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PETITIONER: HOTEL BALAJI AND OTHERS ETC. ETC.

       Vs.

RESPONDENT: STATE OF ANDHRA PRADESH AND ORS. ETC. ETC

DATE OF JUDGMENT22/10/1992

BENCH: [S. RANGANATHAN, V. RAMASWAMI AND B.P. JEEVAN REDDY, JJ.]

ACT: Andhra Pradesh General Sales Tax Act, 1957: Section  6-A-Levy of tax on turnover relating to purchase of certain goods-Nature of tax Neither use tax, consumption tax nor consignment tax Hence valid.  Gujarat Sales Tax Act, 1969 : Section 15B r/w Rule 42-E-Levy of purchase tax Nature of tax on purchase  price of  raw materials and not on manufactured products-Not a  tax on  consignment-Legislature competent to levy such  tax as  long as the levy retains the character of tax on sale-Validity of the provision upheld.  Uttar Pradesh Sales Tax Act, 1948 : Section  3-AAAA-Purchase   tax-Levy   of-Nature   of   levy- Legislature-Whether competent to levy such a tax. Constitution of India, 1950 : Seventh Schedule-List ll-Entry 54-Sales Tax Acts of Gujarat, Andhra Pradesh  and Uttar Pradesh-Sections: 6-A, 15-B and 3- AAAA respectively  Legislative competence of and validity of the provisions.  Interpretation of Statutes : Liberal  Construction-To   be  avoided  if  it  defeats  the manifest  object   and  purpose  of  the  statute-Reasonable construction  to   be   followed-Where   two   constructions possible, the one which sustains constitutionality to be preferred.

HEADNOTE: The constitutional  validity of  S.15B of Gujarat Sales Tax Act, S.3-AAAA of Uttar Pradesh Sales Tax Act and S.6A of the Andhra  Pradesh General  Sales Tax Act was challenged in the present  Appeals, Writ  Petitions SLPs  and  Transferred case. S.15-B  of   the  Gujarat   Sales  Tax  Act,  1969  was introduced by  Amendment Act,  1986. It provided for levy of additional purchase  tax on  raw materials  purchased  by  a manufacturing dealer  in case  he used the said raw material for the  manufacture of  other goods  which he despatched to his own   place  of business  or to  his  agent’s  place  of business  outside   the  State  but  within  India.  By  the Amendment Act, 1987, the section was substituted. Writ  Petitions   were  filed  before  the  High  Court challenging the  validity of  unamended S.15-B on the ground that it  levied a  consignment tax and hence was outside the competence of State Legislature. During the  pendency of the writ petitions,  S.15-B was  substituted  by  an  Ordinance. Subsequently the  Gujarat Sales  Tax Amendment Act 6 of 1990 was enacted  in terms of and replacing the Ordinance. S.15-B

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was given  retrospective effect  from 1.4.1986,  the date on which it  first  came  into  force.  In  view  of  the  said Amendment Act,  the Writ  Petitions came  to be dismissed as infructuous. A  fresh batch  of Writ  Petitions  were  filed challenging the validity of substituted S.15-B on the ground that it  continued to  be a  consignment tax. The High Court having dismissed  the Writ Petitions, the matter has come up before this Court. Section 3-AAAA  of the  U.P. Sales  Tax  subjected  the purchase Of   "goods  liable to  tax at the point of sale to the consumer"  to purchase  tax payable  by  the  purchasing dealer, in a case where the selling dealer was not liable to pay the  sales tax on such sale. Purchase tax was payable at the same  rate as the sales tax. If, however, the purchasing dealer resold  such goods  within the State or in the course of inter-State  trade or  commerce, he was not liable to pay the purchase  tax. While  the Civil  Appeals were pending in this Court  as regards  the validity  of S.3-AAAA,  the High Court, while deciding some Writ Petitions, applied the ratio in Good  Year and  held that  section was  ultra  vires  the legislative competence  of the  State Legislature.  It  held that under  the said provision the taxable event was not the purchase of  the goods  by the  purchasing  dealer  but  the subsequent event  namely  use  of  the  said  goods  in  the manufacture  of  other  goods  and  their  despatch  without effecting a sale within the State of U.P. to a place outside U.P. To overcome this decision an Ordinance was issued which was later  replaced by  the U.P.  Sales Tax (Amendment) Act, 1992,  the   constitutional  validity   of  which  has  been challenged before this Court. In the  A.P. Sales  Tax Act Section 6-A was inserted by the Andhra Pradesh General Sales Tax (Amendment) Act of 1976 with effect  from 1.9.76. The effect was that tax payable at sale point  became tax  payable on purchase point in certain circumstances. Writ  Petitions were  filed before  the  High Court challenging  the validity  of S.6-A.  It was contended that the  notification issued  under S.9 of the Act exempted from tax  certain goods  which were sought to be taxed under S.6-A  and  that  S.6-A  was  in  fact  a    consumption  or consignment tax  and hence  void. Unable  to succeed  before the High  Court, the  assessees challenged  the vires of the said section  before this Court. Apart from  challenging the  constitutional validity of the above-said provisions of the three State Sales Tax Acts, the correctness  of Good Year India Ltd v. State of Haryana, [1990] 2  SCC 71  which invalidated  certain   purchase  tax levied by  the Haryana  and Maharashtra  Sales Tax Acts, was also questioned by the Revenue before this Court. Dismissing the matters. this Court, HELD: (By  the Court):  S.15B of the Gujarat Sales Tax, 1969, S.3AAAA of Uttar Pradesh Sales Tax Act, 1948 and S.6-A of the  Andhra Pradesh General Sales Tax Act, 1957 are intra vires the  powers of  the respective  State Legislatures and hence valid. [249-D] Per B.P Jeevan Reddy, J: (for himself and V. Ramaswami, J.) 1. The  necessity and  significance  of  the  delegated legislation is  well-accepted and needs no elaboration. They cannot travel  beyond the  purview of the Act. Where the Act says that  Rules on  being made  be deemed "as if enacted in this Act",  the position may be different. But where the Act does not  say so,  the Rules  do not become part of the Act. [212-B, Cl Halsbury’s  Laws   of  England  (3rd.  Edn.)  Vol.  36, referred to.

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2. Entry  54 of  List 11  of Seventh  Schedule  to  the Constitution must receive a liberal construction, it being a legislative entry.  The Legislature  cannot be  confined  to only one form of levy. So long as the levy retains the basic character of  a tax  on sale, the Legislature can levy it in such mode  or in  such manner  as it thinks appropriate, the well-established  principles  in  such  matters  being  that reasonable  construction  should  be  followed  and  literal construction may  be avoided  if that  defeats the  manifest object and  purpose of  the Act.  The  Legislature  must  be presumed to  know  its  limitations  and  act  within  those limits. Transgression  must be  clearly established,  and is not to be lightly assumed. [214-H; 215-A, B] 3. A  person other  than a  registered  dealer  is  not amenable to  the discipline  of the Sales Tax Act. He cannot indeed collect any tax and, therefore, will not make over or pay any tax. This the legislature is justified in presuming. If, however,  in any  case it is proved that such person has paid the tax, the purchasing dealer will get an exemption to that extent.  If a  benefit is  claimed  by  the  purchasing dealer, it is for him to prove the fact which enables him to claim the  benefit. That  burden cannot  be passed on to any one else. [222-C, D] 4. So far as registered dealers are concerned, all that the purchasing  dealer need  to prove is that the said goods have already been or may be subjected to tax under State Act or Central  Sales Tax  Act.  On  this  score,  there  is  no difficulty for the purchasing dealer. From the bill given by the selling  dealer, the  purchasing dealers  can prove  the payment. Or  he can   simply  prove, as a matter of law that the said  goods are  liable to  be  taxed  under  any  other provision of the Act or under the Central Sales Tax Act. [222-E, F] GUJARAT SALES TAX ACT/RULES: 5.1. S.15-B  of the  Gujarat Sales  Tax Act  read as  a whole, is  applicable only  to those goods which are used in the manufacture  of  other  goods.  The  levy  is  upon  the purchase price of raw material an  not upon the value of the manufactured products. [214-G, H] 5.2. Rule  14E of  Gujarat Sales  Tax Rules  along with S.15B of  the   Gujarat Sales  Tax Act  provide for  set off etc., in  case the  manufactured goods  are sold  within the State of Gujarat. It no doubt means that set off etc. is not available  if   the  manufactured   goods  are  disposed  of otherwise  than   by  way   of  sale  or  are  consigned  to manufacturer’s own  depots or  to the  depots or  his agents outside the State of Gujarat. There is nothing objectionable in the  State doing  so. It  cannot be  said that by reading Rule 42-E  into S.15-B,  the levy becomes a consignment tax. [213-E-F] Godrej &  Boyce Mfg.  Co. v. Commissioner of Sales Tax, (1992) 4  J.T.(S.C.) 317 and Andhra Sugars Ltd. & Anr. v The State of Andhra Pradesh and Anr., 21 S.T.C. 212, relied on. Goodyear India  Ltd. v.  State of Haryana, [1990] 2 SCC 71, dissented from. Ramkrishna v.  State of  Bihar, A.l.R.  1963  S.C.1667, referred to. U.P. SALES TAX ACT: 6.1. All  that section 3-AAAA of the U.P. Sales Tax Act prior to  its substitution  in 1992  provided was; (i) where the goods liable to tax at the point of sale to the consumer are sold to a dealer (ii) in circumstances in which no sales tax is  payable by  the sellers  and  (iii)  the  purchasing dealer does  not re-sell the said purchased goods within the State or in the course of inter-state trade or commerce (iv)

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the purchasing  dealer shall  be liable to pay the tax which would have  been payable  by the seller. (v) If, however, it was proved  that the  said goods  have already  suffered tax under section  3-AAAA, no  purchase tax  was  payable  under section 3-AAAA.  It is  obvious   that the  section did  not speak of  the purchased  goods being used in the manufacture of other  goods nor of the manner of disposal or despatch of such manufactured  goods. The only two conditions stipulated (which conditions are not to be found in the present Section 3-AAAA) were that if the purchased goods are sold within the State  or  sold  in  the  course  of  inter-state  trade  or commerce, the  tax under  it is not payable. This is for the simple reason  that in  both the  contingencies,  the  State would get the revenue (in one case under the State Sales Tax Act and in the other case, under the Central Sales Tax Act). The policy  of the  legislature is not to tax the same goods twice over.  The fact  that in  a given  case, the purchased goods are  consigned by  the purchaser  to his own depots or agents outside  the State  makes no difference to the nature and character of the tax. By doing so, he cannot escape even one-time tax  upon the  goods purchased, which is the policy of the  Legislature. The  tax was  directed towards ensuring levy of tax at least on one transaction of sale of the goods and not towards taxing the consignment of goods purchased or the products manufactured out of them. [223-G-H; 224-A-D] 6.2. There  is no  vagueness in the provision viz. sub- sec.(2) of S.3-AAAA of U.P. Sales Tax Act nor can it be said that it  placed heavy  and uncalled-  for  burden  upon  the purchasing dealer  or that  it is  not practicable  for  the purchaser to  establish that  the  seller  (other  than  the registered dealer) has paid the tax or not. [222-B] 6.3. The  difficulty has  really arisen  because of the attempt to  look to the provisions of Section 3-AAAA through the  prism   of  Goodyear.   There  is   a  substantial  and qualitative difference  between  the  language  employed  in Section 9  of Haryana Act and Section 13-AA of Bombay Act on the one  hand and in Section 3-AAAA of U.P. Act on the other (as it  stood prior to 1992 Amendment Act or for that matter as  it  stands  now).  These  basic  differences  cannot  be ignored. [1224-E] Constitutionality of  Section 3-AAAA  of the U.P. Sales Tax Act  ought to  be judged  on its  own  language  and  so judged,  the   Section,  both  before  and  after  the  1992 Amendment,   represents   a   perfectly   valid   piece   of legislation. It is relatable to and fully warranted by Entry 54 of  List 11  of the Seventh Schedule to the Constitution. [224-F] Goodyear India  Ltd v.  State of  Haryana, [1990] 2 SCC 71, dissented from. ANDHRA PRADESH GENERAL SALES TAX ACT/RULES: 7.1. The real object of clauses (i) to (iii) in Section 6-A of  the A.P.  Sales Tax Act is not to levy a consumption tax, use  tax or  consignment tax but only to point out that thereby the purchasing dealer converts himself into the last purchaser in  the state  of such  goods. The  goods cease to exist   or cease  to be  available in  the State for sale or purchase  attracting   tax.  In   these  circumstances,  the purchasing dealer  of such  goods is taxed, if the seller is not or  cannot be  taxed. The tax imposed by S.6-A cannot be described either  as use tax, consumption tax or consignment tax. It  is a   purchase tax perfectly warranted by Entry 54 of List-ll  of the  Seventh   Schedule to  the Constitution. [230-G & 231-B] 7.2. While  exempting  the  sale  or  purchase  of  any specified class  of goods  the Government  is  empowered  to

