of tax paid on the purchases of goods used in the manufacture of even such product, though at a lesser rate.