Sales Tax | Furnace Oil Cannot Be Treated As 'Plant and Machinery' Merely Because It Powers the Boiler: Bombay High Court

In its reportable decision Division Bench of the Bombay High Court comprising Justice M.S. Sonak and Justice Advait M. Sethna decisively held that furnace oil used in the process of manufacturing cannot be brought within the exemption applicable to plant and machinery under Rule 41D of the Bombay Sales Tax Rules, 1959. The Court concluded that furnace oil, though functionally vital, remains a consumable, and its classification must follow the legislature’s express scheme—not the taxpayer’s interpretation of operational role.

This ruling addressed a core dispute in Sales Tax Reference Nos. 09 of 2011 and 96 of 2009, arising from divergent Tribunal findings on whether the set-off allowed on the purchase of furnace oil used in manufacturing should be reduced pro-rata under Rule 41D(3)(a) when the finished goods are transferred to branches outside Maharashtra.

"Boiler May Be Machinery, But Furnace Oil Is Not": Court Draws Sharp Distinction Based on Statutory Classification

The Court firmly rejected the assessee’s contention that furnace oil should be equated with plant and machinery for purposes of claiming full set-off. Borosil had argued that since furnace oil is essential to operate the boiler, which itself qualifies as machinery, it should logically be treated on par with it. However, the Court underscored that tax statutes must be read as they are, and not as taxpayers wish them to be.

The Bench clarified: “At the highest, boiler can be said to be machinery but not furnace oil, which can be classified as consumable, as it is consumed in producing the heat by way of burning in the boiler.” (Para 27)

In rejecting the theory of functional equivalence, the Court held: “We are not in agreement with Mr. Patkar that the principle applicable to plant and machinery should be applied to furnace oil so as to equate furnace oil with plant and machinery. This, also, in our view, is not the legislative intent as far as Rule 41D of the Sales Tax Rules, when examined in its entirety.” (Para 40)

Context and Legislative Scheme Rule Out Interpretative Stretching in Taxation

Reading the classification entries under the Bombay Sales Tax Rules and Schedules, the Court observed that furnace oil and plant/machinery fall under entirely distinct entries and cannot be artificially equated. The legislative scheme, which provides separate entries for furnace oil (Entry C-II-41A), plant and machinery (C-II-44A), and boiler (C-II-73(a)), was highlighted to underline that such distinctions were deliberate and binding.

As the Bench explained: “It would be impermissible for the Court to read furnace oil into the exclusionary clause meant for plant and machinery, especially when both are classified differently under the statute. To do so would amount to judicial legislation.” (Para 36)

This reinforces the settled principle that in fiscal statutes, no exemption or exclusion can be inferred or implied—it must be clearly expressed by the legislature. The Court refused to adopt a purposive construction in this context, invoking the principle articulated in Mathuram Agrawal v. State of Madhya Pradesh, stating that "the intention of the legislature has to be gathered from the language used, not presumed."

Argument of Discrimination and Long-standing Practice Also Rejected

Borosil had also argued that the Revenue was discriminating against it by enforcing apportionment of set-off on furnace oil, while other similarly situated dealers had enjoyed full set-off for over two decades. However, the Court decisively ruled that past acceptance or oversight by the department cannot override clear statutory interpretation, particularly when the matter had never been judicially adjudicated with reference to Rule 41D(3)(a).

The Court noted: “There was no adjudication on Rule 41D(3)(a) by the Tribunal in earlier decisions. The Larger Bench in Pudumjee Pulp is the first authoritative ruling interpreting this clause. Hence, the claim of disturbance of settled law is misplaced.” (Para 64)

It further held that mere failure of the Revenue to appeal against earlier orders in other cases does not bar the State from asserting correct legal interpretation in a particular case.

Judicial Clarity on What Counts as Machinery

The Bombay High Court’s decision not only settles a long-disputed question of set-off eligibility on furnace oil but also reinforces an important doctrinal point—that not everything that enables a machine to function becomes the machine itself for purposes of tax exemption.

The ruling makes it unequivocally clear that “furnace oil is not a component of plant and machinery, but a consumable with a manufacturing nexus,” and hence liable to 6% reduction in set-off under Rule 41D(3)(a) for interstate branch transfers.

Ultimately, both references—STR No. 9 of 2011 (filed by Borosil) and STR No. 96 of 2009 (filed by the Revenue)—were decided in favour of the Revenue, with the Court endorsing the view taken by the Tribunal’s Larger Bench in M/s. Pudumjee Pulp and Paper Mills Ltd..

“We answer the questions referred to in both the references, i.e., the STR No. 9 of 2011 and STR No. 96 of 2009, in favour of the Revenue/Sales Tax Dept. and against the Assessee/Borosil.” (Para 68)

Date of Decision: 12 November 2025