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specify whether  the exemption operates at all points or any specified points  in the  series of  sales  or  purchase  of successive dealers.  Several notifications  have been issued the Government  from time  to time exempting certain dealers or exempting    certain  goods  at  the  point  of  sale  or purchase, as  the case  may be. G.O.Ms. 1091 is one of them. The exemption  is couched in qualified form. Thus, it is not a general exemption but a qualified one. In the light of the specific scheme  of Section  9 of the A.P. Sales Tax Act and the language  of G.O.Ms No. 1091, the exemption at the point of sale  by a  particular  category  of  persons  cannot  be construed as  operating to  exempt the  purchase  tax  under Section 6-A  of the  Act, as  well, much  less in all cases. [233-B, C] 7.3. Fresh  milk was  taxable as  general  goods  under Section 5(l)  of the  Andhra Pradesh Sales Tax Act before it was amended  by Amendment  Act 4  of 1989.  After the coming into force  of  the  said  Amendment  Act,  it  falls  under Schedule VII,  (which was introduced simultaneously with the said Amendment  Act) aud which takes in all goods other than those specified  in  first  to  sixth  Schedules.  Milk  was subject to  multi-point tax  prior to the said Amendment Act whereas after  the said amendment it has become taxable only at single point namely, point of first sale in the State. If fresh milk  was not  at all taxable under the Act, there was no necessity  to issue  notifications exempting  its sale in certain situations.[227-C-D] Goodyear India  Ltd. v.  State of  Haryana [1990] 2 SCC 71, dissented from. RATIO OF GOODYEAR - RECONSIDERATION OF: 8.1. The  ingredients of Section 9 of Haryana Sales Tax Act are:  (i) a  dealer liable  to pay  tax  under  the  Act purchases goods  (other than  those specified in Schedule B) from any source in the State and (ii) uses them in the State in the  manufacture of  any other  goods  and  (iii)  either disposes of  the manufactured  goods in any manner otherwise than  by  way  of  sale  in  the  State  or  despatches  the manufactured to  a place  outside the  State in  any  manner otherwise than  by way  of sale  in the  course of an inter- state trade  or commerce  or in the course of export outside the territory of India within the meaning of sub-section (1) of Section  5 of the Central Sales Tax Act, 1956. If all the above three  ingredients are  satisfied the  dealer  becomes liable to  pay tax  on the  purchase of  such goods  at such rate, as  may be  notified under Section 15. It applies only in those  cases where  (a) the goods are purchased (referred to as  material) by a dealer liable to pay tax under the Act in the  State, (b)  the goods so purchased cease to exist as such  goods   for  the  reason  they  are  consumed  in  the manufacture  of   different   commodities   and   (c)   such manufactured commodities  are either  disposed of within the State otherwise than by way of sale or despatched to a place outside  the   State  otherwise  than  by  way  of  sale  or despatched to  a place  outside the  State otherwise than by way of  an inter-State  sale or  export sale.  It is evident that if  such manufactured  goods are  not sold  within  the State of  Haryana, but  yet disposed  of within the State no tax  is   payable  on   such  disposition;  similarly  where manufactured goods  are despatched  out of State as a result of an  inter-State sale  or export sale no tax is payable on such sale.  Similarly against  where such manufactured goods are taken out of State to manufacturers own depots or to the depots of  his agents  no tax  is payable  on such  removal. Goodyear takes  only the last eventuality and holds that the taxable event  is the  removal of  goods from  the State and

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since such  removal is  to dealers own depots/agents outside the State  it is  consignment which  cannot be  taxed by the State Legislature.  This is not correct. The levy created by the said provision is a levy on the purchase of raw material purchased  within   the  State  which  is  consumed  in  the manufacture of  other goods within the State. If however the manufactured goods are sold within the State no purchase tax is collected on the raw material evidently because the State gets larger  revenue by  taxing the sale of such goods. (The value of  manufactured goods  is bound to be higher than the value of  the raw  material). The State Legislature does not wish to  - in the interest of trade and general public - tax both  the  raw  material  and  the  finished  (manufactured) product. This  is  a  well-known  policy  in  the  field  of taxation. But  where the  manufactured goods  are  not  sold within the  State but  are yet  disposed  of  or  where  the manufactured goods  are sent  outside the  State  (otherwise than by  way of inter-State sale or export sale) the tax has to be  paid on  the purchase  value of the raw material. The reason is  simple: if the manufactured goods are disposed of otherwise than  by sale  within the State or are sent out of State (i.e.  consigned to  dealers own depots or agents) the State  does   not  get   any  revenue  because  no  sale  of manufactured goods has taken place within Haryana. In such a situation the  State   would retain  the levy and collect it since there  is no  reason for  waiving the  purchase tax in these two situations. [239-B-D; 240-A-D] 8.2. In  the case  of inter-State  sale  the  State  of Haryana does  get the  tax-revenue -  may not be to the full extent. Though the Central Sales Tax is levied and collected by the  Government of  India Article 269 of the Constitution provides for  making over  the tax collected to the State in accordance with certain principles. Where of course the sale is an export sale within the meaning of Section 5 (1) of the Central Sales  Tax Act  (export sales) the State may not get any revenue  but larger national interest is served thereby. It is  for these  reasons that  tax on  the purchase  of raw material is waived in these two situations. Thus, there is a very sound  and consistent  policy underlying the provision. The object is to tax the purchase of goods by a manufacturer whose existence  as such  goods is  put and end to by him by using them  in the manufacture of different goods in certain circumstances. The  tax is levied upon the purchase price of raw material, not upon the sale price - or consignment value - of  manufactured goods.  Levy materialises  only when  the purchased  goods   (raw  material)   is  consumed   in   the manufacture of  different goods and those goods are disposed of within  the State  otherwise than  by way  of sale or are consigned  to   the   manufacturing-dealers’   depots/agents outside the  State of  Haryana. Such  postponement does  not convert what  is avowedly  a purchase  tax on  raw  material (levied on  the purchase  price of  such raw  material) to a consignment tax  on the manufactured goods. Saying otherwise would defeat  the very  object and  purpose of Section 9 and amount to  its nullification  in effect.  The most  that can perhaps be  said is that it is plausible to characterise the said tax  both as  purchase tax  as well as consignment tax. But  where  two  interpretations  are  possible,  one  which sustains  the   consititutionality  and/or  effectuates  its purpose and  intendment  and  the  other  which  effectively nullifies the  provisions, the  former  must  be  preferred, according to all known canons of interpretation. [240-E-H; 241-A-C] 8.3. In  several enactments  tax is  levied at the last sale point  or last  purchase point, as the case may be. The

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last purchase point in the State can be determined only when one knows  that no  purchase took  place  within  the  State thereafter. But  that can only be known later. If there is a subsequent  purchase  within  the  State,  the  purchase  in question ceases  to be the last purchase. Applying the logic of the dealers, it would not be possible to tax any goods at the last  purchase point  in the State, inasmuch as the last purchase point  in regard  to any  goods could be determined only when  the goods  are sold  later and not when the goods are purchased. [241-F-G] 8.4. The  scheme of  Section 9 of Haryana Sales Tax Act is to  levy the  tax on  purchase of raw material and not to forego it  where the  goods manufactured  out  of  them  are disposed of  (or despatched, as the case may be) in a manner not yielding  any revenue  to  the  State  nor  serving  the interests of the nation and its economy. The purchased goods are put  an end  to by  their consumption  in manufacture of other goods and yet the manufactured goods are dealt with in a manner  as to  deprive the  State of  any revenue; in such cases, there  is no  reason why  the State should forego its tax revenue  on purchase  of raw  material. It  would not be right to  say that  the tax  is not upon the purchase of raw material but  on the  consignment of the manufactured goods. It is  well settled  that taxing  power can  be utilised  to encourage commerce  and industry.  It can  also be  used  to serve the  interests  of  economy  and  promote  social  and economic planning.  It is also not right to concentrate only on   one   situation   viz.,   consignment   of   goods   to manufacturer’s own  depots (or  to the depots of his agents) outside the  State.  Disposal  of  goods  within  the  State without effecting a sale also stands on the same footing, an instance of which may be captive consumption of manufactured products in  the manufacture of yet other products. Once the scheme and  policy of the provision is appreciated, there is no room  for saying  that the  tax is  on the consignment of manufactured goods.[243-G-H; 244-A-F] 8.5. When  the tax  is levied  on the  purchase of  raw material, on the purchase price - and not on the manufacture of goods  or on  the consignment  value (such  a concept  is unknown to  Haryana Act)  or sale  price of the manufactured goods - the construction placed in Goodyear runs against the very grain of the provision and has the effect of nullifying the very  provision. By  placing  the  said  interpretation, Section 9 has been rendered nugatory. The tax purports to be and is  in truth a purchase tax levied on the purchase price of raw material purchased by a manufacturer. [247-A-C] 8.6.S.  13AA   of  the   Bombay  Sales   Tax   Act   is substantially  similar to  Section 9  of Haryana  Sales  Tax Act. Whatever  is said with respect to the Haryana provision applies equally to this provision. [249-D] Andhra Sugars  Ltd. &  Anr.  v.  The  State  of  Andhra Pradesh &  Anr., 21  S.T.C. 212  and State  of Tamil Nadu v. Kandaswami, 36 S.T.C. 191, relied on. Goodyear India  Ltd. v.  State of Haryana, [1990] 2 SCC 71, dissented from. Mukerian Papers  Ltd. v.  State  of  Punjab,  [1991]  2 S.C.C. 580, Explained. Murli Manohar  and Company v. State of Haryana [199]1 1 S.C.C. 377, distinguished. Malabar Fruit  Products Co.  v. S.T.O.,  30 S.T.C. 537, approved. Hindustan Lever Ltd. v. State of Maharashtra, 79 S.T.C. 255; J.K  Steel Ltd.  v. Union  of India,  A.l.R. 1970  S.C. 1173; Bata  India Ltd.  v. State  of Haryana, 54 S.T.C. 226; Desraj Pushp Kumar Gulati v. State of Punjab, 58 S.T.C. 393;

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Commissioner of  Wealth  Tax,  Bihar  and  Orissa  v.  Kirpa Shankar   Daya Shankar  Vorah,  (1971)  81  ITR  763;  Yusuf Shabeer and  Ors. v.  State of   Kerala  and Ors., (1973) 32 S.T.C. 359  and Income  Tax Commissioners for City of London v. Gibbs, (1942) 10 ITR Suppl. 121 (H.L.), referred to. Per Ranganathan, J. (Concurring): 1. The  provisions of  the U.P.  and Gujarat  Sales Tax Acts are  clearly beyond  challenge. The section in the U.P. Act is a very direct and simple provision to the effect that a tax  will be  levied on purchases made within the State in certain circumstances.  The ambit  of Entry  54 in the State List in the Constitution of India must be interpreted in the widest possible  manner. The State has full powers to levy a tax with  reference to  sales or  purchases inside the State and to  a certain  extent even  sales made  in the course of inter-State trade  or commerce.  It certainly  comprehends a power to  tax the  last sale  in the State of certain goods. The tax  is nothing  but a tax on purchase, pure and simple, well within  the scope  of the State’s Legislative power. It is true  that one has to look at not merely the form but the substance of  the statute  and examine  what exactly  is the purport  behind  the  levy,  but  should  not  permit  one’s imagination to  read a  purpose or  words into  the  statute which are not there. 1198-C-G] 2. The  Gujarat provision  is more  careful but makes a mention of  the purchased  goods being used for manufacture. But, these  are only  words descriptive  of a class of goods the purchase  of which  is sought to be brought to tax. Here again, the  intention of  the  legislature  is  to  tax,  at purchase point,  a class  of goods viz. goods purchased by a manufacturer. It  has no concern, with what the manufacturer does with  the manufactured  goods. Presumably  the idea  is that the  manufacturer is  able to profit by adding value to the purchased  raw material by utilising the infrastructure, fillips or  facilities provided  in the  State to  encourage setting up  of industries  therein and  so can afford to pay tax on  the purchased raw materials. The concession provided by rule 42E of the Gujarat Sales Tax Rules is an independent provision  relieving   him  and  the  public  consuming  the manufactured goods of additional burden where such goods are sold inside  the State  and get  taxed on  the added  value. [198-H; 199-A, B] 3. The marginal title to the provisions under challenge indicates that  their direct  purpose is  to levy  a tax  on purchases effected  in the  State in  certain circumstances. The tax  is couched  as a  tax on all goods (in U.P.) and on raw or  processing materials  and consumable  stores (in the State of Gujarat). It is designated as a purchase tax. It is levied on  the turnover  of  such  purchases.  There  is  no reference  in   the  U.P.   statute  to  any  condition  for imposition of the tax except that it should be a sale to the consumer and  in the  State of  Gujarat that  it should be a purchase by  a manufacturer.  It is  very difficult  to read into these provisions any ulterior motive on the part of the States to  levy a  tax on use, consumption or consignment in the guise  of a  purchase tax.  The language  of  these  two provisions is wholly different from that used in the Haryana and Bombay  Acts. Even  in the context of those Acts, it may be equally  plausible to consider the provisions either as a purchase tax  or a  tax on  consignment. There  is  no  such ambiguity in  the language used in these provisions, and the levy is  only of  a purchase  tax. Such  a levy  is  clearly within the domain of the State Legislature. [199-C-F] 4. A  person can  be said  to be  the last purchaser of certain goods  only when he consumes those goods himself or,

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in case  they are  raw materials/stores and the like, unless he uses  them in  the manufacture  of other  goods for sale. From this  category have  to be  excluded  cases  where  the manufactured goods  are either  sold in the State or sold in the course  of inter-State  trade or  commerce  because,  in those two  instances, the  State will  be in  a position  to collect the  tax in  respect of the sale of the manufactured goods -  the sale price of which will also include the price of raw  materials on which apriori the State could have only got a  lesser amount of tax - and to tax both would escalate the price  and affect  the consumer. Also excluded are cases where the  manufactured goods  are exported  abroad to  earn foreign currency. If these situations are borne in mind, one would realise  that the language used in the various clauses and phrases used in these legislations is only to levy a tax on the  last purchase  in the  State and  not with a view to levy a tax either on the use or consumption of raw materials or on the manufacture or production of manufactured goods or on the  despatch of  the goods  manufactured from  the State otherwise than  by way of sale. In the Haryana case also the statute  mentioned   these  several   alternatives   but   a consideration of  section 9(1)(b) of the Haryana Act as well as of  the corresponding clause of the Bombay Act were posed in isolation and emphasis placed on consignment being a sine qua non of the levy. This larger concept, namely, that these various alternatives  are not  set out in the section with a view to  fasten the  charge of  tax at  the  point  of  use, consumption,  manufacture,  production  and  consignment  or despatch but in an attempt to make clear that what is sought to be  levied is  a tax  on raw materials on the occasion of their last  purchase inside the State had not been projected or considered.  This  approach  would  basically  alter  the parameters  and  remove  the  provision  from  the  area  of vulnerability. [200-F-H; 201-A-D] 5. It  is difficult  to define  a last  purchase except with reference to the mode of the use of the purchased goods subsequent to  that purchase  and in  that sense the levy of tax can  crystallise only  at a point of time when the goods have been  utilised in  a particular way. The mere fact that the purchase  cannot be  characterised as  a  last  purchase except by  reference to  the subsequent utilisation of those goods cannot mean that the taxable event is not the purchase but something  else. The  more appropriate  test would be to see whether  the ambit of the power to levy a tax in respect of sale  of goods  is very wide and will cover any tax which has a  nexus with  the sale or purchase of goods including a last purchase  in the  State. In this view of the matter the levy under  the A.P.  Act is  also  within  the  legislative competence of the State. [201-E, F; 202-A, B] 6. The  conclusion reached  as  to  the  vires  of  the provisions under  challenge is  contrary to  the  conclusion reached in  Goodyear on  somewhat analogous  provisions.  No final conclusion  is expressed  as to whether the conclusion in Goodyear  was rightly  reached  in  the  context  of  the provisions of the statutes considered there, or would need a second look  and fresh  consideration in the context of what has been  said now.  There is  no hesitation  to accept  the point of  view now  presented and  which appeals  to be more realistic, appropriate and preferable, particularly the view one way  or the  other would  affect the validity of a large number  of  similar  legislations  all  over  India,  merely because it  may not  be consistent  with the  view taken  in Goodyear. Consistency,  for the  mere  sake  of  it,  is  no virtue. [202-C, D] Distributors (Baroda)  P. Ltd. v. Union of India, (1985

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)155 I.T.R. 120 S.C., relied on. Goodyear India  Ltd. v.  State of Haryana, [1990] 2 SCC 71, referred to.

JUDGMENT:      ORIGINAL JURISDICTION: Writ Petition (c) Nos. 655-69 of 1983.      (Under Article 32 of the Constitution of India).                             WITH      W.P. (C)  8131-33/82, 8125-30/82,  8349-8368/52,  8146- 8166/82, 9610 9630/82, 3756-87/83, 3698-3755/83, 947-960/83, 250/86, C.A.  Nos. 4099  4103/82, 10753-57/83,  10758-60/83, 10761/83, W.P.  (C)  No.  12834/85,  C.A.  Nos.  1280-83/92, 4737/91,  4302/91,   3410/91,  3481/91,   2850/91,  3171/91, 2866/91, 3905-12/91, 4202- 05/91, 70/92, SLP(C) No. 1045/89, T.C. (C) No.  220/88, W.P. (C) No. 175/92.      G.  Ramaswamy,  Attorney  General,  G.L.  Sanghi,  B.K. Mehta, Santosh  Hegde., R.R.  Aggarwal, Anil  B. Divan, H.N. Salve, K.  Parasaran, Ms.  Suman Bose,  Dr. Debi  Pal,  A.B. Rohtagi, R.N.  Sachthey, A.C.  Gulati,  B.B.  Sawhney,  Mrs. Janaki   Ramachandran,    S.   Ganesh,    Ravinder   Narain, S.Sukuraman, D.K.  Sinha,  J.R.  Das,  J.  Gupta,  Ashok  K. Srivastava,  H.S.   Munjral,  S.   Walia,  G.  Bansal,  D.P. Mukherjee, R.  Mohan, Mukul  Mudgal, A.  Subba Rao, Ms. Lata Krishnamurti, M.N.  Shroff, D.  Dave, Ms.  Deepa Dixit, K.J. John, A.T.M. Sampath, P. Sen, G.S. Chatterjee, Ashok Mathur, M. Haravu,  V.J. Francis,  V. Subramaniam, P.S. Seetharaman, Ms. Indu Malhotra, A.S. Bhasme, R.B. Misra Dr. B.S. Chauhan, Ajay K. Aggarwal, Ms. Radha Rangaswamy, Anil Sachthey, Badri Nath Sharma,  T.V.S.N. Chari,  B. Kanta  Rao and Ms. Suruchi Aggarwal for appearing parties.      The Judgments of the Court were delivered by      RANGANATHAN, J.  Taking a cue from the decision of this Court in  Goodyear India  Ltd. v.  State of Haryana [1990] 2 S.C.C. 71,  to which  I was  a party,  a contention has been raised,  in   these  appeals   and  writ   petitions,   that corresponding provisions  of the  Gujarat Sales Tax Act, the U.P. Sales  Tax Act and the Andhra Pradesh General Sales Tax Act, are  ultra vires  the powers  of the  State Legislature insofar as  they seek  to levy  a purchase  tax  in  certain circumstances. My  learned brother,  Jeevan Reddy,  J.,  has discussed the  provisions and  contentions  elaborately  and exhaustively in  his judgment.  It is  unnecessary for me to set out  over again  the statutory  provisions considered in Goodyear or  those which  are challenged  in these petitions and appeals  or the  details of  the decision in Goodyear as these have been discussed in great detail in the judgment of my learned brother. I however, think that I owe it to myself to add  a separate judgment as I was a party to Goodyear and explain my views on the provisions presently under challenge in the  light of  what has  already been  stated  by  me  in Goodyear.      So far as the U.P. Sales Tax Act is concerned, I do not think that  the impugned  provision of  the said  Act  (viz. S.3AAAA, as  inserted in 1992 with retrospective effect from 1.4.1974) bears any comparison with the provisions that were considered in  Goodyear. S.3AAAA is a very simple provision. According to its marginal note, its effect is the imposition of a liability to purchase tax on certain transactions. This liability is attracted in respect of goods, which are liable to tax at the point of sale to the consumer. In other words, the goods  in question  as such have run through their gamut of sales  in the  State. There  will be no more sales in the

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State of  the goods  in that form, which can be taxed by the State, whether  intra-State or inter-State, or in the course of export.  Such goods  are then  made liable  to tax in the hands of  a purchaser  dealer-cum-consumer either because he purchases them  from a  registered dealer by whom tax is not payable or  because he  purchases them  from a  person other than a registered dealer i.e. a person who is not accessible to the  revenue, whose  sales cannot  be easily  verified or from whom  tax may  not  be  easily  recovered.  To  put  it differently, since  the tax  is at  the point of sale to the consumer, the  Legislature, in order to ensure that goods do not escape  tax in  the State altogether, make the purchaser liable in respect of the last sale in the State of the goods in question,  if otherwise  the sale  of the  goods have not borne tax  earlier in the State. This, on the face of it, is a  provision   which  seems   to  be  perfectly  within  the legislative competence of the State Legislature.      The argument urged on behalf of the assessees, however, is that  no person  can be  said to be the "consumer" of the goods in  the State  unless he consumes the goods himself or utilises the  goods (where  they are  in the  nature of  raw material) for  the manufacture or production of other goods. It is urged, therefore, that as no sale can be postulated to be a  sale to the consumer unless and until one of the above events happen, the real taxable event is not the purchase of the goods  but their  consumption, manufacture or production in the  State, or their despatch, otherwise than by way of a sale outside  the State,  whether in  the same  form or in a manufactured  condition.  It  is  therefore  said  that,  in substance, the  statutory provision is no different from the one considered  by us  in Goodyear  and that  the  ratio  of Goodyear will apply here equally.      So far  as the  Andhra Pradesh  provision is concerned, the argument  is the  same, with  an added  advantage to the assessees that  the section  brings  out  more  emphatically their point of view. Under section 6-A(i), purchase of goods from a registered dealer is subjected to tax because, though the sale  or purchase  of that  item of  goods is  generally liable to  tax, no  tax became  payable  by  the  registered dealer on  the sale  because of the circumstances set out in section 5  or 6. This corresponds to s. 3AAAA(a) of the U.P. Act. As  against this, clause (ii) of section 6-A deals with purchase of  goods liable  to tax from a person other than a registered dealer  and imposes  a liability to pay tax where the goods  purchased are consumed by the purchaser either in the manufacture of other goods for sale or otherwise and the goods are  disposed of  otherwise than  by way  of  sale  or despatched outside the State otherwise than in the course of inter-State trade  or commerce.  In other  words,  the  real taxable event  for the  charge  under section 6-A(ii), it is said, is  not the  purchase of  goods but  the  consumption, manufacture or  consignment  of  the  same  or  other  goods outside the State. If that be so, it is said, the imposition is ultra vires the State Legislature on the principle of the decision in Goodyear.      So far  as the  State  of  Gujarat  is  concerned,  the provisions of  section  l5B,  inserted  by  a  retrospective amendment of  1990,  are  somewhat  different.  Cutting  out certain words  not  relevant  in  the  present  context,  it provides that  where a dealer, being liable to pay tax under the Act,  purchases any  taxable goods  and uses them in the manufacture of  taxable goods, a purchase tax will be levied on the turnover of such purchases. Rule 42-E, which was also framed w.e.f. 1.5.90, provides that, where the assessee is a registered dealer  and the  goods manufactured  by him  have

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been sold  in the  State of  Gujarat, he will be entitled to relief in  respect of  the purchase tax levied under section l5B. Here  again, it  is argued,  the provision  is  tainted because it  refers to manufacture of the purchased goods and the rule  ensures that  no purchase  tax is  levied  if  the manufactured goods  are sold  in the  State itself; in other words, the  levy comes in only if they are consigned outside the State, attracting Goodyear.      It will be seen at once that the three provisions under consideration vary from one another. S.3AAAA of the U.P. Act does not  make the tax conditional on the use or consumption of raw materials purchased or the manner of dealing with the goods manufactured  out of such purchases of  raw materials. Section 15B  of the  Gujarat Act  is slightly  different. It talks   of the use of the goods purchased in the manufacture of other taxable goods but it does not make any reference to the consumption  of the goods otherwise or their despatch or consignment. The  Andhra Pradesh  Act is  more elaborate and deals with  various situations  in relation to the purchased goods.      2Of these,  I am  of opinion that the provisions of the U.P. and  Gujarat Acts  are clearly  beyond challenge on the grounds put  forward by  the petitioners. The section in the U.P. Act  is a  very direct  and simple   provision  to  the effect that  a tax  will be  levied on purchases made within the State in certain circumstances. The ambit of Entry 54 in the  State  List  in  the  Constitution  of  India  must  be interpreted in  the widest  possible manner.  The State  has full powers  to levy  a  tax  with  reference  to  sales  or purchases inside  the State  and to  a certain  extent  even sales made  in the  course of inter-State trade or commerce. It certainly comprehends a power to tax the last sale in the State of  certain goods. I have explained earlier the reason why the  incidence of  tax in such sales is thrown under the Act on  the consumer.  The tax  is  nothing  but  a  tax  on purchase, pure  and simple,  well within  the scope  of  the State’s Legislative  power. The  attempt, on  behalf of  the petitioners,  to   undertake  an   analysis  of   what  will eventually happen to the purchased goods where the purchaser is the  consumer and,  on the basis thereof, to suggest that the  legislature   really  intends   to   tax   consumption, production  or   consignment  is   no  doubt  ingenious  but farfetched, artificial  and unrealistic. It is true that one has to  look at not merely the form but the substance of the statute and  examine what  exactly  it  is  that  the  State purports to  levy a  tax in  respect of  but one  should not permit one’s imagination to read a purpose or words into the statute which are not there.      The Gujarat  provision is  more  careful  but  makes  a mention of  the purchased  goods being used for manufacture. But, as  pointed out  by Mukharji  J. in Goodyear, these are only words  descriptive of  a class of goods the purchase of which is  sought to  be brought  to  tax.  Here  again,  the intention of the legislature is to tax, at purchase point, a class of  goods viz.  goods purchased  by a manufacturer. It has no  concern, unlike  the A.P. or Haryana Acts, with what he does  with the manufactured goods. Presumably the idea is that the  manufacturer is  able to profit by adding value to the purchased  raw material by utilising the infrastructure, fillips or  facilities provided  in the  State to  encourage setting up  of industries  therein and  so can afford to pay tax on  the purchased raw materials. The concession provided by rule  42E is  an independent  provision relieving him and the public  consuming the  manufactured goods  of additional burden where  such goods  are sold  inside the State and get

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taxed on the added value.      In my  opinion, there  is  considerable  force  in  the substance of  the contention  of  these  States  that  these provisions only  impose a  tax on  purchases.  The  marginal title to  the provisions indicates that their direct purpose is to  levy a  tax on  purchases effected  in the  State  in certain circumstances.  The tax  is couched  as a tax on all goods (in  U.P.) and  on raw  or  processing  materials  and consumable  stores   (in  the   State  of  Gujarat).  It  is designated as  a purchase  tax. It is levied on the turnover of such purchases. There is no reference in the U.P. statute to any  condition for  imposition of  the tax except that it should be a sale to the consumer and in the State of Gujarat that it  should be  a purchase by a manufacturer. It is very difficult to  read into these provisions any ulterior motive on the  part of the States to Levy a tax on use, consumption or consignment  in the guise of a purchase tax. The language of these  two provisions  is wholly different from that used in the  Haryana and  Bombay Acts.  As I  have stated  in  my judgment in  Goodyear, even in the context of those Acts, it may be equally plausible to consider the provision either as a purchase  tax or  a tax   consignment.  There is  no  such ambiguity in  the language used in these provisioins. I have no doubt  that, so far as these provisions are concerned, on the face  of these acts, the levy is only of a purchase tax. Such a  levy is  clearly within  the  domain  of  the  State Legislature.      The Andhra  Pradesh Act,  however, is  different in its arrangement. The  provisions of  section 6-A of this Act are more or  less analogous to the provisions of the Haryana Act considered in  Goodyear. The  question, therefore, arises as to whether the decision in Goodyear should be applied in the context of the Andhra Pradesh Act. On behalf of the State of Andhra Pradesh  - and  indeed the other two States also - it has been  contended that Goodyear needs reconsideration. Our attention has  been drawn  to one  angle of  approach to the statutory provisions  in question  which had perhaps escaped our notice in the Goodyear case. It was pointed out that the sum and  substance of  these provisions  is that  no sale or purchase of  any goods should go without being taxed atleast once in  the State.  Primarily the  tax is  levied on sales. Where a  registered dealer sells his goods he will be liable to tax normally in respect of the taxable goods except where his turnover  does not  reach up  to the  minimum prescribed under the  Sales Tax  Act. Sometimes, he may not pay any tax or may  pay a  concessional rate of tax on his sales because of certain  declarations or certificates he may receive that the goods  will be used inside the State. Again, where goods are purchased  from a person other than a registered dealer, the tax  at the  sales point  may escape actual taxation for many reasons:  such person  may not  be a  dealer at all or, being an  unregistered dealer,  the State may not be able to ascertain his  whereabouts and  ensure that  he is  taxed or that the  tax is  collected. In  cases where no sales tax is paid at  the point  of sale,  it becomes  necessary for  the State Legislature to provide that the tax will be met by the purchaser. Invariably  in such cases the legislations attach levy of  tax to  the last  purchase made  in the State, of a particular item  of goods.  Of course, the legislation could have simply  said that  the last  purchase in the State will attract tax  unless the  tax is  payable or has been paid at one of  the earlier  stages of  sale and could not have been objected to. But that type of legislative wording might lead to  difficult   questions  as   to  the  definition  of  the expression "last purchase". That is why the section imposing

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purchase tax  is worded  in the  manner in which it has been worded in the Andhra and Haryana Acts. As pointed out by the learned counsel  for the  assessees in  the  U.P.  cases,  a person can be said to be the last purchaser of certain goods only when  he consumes  those goods himself or, in case they are raw  materials/stores and  the like, unless he uses them in the  manufacture of  other  goods  for  sale.  From  this category have  to be  excluded cases  where the manufactured goods are  either sold in the State or sold in the course of inter-State  trade   or  commerce   because,  in  those  two instances, the  State will  be in  a position to collect the tax in  respect of  the sale of the manufactured goods - the sale price  of which  will also  include the  price  of  raw materials on  which a priori the State could have only got a lesser amount  of tax  - and  to tax both would escalate the price and affect the consumer. Also excluded are cases where the manufactured  goods are  exported abroad to earn foreign currency. If these situations are borne in  mind, one  would realise that the language used in the various  clauses and  phrases used in these legislations is only  to levy a tax on the last purchase in the State and not with  a view  to  levy  a  tax  either  on  the  use  or consumption of  raw  materials  or  on  the  manufacture  or production of  manufactured goods  or on the despatch of the goods manufactured  from the  State otherwise than by way of sale. In  the Haryana  case also the statute mentioned these several alternatives but a consideration of section 9(1) (b) of the Haryana Act as well as of the corresponding clause of the Bombay  Act  were  posed  in  isolation  before  us  and emphasis placed  on consignment  being a sine qua non of the levy.  This  larger  concept,  namely,  that  these  various alternatives are  not set  out in the section with a view to fasten the  charge of  tax at the point of use, consumption, manufacture, production   and consignment or despatch but in an attempt  to make  clear that what is  sought to be levied is a  tax on  raw materials  on the  occasion of  their last purchase inside  the State had not been projected before, or considered by   us.  I am inclined now to think that this is an approach  that  basically  alters    the  parameters  and removes the provision from the area of vulnerability.      It is  true that  it is  difficult  to  define  a  last purchase except  with   reference to  the mode of the use of the purchased goods subsequent to  that purchase and in that sense the  levy of  tax can  crystallise only at a point  of time when  the goods  have been utilised in a particular way but will it be correct to say that the power of the State to levy a  tax on  sales or purchases cannot include a right or power to  tax goods  at the point of their first sale in the State or  their last  purchase in  the State?  The mere fact that the purchase cannot be characterised as a last purchase except by  reference to  the subsequent utilisation of those goods cannot mean that the taxable event is not the purchase but something  else. What  we are  really concerned  with in deciding the question of constitutional validity of the levy of a sales tax is to pose the question      "Is  the   tax  levied   one   with      reference to  the sale  or purchase      of goods ?"      The ambit of the power to levy a tax in respect of sale of goods  is very  wide and  will cover  any tax which has a nexus with  the sale  or purchase  of goods including a last purchase in  the State.  This I  think is a more appropriate test to  be applied  in these  cases rather than the test of "taxable  event"  l  which  is  somewhat  ambiguous  in  the context. I  am not  inclined to agree that a tax on the sale

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or purchase  of goods will cease to be so merely because the determination of  its character  as a  last  purchase  would depend upon  certain subsequent  events which  may be spread over a subsequent period of time. In this view of the matter I am inclined to agree with my learned brother Jeevan Reddy, J. that the levy under the Andhra Pradesh Act is also within the legislative competence of the State.      I  am  quite  conscious  that  the  conclusion  I  have expressed here  as to the vires of the provision impugned is contrary to the conclusion I reached in Goodyear on somewhat analogous provisions.  I need  not, for  the purposes of the present cases,  express any  final conclusion  as to whether the conclusion  in  Goodyear  was  rightly  reached  in  the context of  the provisions  of the statutes there considered or would  need a  second look and fresh consideration in the context of  what has  been said  here. But,  I should not, I think, hesitate to accept the point of view now presented to us which  appeals to  me as  more realistic, appropriate and preferable, particularly when I see that the view one way or the other  would affect  the validity  of a  large number of similar legislations all over India, merely because it may not  be  consistent  with  the  view  I  took  in  Goodyear. Consistency, for  the mere  sake of  it, is  no  virtue.  If precedent is  needed to  justify my  change of  mind, I  may quote Bhagwati  J. (as he then was) in Distributors (Baroda) P. Ltd. v. Union of India, (1985) 155 I.T.R. 120 S.C.:      "We have  given  our  most  anxious      consideration  to   this  question,      particularly  since   one  of   us,      namely, P.N.  Bhagwati,  J.  was  a      party  to  the  decision  in  Cloth      Traders’ case. But having regard to      the various considerations to which      we shall  advert in  detail when we      examine the  arguments advanced  on      behalf  of   the  parties,  we  are      compelled to  reach the  conclusion      that Cloth  Traders’ case  must  be      regarded as  wrongly  decided.  The      view taken  in that  case in regard      to the  construction of s. 80M must      be held to be erroneous and it must      be  corrected.   To  perpetuate  an      error is  no heroism. To rectify it      is the  compulsion of  the judicial      conscience.  In   this,  we  derive      comfort and  strength from the wise      and  inspiring   words  of  Justice      Bronson  in   Pierce  v.  Delameter      (A.M.Y. at page 18): "a judge ought      to be  wise enough  to know that he      is fallible  and,  therefore,  ever      ready to  learn: great  and  honest      enough to discard all mere pride of      opinion and  follows truth wherever      it may  lead: and courageous enough      to acknowledge his errors".      For the  reasons  above  mentioned,  I  agree  with  my learned brother  and hold that the impunged provisions under all the  three enactments  are intra-vires the powers of the concerned State Legislature.      B.P. JEEVAN REDDY, J. Validity of provisions of several States   Sales Tax enactments imposing purchase tax fall for our consideration  in    this  group  of  appeals  and  writ petitions.  Initially  the  matters  arising  from    Andhra

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Pradesh (writ  petitions 655-669/83 Hotel Balaji and Ors. v. State of  Andhra Pradesh  and Civil  Appeal No.  10753-57/83 Hindustan Milk  Food   Manufacturers  Limited  v.  State  of Andhra Pradesh)  came up  for hearing.  During the course of hearing, counsel for the petitioners/appellants relied  upon the decision of this court in Goodyear India Ltd v. State of Haryana   (1990) 76  S.T.C. 71  whereas the  counsel for the State of  Andhra Pradesh  challenged the  correctness of the said decision  and pleaded  for re-consideration of the said judgment. It  was then  brought to  our notice that a  large number of matters coming from different States raising inter alia the   question relating to the correctness or the ratio Or Goodyear  were also  posted  before  us.  Indeed  it  was brought  to   our  notice   that  a  bench  of  three-Judges comprising M.N.  Venkatachaliah, A.M. Ahmadi, JJ. and one of us (B.P.  Jeevan Reddy,  J.) had directed two matters namely State of  Punjab v.  Industrial Cables  India Ltd., C.A. No. 2990 (N.T.)  of 1991  and the  State of  Punjab v. Hindustan Lever Ltd.,  C.A.480/91 raising  a similar  question  to  be posted before  a Bench  of three-Judges.  Those matters  are also before  us. It is in this manner that a large number of appeals and  writ petitions arising from several States came to be  posted before  us for  hearing. During  the course of hearing, however, we found that on account of restriction of time it would not be possible for this Bench to hear all the matters. Accordingly,  we indicated  to the  counsel that we shall confine  our attention  only to three State enactments namely, Gujarat.  Uttar Pradesh  and Andhra Pradesh. Counsel appearing in  these matters  have  been  heard  fully.  This judgment, therefore, deals only with the validity of Section 15B of  the Gujarat  Sales Tax  Act, Section 3-AAAA of Uttar Pradesh Sales  Tax Act and Section 6-A of the Andhra Pradesh Sales Tax  Act. We  shall first  take up  Section 15B of the Gujarat Sales Tax Act.                      PART- 11 (GUJARAT)      Though several  appeals and  writ petitions  from  this State are placed before us, it is sufficient to refer to the facts  in   Civil  Appeal   No.3410  (N.T.)   of   1992   as representative of  the facts in all the matters. This appeal is preferred  by the writ petitioner against the judgment of a Division Bench of the High (Court of Gujarat upholding the constitutional validity  of Section 15B of the Gujarat Sales Tax Act,  1969 as  substituted  by  the  Gujarat  Sales  Tax (Amendment) Act 6 of 1990.      The Gujarat  Sales Tax  Act, 1969  (being Act  No. 1 of 1970) came into effect on and from May 6,1970, replacing the Bombay Sales  Tax Act,  which was  in force  in the State of Gujarat till then. Section 15 of the Act levied purchase tax on purchases  made by  a dealer  from a  person who is not a registered dealer.  Section 15A  was introduced by amendment Act 7  of 1983. It provided for levy of concessional rate of tax  in   respect  of  purchase  of  raw  material  made  by Recognised  dealers  (who  are  necessarily  manufacturers), provided the  goods (raw material) purchased by them fell in Schedule II  or III  (other than  prohibited goods). Section 15B was introduced by Amendment Act Or 1986. It provided for levy of an additional purchase tax on raw material purchased by a  manufacturing dealer  in case  he used  the  said  raw material  for  the  manufacture  of  other  goods  which  he despatched to  his own  place of  business or to his agent’s place of  business situated  outside the  State  but  within India. By  an Amendment  Act made  in 1987,  the Section was substituted. There  was, however,  no substantial  change in the Section.  Following upon  the decision  of this court in Goodyear, a batch of writ petitions was filed in the Gujarat

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High Court   challenging  the validity of Section 15B on the ground that  in truth and effect it levied a consignment tax and,  hence   was  outside   the  competence  of  the  State Legislature. While  the said  writ petitions  were  pending, Section 15B  was substituted by an Ordinance being Ordinance No.3 of  1990 issued  on 20.4.1990. Subsequently the Gujarat Sales Tax  Amendment Act  6 of  1990 was enacted in terms of and replacing  the Ordinance.  The substituted Section 15(B) was given  retrospective effect  on and  from April 1, 1986, the date  on which  Section 15(B)  first came into force. In view of  the said Amendment Act, the batch of writ petitions challenging  Section   15(B),  as  it  stood  prior  to  its substitution by  the 1990  Amendment Act,  were dismissed as having become infructuous. A fresh batch of writ petitions followed questioning the validity of the substituted Section 15(B), again  on the  ground that  it continued  to  be,  in essence, a  consignment tax. The contention was that Section 15(B) must  be read  along with  Rule 42(E)  of the  Gujarat Sales Tax, Rules (inserted by Notification dated 1.5.90) and if so  read, the position is the same as was obtaining prior to 1990  Amendment. Yet  another ground  urged was  that the levy imposed by the new provision is really in the nature of an excise  duty, and thus beyond the competence of the State legislature. The  assessees placed  strong reliance upon the decision of  the Division  Bench of the Bombay High Court in Hindustan Lever  Ltd v.  State of Maharashtra, 79 S.T.C. 255 where, the  petitioners say,  construing a similar provision in the  Bombay Sales  Tax Act  it was  held  that  the  levy created by  the said provision is in the nature of an excise duty. Disagreeing  with the  Bombay judgment, the High Court dismissed the writ petitions.      Counsel for  the appellant/assessee  urged that Section 15B (as  substituted in  1990)  is  no  different  from  the earlier provision. The basic scheme of the earlier provision is now split into two provisions namely, substituted Section 15B and  Rule 42E,  which Rule  was inserted  into the Rules simultaneously. This  is  a  clear  instance  of  colourable legislation and  ought not to be countenanced by this court. The High  Court was  in error  in justifying the same on the theory that  just as it is open to an assesses to reduce the tax  burden   by  resorting   to  legitimate  tax  planning, similarly it is open to a legislature to make an appropriate enactment to  remain outside the mischief pointed out by the court. It  is submitted  that as  rightly held by the Bombay High Court  construing a similar provision, the levy created by  the   substituted  Section   15B  is   really  upon  the manufacture of  goods and, therefore, not a tax referable to Entry  54  of  List  II  of  the  Seventh  Schedule  to  the Constitution. On  the other hand, it is argued by F Sri B.K. Mehta, learned  counsel appearing  for the  State of Gujarat that the  Legislative competence  of the Gujarat Legislature to enact  Section 15B  ought to  be determined  on  its  own language and  not with  reference to  a  Rule  made  by  the Government of Gujarat as the delegate of the legislature. He submitted that  on its  own language,  Section 15B  levies a pure and  simple purchase tax on raw material purchased by a manufacturer. It  is unconcerned  with what  happens to  the manufactured goods.  For the  purpose of  Section 15B, it is immaterial whether  the manufactured  goods are  sold inside the State  or despatched  to a  place outside  the State  of Gujarat or  are dealt  with or  disposed of  otherwise.  The principle of  Goodyear has absolutely no application to this provision. Counsel  also submitted that when the tax is upon the purchase  price of  the raw material and is relatable to the act of purchase, it cannot he held to be an excise

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duty which is levied on the act of manufacture and is levied with reference to the value of such manufactured goods.      For a  proper appreciation  of the  contentions arising herein it  would be  appropriate to  notice a  few  relevant provisions of  the Act. Clause (16) in Section 2 defines the expression ’manufacture’ in the following words:      "manufacture"    with    all    its      grammatical variations  and cognate      expressions,    means    producing,      making,   extracting,   collecting,      altering, ornamenting, finishing or      otherwise processing,  treating, or      adapting any  goods; but  does  not      include   such    manufactures   or      manufacturing processes  as may  be      prescribed."      Clauses 35  and 36 define the expressions "turn-over of purchases" and  "turn-over of  sales". It would be enough to notice  the  definition  of  the  expression  "turn-over  of purchases". It reads:      "turn over  of purchases’ means the      aggregate   of   the   amounts   of      purchase price  paid and payable by      a dealer in respect of any purchase      of goods made by him during a given      period, after  deducting the amount      of purchase price, if any, refunded      to the  dealer  by  the  seller  in      respect of any goods purchased from      the  seller  and  returned  to  him      within the prescribed period."      Section 3  is a  charging  section.  Section  15  which levied purchase  tax on  purchase of  certain goods  from  a person who is not a registered dealer read as follows at the relevant time:      15 Purchase tax payable on certain purchases of goods.      Where a dealer who is liable to pay      tax under  this Act  purchases  any      goods specified  in Schedule  II or      III from  a person  who  is  not  a      Registered dealer, then, unless the      goods so  purchased are  resold  by      the dealer.  there shall be levied,      subject  to   the   provisions   of      section 9.      (i) in  the case of goods specified      in Schedule  11. a  purchase tax on      the turnover  of such  purchase  at      the rate  set out  against them  in      that Schedule, and      (ii) in the case of goods specified      in Schedule  III, a purchase tax on      the turnover  of such purchase at a      rate  equivalent  to  the  rate  of      sales tax  act out  against them in      that Schedule."      The said  Section has,  however,  been  substituted  by Gujarat Amendment  Act 9  of 1992 with effect from 1.4.1992, but since  the Amendment  is not  a retrospective one, it is unnecessary to notice the amended provision.      Section 15A  provides for a concessional rate of tax in the case of purchases of raw material by a recognised dealer provided the goods purchased are those specified in Schedule II or  III (other than the prohibited goods) and he issues a certificate contemplated  by Section  13(1)(B). Prior to the

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Amendment Act 9 of 1992, Section 15(A) read as follows:      "15A.  Purchase   tax  payable   on      purchases  of   goods  by   certain      dealers where  - (i)  a  recognised      dealer    purchases    any    goods      specified in  Schedule  II  or  III      other than  prohibited goods, under      a certificate  given by  him  under      clause (B)  of sub-section  (I)  of      section 13, or      (ii)  a  commission  agent  holding      permit    purchases    any    goods      specified in  Schedule  II  or  III      other  than   prohibited  goods  on      behalf  of  his  principal  who  is      recognised  under   a   certificate      given by  him under  clause (C)  of      sub-section (1) of section 13,-      there shall  be levied  a  purchase      tax  on   the  turnover   of   such      purchase at  the rate  of two paise      in the rupee." 8      Since the  Amendment of  this provision in 1992 is also not retrospective, it is unnecessary to notice the same.      We may  now set  out Section  15B both  as it  obtained prior to Amendment Act 6 of 1990 and as substituted thereby. Prior to Amendment it read thus:      "Where any dealer liable to pay tax      under this Act uses any goods other      than declared  goods  purchased  by      him or  through commission agent as      raw  or   processing  materials  or      consumable stores  (irrespective of      whether such  goods are  prohibited      goods or not) in the manufacture of      taxable goods and despatches any of      the goods  so manufactured  to  his      own place  to business  or  to  his      agents place  of  business  situate      outside the  State hut within India      such dealer  will be liable to pay,      in addition  to  any  tax  paid  or      payable under  other provisions  of      this Act,  a purchase  tax  at  the      rate of  four paise in the rupee on      the purchase  price of  such raw or      processing materials  or consumable      stores  used   in  the   goods   so      manufactured  and   despatched  and      accordingly he  shall  include  the      purchase  price   thereof  in   his      turnover  of   purchases   in   his      declaration or return under section      40 which  he  is  to  furnish  next      thereafter.      Provided   that   where   the   raw      materials so  used  is  bullion  or      specie, the purchase tax payable on      such bullion  or specie  under this      section  shall   not   exceed   the      aggregate of the rates of sales tax      and the  general sales  tax payable      on bullion or specie."      After it  is substituted  in  1990  with  retrospective

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effect from 1.4.1986, this Section reads thus      "Where a dealer who being liable to      pay tax  under this  Act  purchases      either  directly   or   through   a      commission agent  any taxable goods      (not being declared goods) and uses      them as raw or processing materials      or  consumable   stores,   in   the      manufacture of  taxable goods, then      there shall  he levied  in addition      to any  tax levied  under the other      provisions of  this Act, a purchase      tax at the rate of      (a) two  paise in  a rupee  on  the      turnover  of  such  purchases  made      during the period commencing on the      1st April,  1986 and  ending on the      5th August, 1988; and      (b) four  paise  in  rupee  on  the      turnover of  such purchases made at      any  time  after  the  5th  August,      1988, provided  that where  the raw      materials purchased  for use in the      manufacture of goods are bullion or      specie, the rate of purchase tax on      the turnover  of purchases  of such      raw materials  shall not exceed the      aggregate of the rates of sales tax      and general  sales tax  leviable on      bullion or  specie under Entry I in      Schedule III."      Inasmuch  as   strong  reliance   is  placed   by   the assessee/appellants upon  Rule 42E  inserted by  G.S.R. 1090 (64) T.H.  dated 1.5.1990,  it would  he appropriate to read the said Rule here:      "42-E. Drawback,  set off or refund      of purchased Tax under section 15B:      42-E. In assessing the purchase tax      levied  under   section   15B   and      payable by  a  dealer  (hereinafter      referred to  as "the assessee") the      Commissioner   shall   subject   to      conditions of  rule 47 in so far as      they apply,  and further conditions      specified below,  grant him a draw-      back, set  off or  as the  case may      be  refund  of  the  whole  of  the      purchase tax  paid  in  respect  of      purchase of  goods  effect  on  and      from the  1st April,  1986 used  by      him, as  raw materials,  processing      materials, or consumable stores, in      the manufacture of taxable goods."      Conditions:-(1) the assessee is a      registered dealer,      (2) the goods purchased are taxable      goods other than declared goods,      (3) the  said goods  have been used      by the assessee within the State as      raw   materials    or    processing      materials or  consumable stores  in      the manufacture of taxable goods,      (4) the  goods so manufactured have      been sold  by the  assessee in  the      State of Gujarat."

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    In view  of the retrospective amendment of Section 15B, it may  not be  necessary to  refer to  Section  15B  as  it obtained prior  to the  1990 amendment  except to  point out that in material particulars, it was similar to Section 13AA of Bombay  Sales Tax  Act, which  was considered in Goodyear and held  to he  outside the  legislative competence  of the State legislature.  The correctness of the ratio in Goodyear has been discussed by us in Part V.      Section 15  makes the  purchaser liable  to pay the tax provided thereunder in case he purchases the goods mentioned in Schedule II and III from a person who is not a registered dealer. If,  however, the  goods so  purchased are resold by him, he  is not  liable to  pay the  said tax.  Section  15A applies only  to Recognised  dealers. A recognised dealer is defined in  section 32  in short, it means a dealer who is a manufacturer  and  whose  turnover  of  sales  or  purchases exceeds  the  specified  limit.  If  the  recognised  dealer purchases goods  specified in Schedule II or III (other than prohibited goods)  and issues  a certificate contempleted by Section 13  (1)(B), he  is entitled to pay purchase tax on a concessional rate. Then comes Section 15B which provides for levy of  an additional  purchase tax.  An  analysis  of  the Section yields the following ingredients: (i) where a dealer who being liable to pay tax under Act; (ii) purchases either directly or  through a  commission agent;  (iii) any taxable goods not  being declared goods and (iv) uses them as raw or processing  materials   or  as   consumable  stores  in  the manufacture of  taxable goods (v) then there shall be levied in addition  to any tax levied under other provisions of the Act, a purchase tax at the rates specified. It is thus clear that section  15B does not speak of nor does it refer in any manner to  the movement  sale or  disposal  of  manufactured goods. According  to this  section, it is immaterial whether the manufactured  goods are  sold within  the State or dealt with in  some other manner. It is equally immaterial whether the manufacturer  consigns them  to his  own depots  or  the depots of his agents outside the State. Therefore, the ratio of Goodyear  - keeping  aside its  correctness for  the time being -  has absolutely  no  application.  The  Haryana  and Bombay provisions  considered in  the said decision spoke of the manufactured  goods being  disposed of  within the State otherwise than  by way  of sale  or despatched  out of State otherwise  than  in  the  course  of  inter-State  trade  or commerce or  in the  course of  export within the meaning of Section 5(1)  of the  Central Sales  Tax Act.  Similarly the Bombay provision  spoke of the manufactured goods being sent to the  depots of the manufacturer or his agents outside the State of  Maharashtra. It  was these  features which weighed with this  court in  characterising the  tax as  one in  the nature of a consignment tax (This aspect has been dealt with in part V). Since the said feature is absent in the impugned provision, we  hold, agreeing  with the High Court, that the tax imposed  by Section  15B cannot  be characterised  as  a consignment tax.      The main contention or the appellants, however, is that Section  15B   should  not  be  read  in  isolation  but  in conjunction with  Rule 42E which was introduced in the Rules simultaneously with the amendment of Section 15(B) and which Rule indeed  supplements Section  15B. They say that if both the provisions are read together, the effect and consequence is the  same as  that of Section 15B as it obtained prior to 1990 amendment,  which means  the tax  is  really  upon  the consignment of manufactured goods.      We shall  first notice  what Rule 42E provides. It says that, in  assessing the  purchase tax  levied under  Section

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15B, the assessee shall be granted a drawback, set-off or as the case  may be,  refund of  the whole  of the purchase tax paid in  respect of  purchase of  goods effected on or after 1.4.1986 and  which goods  have been  used  by  him  as  raw material, processing material or as consumable stores in the manufacture or  taxable  goods  -  subject  however  to  the conditions prescribed  in the  said Rule and further subject to the conditions specified in Rule 47 in so far as they are applicable. The  four conditions  specified in  the Rule 42E are:      (1) the  assessee is  a  registered      dealer,      (2) the goods purchased are taxable      goods other than declared goods,      (3) the  said goods  have been used      by the assessee within the State as      raw   materials    or    processing      materials or  consumable stores  in      the manufacture of taxable goods,      (4) the  goods so manufactured have      been sold  by the  assessee in  the      State of Gujarat.      Condition No.  4, emphasised by the assessees says that the benefit  of set  off/drawback/refund shall  be available only if  the manufactured goods are sold within the State of Gujarat.  According   to  them  it  means  that,  where  the manufactured goods are consigned by the manufacturer to his own depots  or to  his agents,  depots outside  the State of Gujarat, the benefit of drawback etc. will not be available, which means  that purchase  tax shall  be  levied  upon  the purchase of  raw material.  This,  say  the  appellants,  is precisely what  the old Section 15-B provided for. According to them,  the present  Section 15B  read with  Rule  42E  is nothing but  a re-incarnation  of Section  15B as  it  stood prior to  1990 Amendment  Act and  falls squarely within the ratio of Goodyear This argument raises in turn the question: how far  is it  permissible to refer to the Rules made under an  Act  while  judging  the  legislative  competence  of  a legislature to  enact a  particular provision? The necessity and significance  of  the  delegated  legislation  is  well- accepted and  needs no elaboration at our hands. Even so, it is well to remind ourselves that Rules represent subordinate legislation. They  cannot travel  beyond the  purview of the Act. Where  the Act  says that  Rules on being made shall be deemed "as  if enacted  in this  Act", the  position may  be different. (It  is not  necessary to  express  any  definite opinion on  this aspect  for the  purpose of this case). But where the  Act does not say so, the Rules do not become part of the Act. Sri Mehta relies upon the following statement of law in Halsbury’s Laws of England (3rd Edn.) Vol. 36 at page 40]:      "Where  a   statute  provides  that      subordinate legislation  made under      it is  to have effect as if enacted      in the statute such legislation may      be referred  to for  the purpose of      construing  a   provision  in   the      statute  itself.  Where  a  statute      does not  contain such a provision,      and does  not confer  any power  to      modify  the   application  of   the      statute by subordinate legislation,      it  is   clear   that   subordinate      legislation made  under the statute      cannot after or vary the meaning of

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    the  statute  itself  where  it  is      unambiguous,  and  it  is  doubtful      whether  such  legislation  can  be      referred  to  for  the  purpose  of      construing  an  expression  in  the      statute, even if the meaning of the      expression is ambiguous."      He says that this statement of law has been referred to with approval  by Hegde, J. in his opinion in J.K Steel Ltd. v Union  of India  A.I.R. 1970 S.C. 1173. Though the opinion of Hegde,  J. is  a dissenting one, he submits, the majority has not  held to the contrary on this aspect. He also relies upon the  English decisions  referred to  in the  opinion of Hegde, J.  and points out that no decision of this court has expressed any opinion on the subject, a fact noted by Hegde, J.. He  commends  the  view  taken  by  Hegde,  J.  for  our acceptance. Sri  Mehta points  out further  that Section  86 which confers   the  Rule making  power upon  the Government does not say that the Rules when made shall be treated as if enacted in  the Act. Being a rule made by the Government, he says, Rule  42E can  be deleted,  amended or modified at any time. In  such a  situation, the legislative competence of a legislature to  enact a  particular  provision  in  the  Act cannot be made to depend upon the Rule or Rules, as the case may be,  obtaining at  a given point of time, he submits. We are  inclined   to  agree  with  the  learned  counsel.  His submission appears  to represent  the correct  principle  in matters where the legislative competence of a legislature to enact  a  particular  provision  arises.  If  so,  the  very foundation of the appellants’ arguments collapses.      Even if  we agree with the appellants and read Rule 42E along with  Section 15(B),  they cannot  succeed.  Rule  14E provides for set off etc. in case the manufactured goods are sold within the State of Gujarat. It no doubt means that set off etc.  is not  available if  the manufactured  goods  are disposed of  otherwise than  by way of sale or are consigned to manufacturer’s  own depots  (or  to  the  depots  of  his agents) outside  the State  of Gujarat.  What in  effect the State says  is this: "Raw material when purchased is taxable but I  won’t tax  the raw  material if  you sell  the  goods manufactured out  of such  raw  material  within  the  State because I  derive larger revenue there; I do not want to tax both the  raw material  and the  manufactured goods,  in the interest of  trade and  public. But  if you  dispose of  the manufactured goods  in some  other manner,  I will  tax  the purchase of  raw material  because there  is no reason why I should forego  the purchase  tax due on raw material, when I am not  getting any  revenue from your method of disposal or despatch  of   manufactured  products."   There  is  nothing objectionable in  the State saying so. It can indeed rely on the principle  of the  decision of  this court  in Godrej  & Boyce Mfg.  Co. v.  Commissioner of  Sales Tax,  reported in (1992) 4 J.T. S.C. 317. It is difficult to see how can it be said that  by reading  Rule 42E  into Section  15B, the levy becomes a  consignment tax.  In  any  event,  the  ratio  of Goodyear cannot  be accepted  as good  law for  the  reasons mentioned in part V.      We are equally not satisfied with the argument that the Gujarat legislature has resorted to a device, a stratagem to circumvent the  decision or  this court  or that  it  is  an instance of  fraud on  power - what is sometimes referred to as ‘colourable legislation’. That a legislature is empowered to amend  a provision  to remove the defect pointed out by a court is  well-accepted.  So  far  as  the  Gujarat  Act  is concerned, it  was never  the subject  matter of  an adverse

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decision either  by this  court or  the Gujarat  High Court. Writ  Petitions   were  no  doubt  pending  challenging  the validity of  Section 15B  as it then stood. It was perfectly open to  the Legislature to act to set its house in order to obviate a  possible adverse  verdict applying  the ratio  of Goodyear. The question is whether the provision now enacted, with  retrospective   effect,  is   beyond  the  legislative competence  of  Gujarat  Legislature?  It  not,  no  further question arises.      So far  as the  retrospectivity given to Section 15B by the  1990 Amendment  Act is  concerned, it is hardly open to doubt in  the light  of  several  decisions  of  this  court commencing from  Ramakrishna v.  State of Bihar, A.I.R. 1963 S.C. 1667.  This is  not even a case where the old provision was struck  down by  a court.  The period or retrospectivity covers only  the period during which Section 15B has been in force. The  levy was already there. In any event, in view of our conclusion  that Goodyear does not represent the correct position in law, this aspect has really no relevance.      It is  then contended  that the  levy is  really in the nature of excise duty or use tax inasmuch as it attaches not on purchase  of goods  but on  their use  in manufacture  of other goods.  This argument  in our  opinion misses the true nature of  tax. It  is an  additional tax on the purchase of raw material  used in  manufacture of other goods. A certain concession is given to manufacturers (recognised dealers) in purchase of  certain types of raw material (Section 15A); an additional purchase  tax is levied under Section 15B; and in certain situations,  this tax is refunded or set off, as the case may  be under  Rule  42-E.  All  these  provisions  are intended to  encourage industry and to derive revenue at the same time.  Counsel for the assessees placed strong reliance upon the  word "then"  occurring  in  the  section  and  its placement. He  emphasised that  the tax is payable only when the dealer  (1) purchases the goods and (2) uses them in the manufacture of  other goods.  It is  not possible  to agree. Heading of Section 15B is "Purchase tax on raw or processing materials or  consumable stores used in manufacture of goods in  certain  cases."  The  Section,  read  as  a  whole,  is applicable only  to  those  goods  which  are  used  in  the manufacture of  other goods.  The levy  is upon the purchase price of  raw  material  and  not  upon  the  value  of  the manufactured products.  Entry 54  of List  II must receive a liberal  construction,   being  a   legislative  entry.  The Legislature cannot  be confined to only one form of levy. So long as  the levy  retains the  basic character  of a tax on sale, the  legislature can  levy it  in such mode or in such manner as it thinks appropriate. As affirmed by Mukharji, J. in Goodyear, the well-established principles in such matters is "that  reasonable construction  should  be  followed  and literal construction  may be  avoided if  that  defeats  the manifest object  and purpose  of the  Act." The  legislature must he  presumed to  know its  limitations and acted within those limits. Transgression must be clearly established, and is not lo be lightly assumed.      For the  very same  reasons, the  argument that it is a use tax also fails. In essence, the provision is akin to the one considered by this court in Andhra Sugars Ltd. & Anr. v. The State of Andhra Pradesh & Anr., 21 S.T.C. 212.      For the  above reasons,  the appeals and writ petitions are dismissed with no order as to costs.                  PART- III (UTTAR PRADESH)      These Civil  Appeals and Writ Petition are filed by the Tribeni  Tissues   Limited,  Varanasi,  Uttar  Pradesh.  The Appeals are  preferred against  the Judgment  of  a  learned

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Single Judge  of Allahabad  High Court  allowing  Sales  Tax Revisions No.325,  327 and  328 of  1989  preferred  by  the Commissioner of  Sales-tax, Uttar Pradesh against the orders of the  Sales-tax Appellate  Tribunal. The  assessment years concerned are 1978-79 to 1981-82.      The appellant  is a  dealer registered  under the  U.P. Sales tax  Act, having an office at Varanasi. It has a paper mill at  Calcutta. The  appellant purchases  sun  hemp,  raw jute, old  hemp rope  cuttings, Old  Jute rope  cuttings and jute cuttings  etc. at Varanasi and sends them to the paper- mill at  Calcutta for  being used  as  raw  material.  These purchases are  made by the appellant from farmers, ‘kabadis’ and other  persons  who  are  not  registered  dealers.  The turnover  relating   to  such  purchases  was  subjected  to purchase-tax  under   section  3-AAAA   by   the   assessing authorities which  the appellant  objected to. The Tribunal, by a majority of 2:1 held in favour of the appellant against which the  Commissioner preferred  revisions before the High Court. Section-3AAAA read as follows at the relevant time.      "3-AAAA. Liability  to purchase tax      on certain transactions - Where any      goods liable to tax at the point of      sale to  the consumer are sold to a      dealer but in view of any provision      of this Act no sales tax is payable      by the  seller and  the  purchasing      dealer does  not resell  such goods      within the  State or  in the course      of inter-State  trade or  commerce,      in the  same form  and condition in      which he  had  purchased  them  the      purchasing dealer  shall subject to      the provisions  of  Section  3,  be      liable to pay tax on such purchases      at  the   rate  at   which  tax  is      leviable on  sale of  such goods to      the consumer within the State;      Provided that  if it  is proved  to      the satisfaction  of the  assessing      authority   that   the   goods   so      purchased    had    already    been      subjected  to   tax   or   may   be      subjected to  tax under  Section 3-      AAA,  no  tax  under  this  section      shall be payable."      The section  subjected the purchase of "goods liable to tax at  the point  of sale  to the consumer" to purchase tax payable by  the  purchasing-dealer,  in  a  case  where  the selling dealer  was not  liable to pay the sales-tax on such sale. Purchase tax was payable at the same rate as the sales tax. If,  however, the  purchasing dealer  resold such goods within the  State or  in the  course of inter-State trade or commerce, he  was not  liable to  pay the  purchase tax. The expression "goods liable to tax at the point of the sale  to  the consumer" is explained in Section 3-AAA. Section 3A prescribes the  rates of  tax. As  it stood  at the relevant time, sub-sections  (1) and  (2) prescribed  different rates for  different   goods.  Sub-section  (2A)  which  alone  is relevant herein, read as follows:      "3A (2A):  The turnover  in respect      of goods  other than those referred      to  in  sub-sections  (1)  and  (2)      shall be liable to tax at the point      of  sale  by  the  manufacturer  or      importer at  the rate  of seven per

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    cent,  provided   that  the   State      Government may from time to time by      notification in  the Gazette modify      the rate  or point  or tax  on  the      turnover in  respect  of  any  such      goods with effect from such date as      may be  notified in that behalf, so      however. that  the  rate  does  not      exceed seven per cent.      (The goods  concerned herein,  according  to  both  the parties, fall within sub-section (2A) of Section 3A).      The  State   Government  issued  a  notification  dated 30.5.1975 in  terms of and as contemplated by the proviso to sub-section (2A)  of Section  3-A declaring that with effect from  June  1,  1975,  the  turnover  in  respect  of  goods specified in  column 2  of the  Schedule to the notification shall be  liable to tax at the point of sale and at the rate specified respectively  in columns  (3) and (4) thereof. The Schedule, in so far as relevant may be set out:  "SCHEDULE ‘M’ stands for sale by manufacturer in Uttar Pradesh. ‘I’ stands for sale by the Importer in Uttar Pradesh. ------------------------------------------------------------  Sl.   Description of goods      Point at which  Rate of tax  No.                             tax shall be                                  levied ------------------------------------------------------------ (Items No.1 to 14 omitted as  unnecessary.) 15. Old, discarded, unservice- able or obsolete machinery, stores or vehicles including waste products except cinder, coal ash and such items as are included in any other notification issued under the Act. (Item Nos. 16) to 25 omitted as  sale to consumer 5 per cent unnecessary.) 26. Jute and Hemp Goods          M or I           4 per cent ------------------------------------------------------------      The controversy  before the  High Court  was a  limited one. It  was: "whether  the said  goods will  fall under the entry at SI. No. 15 of the notification dated 30th May, 1975 as contended  by the learned standing counsel (for the State of Uttar Pradesh) or under SI. No. 26 as Jute and Hemp goods under the notification dated 1st October, 1975 as urged on behalf of  the assessee."  (Quoted from  the judgment of the High Court.)  The learned  Judge held  that the  goods  fall under item No.15 and accordingly allowed the revisions filed by the  Commissioner. The correctness of the Judgment of the High Court is questioned in these Civil Appeals.      While the  Civil Appeals  were pending in this Court, a Division  Bench   of  the   Allahabad  High  Court  held  in C.M.W.P.No.168 of  1983 and  batch (decided  on  3rd  April, 1991) that  Section 3-AAAA  was ultra  vires the legislative competence  of   the  legislature   of  Uttar  Pradesh  and, therefore, void. The Division Bench followed and applied the ratio of Goodyear and held that under the said provision the taxable event  is not  the purchase  of  the  goods  by  the purchasing dealer  but the  subsequent event  namely use  of said goods  in the  manufacture of  other  goods  and  their despatch without  effecting a sale within the State of Uttar Pradesh to  a place  outside the  Uttar Pradesh. To get over the said  decision and  to remove  the  defect  pointed  out

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therein, the  Governor of  Uttar Pradesh issued an Ordinance being Ordinance  No. 45  of  1991  on  12th  December,  1991 substituting Section 3-AAAA in its entirety with effect from April 1, 1974. The said Ordinance has since been replaced by U.P. Sales-tax  (Amendment) Act 8 of 1992. Section 3-AAAA as substituted by the aforesaid Amending Act reads thus:      "3-AAAA. Liability  to purchase tax      on certain transactions.      (1)  Except  as  provided  in  sub-      section  (2)  and  subject  to  the      provision  of   Section  3,   every      dealer,  who  purchases  any  goods      liable to  tax at the point of sale      to consumer      (a) from  any registered  dealer in      circumstances in  which no  tax  is      payable by  such registered dealer,      shall be  liable to  pay tax on the      purchase price of such goods at the      same rate  at which,  but for  such      circumstances, tax  would have been      payable on the sale of such goods;      (b) from  any person  other than  a      registered dealer,  whether or  not      tax  is  payable  by  such  person,      shall be  liable to  pay tax on the      purchase price of such goods at the      same rate  at which  tax is payable      on the sale of such goods.      (2) Exemption  shall be  granted in      the tax  payable under  sub-section      (1) to  the extent of the amount or      tax,  (a)   to  which   the   goods      purchased from  a registered dealer      have already  been subjected or may      be subjected under any provision of      this Act  or the  Central Sales Tax      Act, 1956;      (b) already  paid in respect of the      goods purchased  from   any  person      other than a registered dealer;      (c) on  the sale of goods liable to      be exempted under Section 4-A;      (d) to  which the  sale of  dressed      hides and skins (or tanned leather)      and ginned cotton obtained from raw      hides and  skins and  raw cotton so      purchased  or  rice  obtained  from      paddy  so   purchased  during   the      period commencing  on September  2,      1976  and  ending  with  April  30,      1977,   are    liable   under   any      provision  of   this  Act   or  the      Central Sales Tax Act. 1956."      Writ Petition  No. 175 of 1992 is preferred questioning the constitutional validity of the said provision.      We shall  first deal  with Civil  Appeals. According to the statement of facts contained in the Judgment of the High Court, the appellant purchased "sun hemp, raw jute, old hemp rope cuttings,  old jute  rope cuttings  and  jute  cuttings etc." Item  No. 26 of the notification dated October 1, 1975 speaks of  "jute and  hemp goods".  The appellant inter alia purchased "sunhemp"  and "raw  jute". Certainly  they do not fall under item 26 of the Schedule. Coming to "old hemp rope cuttings, old  jute rope  cuttings and  jute cuttings"  they

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fall, by  their very  nature more  properly  under  item  15 because admittedly  they are  discarded, worn-out, and waste material. It would he rather odd to call them "jute the hemp goods" in  the presence  of item  (15). The  High Court was, therefore, justified  in holding that the goods purchased by the appellant  are properly  relatable to item 15 and not to item 26 of the notification.      The learned  counsel for  the appellant urged that item 15 is  confined only  to old,  discarded, unserviceable  and obsolete  "stores"  which  in  the  context  means  "stores" maintained by  a factory  or industry.  Having regard to the language of  item 15,  he submitted. it does not take in old discarded material  coming from  other  sources  We  see  no warrant for  this restricted  reading of item 15. Be that as it may,  once the  said goods  do not fall under item 26, as held by  us, they  must fall  under item 15, since it is not suggested that  there is any other item which takes in these goods.  The   (Civil  Appeals   accordingly  fail   and  are dismissed. No costs.      Writ Petition No. 175 of 1992.      In view  of the  fact  that  Section  3-AAAA  has  been substituted by  the 1992  Amendment Act  with  retrospective effect from April 1, 1974, it is not really necessary for us to deal  at any length with the Section as it stood prior to the said  amendment or  with the correctness of the judgment of the  Division Bench of the Allahabad High Court declaring the same  as beyond  the legislative  competence of the U.P. Legislature. Suffice  it to  say that  the decision  of  the Division Bench  closely follows  and applies  the  ratio  of Goodyear which  according  to  us  does  not  represent  the correct position in law as explained in Part V.      Coming to  Section 3-AAAA as it now stands, an analysis of the Section yields the following ingredients:      A. (i)  A dealer  who purchases any      goods liable to tax at the point of      sale to the consumer,      (ii) from  any registered dealer in      circumstances in  which no  tax  is      payable by such registered dealer,      (iii) the  purchasing dealer  shall      he  liable   to  pay   tax  on  the      purchase price of such goods at the      same rate  at which  the tax  would      have been  payable on  the sale  of      such goods.      B. (i)  A dealer  who purchases any      goods liable to tax at the Joint of      sale to consumer,      (ii) from  any person  other than a      registered dealer,  whether or  not      such person  is liable  to pay  the      tax on such sale,      (iii) the  purchasing dealer  shall      be  liable   to  pay   tax  on  the      purchase price of such goods at the      same rate  at which  tax is payable      on the sale of such goods.      C.  The   purchasing   dealer   is,      however, entitled  to  be  exempted      from  the  tax  payable  under  the      above two  heads to  the extent  of      the  amount  of  tax  mentioned  in      clauses (a),  (b), (c)  and (d)  of      sub-section (2).  Clause (a) speaks      of the  tax paid  or payable  under

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    any of the provision of U.P. Act or      C.S.T. Act.  Clause (b)  speaks  of      the tax already paid,      if  any,   in  respect   of   goods      purchased  from  any  person  other      than a  registered  dealer.  Clause      (c)  refers   to  sale   of   goods      entitled to exemption under section      4A and clause (d) refers to sale of      dressed hides and skins.      In short,  the scheme  of the section is this: (I) if a dealer purchases  the goods  liable to  tax at  the point of sale to  the consumer  from any registered dealer who is not liable to  pay tax on such sale, the purchasing dealer shall pay such tax. If, however, the purchasing dealer establishes that the  goods purchased by him have already been subjected to or  may be subjected to tax under the U.P. Act or Central Sales Tax  Act, he will get an exemption to that extent. (2) If the  said goods are purchased from a  person other than a registered dealer  the purchasing  dealer shall  pay the tax payable on  sale of  such goods. If, however, he proves that tax payable  has been  paid, either wholly or partly, by the seller, the  tax payable  by the  purchasing dealer shall be exempted to  that extent.  (3)  Similar  exemption  will  be available to  the purchasing  dealer in  case he establishes any of  the facts  mentioned in  clauses (c) and (d) of sub- section (2). The central idea is that no transaction of sale (of goods  taxable at the point of sale to  consumer) should go untaxed.  Either the seller pays the tax or the purchaser pays. It  is for achieving this central purpose that Section 3-AAAA has been enacted providing for several situations.      It would  be  immediately  evident  that  section  that Section 3-AAAA  does not  speak of and does not refer in any manner to the user of the goods  purchased. It is immaterial whether the  goods purchased  are used in the manufacture of other goods or dealt with otherwise. Much less does it speak of the  manner in  which the  goods manufactured out of such purchased goods,  if any,  are dealt  with.  The  exemptions provided in  sub-section (2)  are equally  un-related to the above aspects.  Sub-section (1) is clear and simple. The tax becomes  payable   by  the  purchasing  dealer  in  the  two situations contemplated  by clauses  (a) and (b) of the said sub-section. If  he can establish any of the facts mentioned in clauses  (a) to  (d)  of  sub-section  (2),  he  gets  an appropriate exemption.  Otherwise not.  We are,   therefore, unable to  see any  room for contending that the tax imposed by the said section is in the nature of consignment tax or a use  or  consumption  tax.  Simply  because  the  petitioner chooses to take the goods purchased by him out of the State, in the  same form and condition or otherwise, for being used as raw  material  in  his  factory  at  Calcutta,  makes  no difference to  the levy.  The validity  of the  levy  cannot depend upon what a particular dealer or person chooses to do with the goods.      It was  argued for  the petitioner that sub-section (2) of Section  3-AAAA places  a heavy  and uncalled  for burden upon the  purchasing dealer;  that it is not practicable for the purchaser  to establish  that the  selling person (other than the   registered dealer) has paid the tax or not. It is submitted that  the  petitioner  purchases  his  goods  from hundreds of  persons who  are not  registered dealers and it cannot reasonably  be expected  of the  petitioner to gather the particulars  of or  from all such persons. We are unable to  appreciate  this  contention.  A  person  other  than  a registered dealer  is not  amenable to the discipline of the

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Act. He cannot indeed collect any tax [Section 8(A) (2) and, therefore, will  not, justified  in  presuming. If, however, in any  case it is proved that such person has paid the tax, the purchasing  dealer will get an exemption to that extent. It a  benefit is claimed by the purchasing dealer, it is for him to  prove the  fact  which  enables  him  to  claim  the benefit. That   burden  cannot be passed on to any one else. So far  as registered  dealers are  concerned, all  that the purchasing dealer  need prove  is that  the said  goods have already been  or may  be subjected to tax under State Act or Central Sales  Tax Act.  On this score, we see no difficulty for the  purchasing dealer.  From  the  bill  given  by  the selling dealer, the purchasing dealer can prove the payment. Or he  can simply  prove, as  a matter  of law that the said goods are  liable to  be taxed  under any other provision of the Act  or under  the Central Sales Tax Act. We are equally unable to  see any  vagueness in  the provision  nor  is  it established that  any such  vagueness is  operating  to  the prejudice of the petitioner.      In this view of the matter, it is unnecessary, strictly speaking, to  consider whether the present Section 3-AAAA is in effect  and substance the same as the one obtaining prior to  1992  Amendment  Act.  For  the  sake  of  completeness, however, we may mention that under Section 3-AAAA (before it was substituted  in 19920  tax was payable by the purchasing dealer where he purchased goods liable to tax was payable by the purchasing dealer where he purchased goods liable to tax at the  point of sale to the consumer in circumstances where no tax  is payable by the seller, provided he did not resell the said  goods, in  the same form and condition, within the State or  in the  course of  inter-State, trade or commerce. The section  was understood  by the  Division Bench  in  the following manner:      " 23.  That brings  us to the vital      question  as   to  which   are  the      circumstances in  which sale of the      goods purchased within the State or      in the  course of inter-State trade      and commerce  in the  same form and      condition  in   which  the   dealer      purchased   the   goods,   may   be      rendered impossible.  To our  mind,      keeping in view the usual course of      business, the  normal possibilities      seem to be these:      1. use and consumption of the goods      purchased by  the purchasing dealer      in the  manufacture of  some  other      taxable goods within the State;      2.  despatch  of  the  manufactured      goods, without  sale,   outside the      State otherwise  than in the course      of inter-State trade and commerce;      3. despatch of the goods out of the      territory of  India   pursuant to a      contract of  sale, i.e. despatch in      the course  of an export sale;      24. These  then are  the activities      or transactions that constitute the      taxable events  on the happening of      which the  tax would be immediately      attracted, that  is to say, the tax      in  question  becomes  exigible  at      these points. Once these points are      reached the possibility of the sale

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    of goods  purchased within State or      in the  course of inter-State trade      and commerce  in the  same form and      condition,  shall  stand  excluded.      The fourth  and the  last condition      envisaged by Section 3-AAAA set out      hereinabove      necessary      for      attracting  the   levy  would  also      stand fulfilled.  It is only on the      happening of  these events that the      taxing  authority   can  reach  the      conclusion  that   the   purchasing      dealer has  be  come  liable  under      Section 3-AAAA."      With respect we find ourselves unable to agree with the above understanding  of the  section. All  that the  section provided was: (i) where the goods liable to tax at the point of sale  to the  consumer are  sold  to  a  dealer  (ii)  in circumstances in which no sales tax is payable by the seller and (iii)  the purchasing  dealer does  not re-sell the said purchased goods  within the State or in the course of inter- State trade  or commerce (iv) the purchasing dealer shall be liable to  pay the  tax which would have been payable by the seller. (v)  If however,  it was  proved that the said goods have already  suffered tax  under Section  3-AA, no purchase tax was payable under Section 3-AAAA. It is obvious that the section did  not speak  or the purchased goods being used in the manufacture of other goods nor of the manner of disposal or despatch  of such    manufactured  goods.  The  only  two conditions stipulated  (which conditions are not to he found in the  present Section  3-AAAA) were  that if the purchased goods are  sold within   the  State or sold in the course of inter-State trade  or commerce,  the tax  , under  it is not payable. This  is for  the simple  reason that in both those contingencies, the  State would get the revenue (in one case under the  State Sales  Tax Act and in the other case, under the Central Sales Tax Act). The policy of the legislature is not to  tax the  same goods  twice over.  The fact that in a given  case,  the  purchased  goods  are  consigned  by  the purchaser to  his own  depots or  agents outside  the  State makes no  difference to the nature and character of the tax. By doing  so, he  cannot escape  even one-time  tax upon the goods purchased, which is the policy of the Legislature. The tax was directed towards ensuring levy of tax atleast on one transaction of  sale of the goods and not towards taxing the consignment of  goods purchased or the products manufactured out of them. The difficulty has really arisen because of the attempt to  look to the provisions of Section 3-AAAA through the  prism   of  Goodyear.   There  is   a  substantial  and qualitative difference  between  the  language  employed  in Section 9 of Haryana Act and Section 13-AA of Bombay Act and in Section  3-AAAA of  U.P. Act  (as it  stood prior to 1992 Amendment Act)  or for  that matter  as it stands now. These basic differences  cannot be  ignored. Constitutionality  of Section 3-AAAA ought to be judged on its own language and so judged,  the   Section,  both  before  and  after  the  1992 Amendment,   represents   a   perfectly   valid   piece   of legislation. It  is relatable  to and  fully   warranted  by Entry  54  of  List  II  of  the  Seventh  Schedule  to  the Constitution.                  PART - IV (ANDHRA PRADESH)      Writ Petitions  No. 655-669  of 1983 are filed by Hotel Balaji and  14 other  hotels/restaurants for  issuance of  a writ, order  or direction  directing the  respondents  viz., State of Andhra Pradesh and its Sales Tax Authorities not to

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levy and collect purchase tax on milk @ 4% under Section 6-A as also the surcharge tax @ 10% of the tax. According to the petitioners such   a  levy violates  Article 14  as also the fundamental right  guaranteed to  them by  sub-clause (g) of clause (1)  of Article  19 of the Constitution. Civil Appeal Nos. 10753-57  of 1983 are directed against the judgment and order of  a  Division Bench of the Andhra Pradesh High Court upholding the  validity of Section 6-A of the Andhra Pradesh General Sales Tax Act.      The case  of the  petitioners in  the writ petitions is this: They  purchase the  milk required  by them  both  from registered dealers  as well as persons other than registered dealers. The  authorities are  collecting purchase  tax @ 4% under Section  6-A from  the petitioners which is illegal in view of  the fact  that the  sale of  fresh milk is exempted from tax  by a  notification   issued by  the Government  of Andhra Pradesh  under Section  9 of  the Act  being  G.O.Ms. No.1091 dated  10.6.1957.  Because  of  the  said  exemption notification not  only the  seller is  exempted but also the purchaser. In  some cases,  the petitioners  purchased  milk from  registered   dealers   like   Andhra   Pradesh   Dairy Development Corporation  which is exempted from sales tax by virtue of  a notification  issued under  Section 9.  In such cases, the  tax is  sought to be levied upon the petitioners which  is   equally  illegal.  The  milk  purchased  by  the petitioners is  being consumed  in preparing  and serving to consuming public  tea, coffee  and other  eatables. The  tax levied under Section 6-A is really not upon the purchase but upon the use and consumption.      G.O.Ms. No.1091  dated 10.6.1957  as originally  issued read as follows:      "In exercise of the power conferred      by sub-section  (1) of Section 9 of      the Andhra  Pradesh  General  Sales      Tax Act  1957 (Andhra Pradesh Act 6      of  57),  the  Governor  of  Andhra      Pradesh hereby exempts from the tax      payable  under  the  said  Act  the      sales of following goods:      (1)   and    (2)   -   omitted   as      unnecessary;      (3) fresh  milk,  curd  and  butter      milk."      By G.O,Ms.  No. 60  (Revenue) dated 10.1.1961, item (3) was substituted as follows:      "fresh milk,  curd and  butter milk      sold by dealers exclusively dealing      in them."      By G.O.Ms.  No. 1786  dated 20.11.1962,  the words "and their  byeproducts  realised  by  utilisation  of  surpluses thereof were  added at  the end of the entry. By yet another amendment, the  word "bye-products"  was substituted  by the word "products". Thus, at the relevant time item 3 of the said notification read as follows:      "fresh milk,.curd  and butter  milk      sold by dealers exclusively dealing      in them and their products realised      by   utilisation    of    surpluses      thereof."      It is  also brought  to our  notice that by G.O.Ms. No. 669  dated  26.5.1975,  the  Government  of  Andhra  Pradesh exempted the  sale of  pasturised milk by the Andhra Pradesh Dairy Development  Corporation from  the levy of tax payable under the  said Act  with effect  from the  1st day  of May, 1975.

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    In the  Civil Appeals  the appellant  is Hindustan Milk Food Manufacturers  Ltd. They  purchased  milk  mainly  from persons other than registered dealers which they utilised in manufacture of  various products.  Its products are sold not only within  the State  of Andhra  Pradesh but also in other States of the country. It has an office at Dhawaleshwaram in East Godavari  Distt. of Andhra Pradesh. It is registered as a dealer  under the  Act. In  the course of their assessment proceedings for  the assessment  year 1979-80  (among  other assessment years)  the appellant  contended  that  the  milk having been  exempted by  virtue of  a  notification  issued under Section 9 is not taxable and that levy of purchase tax is incompetent.  They questioned  the  constitutionality  of Section 6-A.  The Assessing  authority  overruled  the  said objections and  levied the  purchase tax  on the turnover of milk purchased  by the  appellant. The matter was brought to the  High  Court  which,  as  stated  above.  negatived  the challenge to the constitutionality of the provision .      So far  as the  exemption notification  in G.O.Ms.  No. 1091 dated  10.6.1957 is  concerned, it must be noticed that what was  exempted there  under was  the tax  payable on the "sale of  fresh milk  sold by dealers exclusively dealing in them. So  far as  agriculturists are concerned, they are not dealers at all by virtue of Explanation II to the definition of "dealer"  H contained  in clause  (e) of  Section 2.  The notification has,  therefore, no application to sale of milk by them. Since the purchase by Hindustan Milk Food is almost wholly from such agriculturists, it cannot take advantage of the said notification. If, however, any milk is purchased by the  appellant   or    the  writ  petitioners  from  dealers exclusively dealing in milk, they would be liable to pay the purchase tax  only in  cases where the selling dealer is not liable to  pay  the  tax  either  because  of  an  exemption notification or otherwise.      A contention  was urged before us that the milk was not at all  taxable under the Act. It was submitted that milk is not mentioned  in any  of the  Schedules I to VI appended to the Act.  This argument  in our opinion proceeds upon a mis- apprehension of  the scope  and scheme  of Section  5, as we shall presently  demonstrate.  Fresh  milk  was  taxable  as general goods  under Section  5(1) of  the Act before it was amended by  Amendment Act   4 of 1989. After the coming into force of  the said  Amendment Act,  it falls  under Schedule VII, (which  was introduced  simultaneously  with  the  said Amendment Act) and which takes in all goods other than those specified in  first to  sixth Schedules. Milk was subject to multi-point tax  prior to  the said  Amendment  Act  whereas after the  said amendment  if has  become  taxable  only  at single point  namely, point  of first  sale in the State. If fresh   milk was not at all taxable under the Act, there was no necessity  to issue  notifications exempting  its sale in certain situations.      Section 6-A  was inserted  by  Andhra  Pradesh  General Sales Tax  . (Amendment)  Act, 49  of 1976  with effect from September 1,  1976. As  originally enacted, the section read as follows:      "6-A:  Levy   of  tax  on  turnover      relating  to  purchase  of  certain      goods:-      Every dealer,  who in the course of      business-      (i) Purchases  any goods  (the sale      or purchase  of which is  liable to      tax  under   this   Act)   from   a      registered dealer in  circumstances

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    in which  no tax  is payable  under      Section 5   or  under Section 6, as      the case may be, or      (ii) purchases  any goods (the sale      or purchase  of which is  IV liable      to  tax  under  this  Act)  from  a      person other  than  a    registered      dealer, and      (a) either  consumes such  goods in      the manufacture of other  goods for      sale or otherwise, or      (b) disposes  of such  goods in any      manner other  than by   way of sale      in the State, or      (c)  despatches  them  to  a  place      outside  the   State  except  as  a      direct result  of sale  or purchase      in the  course of inter-State trade      or commerce,      shall  pay   tax  on  the  turnover      relating to  purchase aforesaid  at      the same  rate which  but  for  the      existence  of   the  aforementioned      circumstances, tile  tax would have      been leviable  on such  goods under      Section 5 or 6".      The Section has been amended in some particulars by the Amendment Act  18 of 1985 but these amendments do not make a difference to  nature or character of the tax. Be that as it may ,  we may  as well  set the section as it stands now, in view of the fact that the validity of the section as such is questioned before us. It reads:      "6-A.  Levy   of  tax  on  turnover      relating  to  purchase  of  certain      goods:      Every dealer,  who in the course of      business:      (i) purchases  any goods  (the sale      or purchase of which is   liable to      tax  under   this   Act)   from   a      registered dealer  in circumstances      in which  no tax  is payable  under      section 5   or  under Section 6, as      the case may be, or      (ii) purchases any goods (the sale      or purchase of which is  liable to      tax under this Act) from a person      other than a  registered dealer,      and      (a)  consumes  such  goods  in  the      manufacture of  other  goods    for      sale or consumes them otherwise, or      (b) discloses of such goods in any      manner other than by way of sale in      the state, or      (c)  despatches  them  to  a  place      outside the  State  except  as    a      direct result  of sale  or purchase      in the course of inter- State trade      or commerce,   shall pay tax on the      turnover   relating   to   purchase      aforesaid   at  the  same  rate  at      which but  for the existence of the      aforementioned  circumstances,  the      tax would  have  been  leviable  on

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    such  goods   under  Section  5  or      Section 5-A or Section 6:      Provided   that   in   respect   Or      declared goods  such rate  together      with the  rate  of  additional  tax      specified in  Section 5-A shall not      exceed four percent of the purchase      price of such goods."      An analysis  of the  Section yields      the following ingredients:      "A. (i)  a dealer who in the course      of business  purchases   any  goods      liable to tax under the Act,      (ii) from  a registered  dealer  in      circumstances in  which no  tax  is      payable  by   such  selling  dealer      under Section 5 or 6 and      (iii) consumes  such goods  in  the      manufacture of other goods for sale      or consumes them otherwise or,      (iv) disposes  of such goods in any      manner other than by way of sale in      the State or,      (v)  despatches  them  to  a  place      outside the  State  except  as    a      direct result  of sale  or purchase      in the  course of inter State trade      or commerce,      (vi) such  purchasing dealer  shall      pay the  tax at  the same  rate  at      which it would have been payable by      the selling dealer.      B.(i) A dealer who in the course of      his business  purchases  any  goods      which are taxable under the Act      (ii) from  a person  other  than  a      registered dealer and,      (iii) consumes  such goods  in  the      manufacture of  other    goods  for      sale or consumes them otherwise or,      (iv) disposes  of such goods in any      manner other  than by   way of sale      in the State or,      (v)  despatches  them  to  a  place      outside the  Stale  except  as    a      direct result  of sale  or purchase      in the course of inter  State trade      or commerce,      (vi) such  purchasing dealer  shall      pay the  tax at  the same   rate at      which it would have been payable by      the selling dealer."      The proviso  which governs  both the  above  situations provides that  in case of declared goods the total tax shall not exceed 4% of the purchase price of such goods.      Broadly speaking,  the effect  is Tax  payable at  sale point becomes  the tax  payable on  the purchase  point,  in certain circumstances.  Because, the seller is not or cannot be taxed for certain reasons, the purchasing dealer is being taxed. Two  examples,  each  illustrating  one  of  the  two situations envisaged by the Section may be given: (a) Andhra Pradesh Dairy  Development Corporation, a registered dealer, is exempted  from paying the tax on sale of pasturised milk. The purchaser  of pasturised  milk from  the Corporation  is taxed provided  he satisfies one of the conditions specified

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in clauses  (i) to  (iii) mentioned  in the Section, thereby becoming the  last purchaser  in the State of such milk. (b) Fresh milk  is taxable at sale point. But when it is sold by a farmer/agriculturist  raising cattle on lands held by him, he cannot be taxed because he is not a dealer. The purchaser is taxed  in such  cases provided  he satisfies  one of  the conditions specified in clauses (i) to (iii) in the Section, thereby becoming  the last  purchaser in  the State  of such milk.      It would,  therefore, be  clear that the real object of the clauses  (i) to  (iii) in  the Section  is not to levy a consumption tax,  use tax  or consignment  tax but  only  to point  out  that  thereby  the  purchasing  dealer  converts himself into  the last purchaser in the state of such goods. The goods  cease to  exist or  case to  be available  in the State  for   sale  or  purchase  attracting  tax.  In  these circumstances, the purchasing dealer of such goods is taxed, if the seller is not or cannot be taxed. In this connection, observations of  P.S. Poti,  J. in  Malabar  Fruit  Products Co.v. S.T.O.,  30 S.T.(J.  537, which  have  been  expressly approved by  this court  in State  of Tamil  Nadu  v.  Kanda Swami, 36  S.T.C. 191 = discussed in detail in part V may be referred to.  It   is not  necessary to  set  out  the  said discussion here over again.      In the  circumstances, we are unable to see how the tax imposed by  Section 6-A  be described  either  as  use  tax, consumption tax  or consignment  tax. Since  we are  of  the opinion, as  explained in  Part V,  that Goodyear  does  not interpret Section  9 of  Haryana Act  and  Section  13AA  of Bombay Act   correctly,  its reasoning  cannot be brought in here to  contend that  clause (c)  of Section  6-A imposes a consignment tax. It is a purchase tax perfectly warranted by Entry  54  of  List  II  of  the  Seventh  Schedule  to  the Constitution.      Reference to  a few more provisions of the Act would be appropriate at this stage to complete the picture.      The expression  "dealer" has been defined in clause (e) of Section  2. It  is not  necessary to  notice  the  entire definition except Explanation II which says that a grower of agricultural or horticultural produce cannot be deemed to be a dealer  if he  sells his  produce.  Explanation  reads  as follows:      "Explanation II:  Where a grower of      agricultural  or   hor   ticultural      produce sells  such producer  grown      by himself  on any land in which he      has an  interest whether  as owner,      usufructuary  mortgage,  tenant  or      otherwise, in  a  form    different      from  the   one  in  which  it  was      produced after subjecting it to any      physical, chemical  or any  process      other than  mere cleaning,  grading      or sorting he shall be deemed to be      a dealer  for the  purpose of  this      Act."      Section  5  is  the  charging  section.  Prior  to  the Amendment Act  4 of  1989, Section  5 had four sub-sections. The first  sub-section made  all sales/purchases  by dealers within the  State of  Andhra Pradesh  subject  to  tax.  It, however, the  goods sold  were those mentioned in Schedule I they were  taxable at  a single point, viz., at the point of sale and  at the  rate  prescribed  in  the  said  Schedule. Similarly, if the goods fell in the Second Schedule they too were taxable only at one point namely, the point of purchase

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at the  rate  prescribed.  [Sub-section  (2)1  Schedule  III comprises of declared goods while Schedule IV sets out goods which are totally exempted Income tax under Section 8 of the Act. Schedule  V deals  with jaggery  and Schedule  VI  with 2liquors. In other words, goods which did not fall in any of the Schedules  I to  VI fell  under sub-section (I) and were taxed   as general goods. In this sense, fresh milk which is not mentioned in any of the Schedules i to VI was chargeable as general  goods under  sub-section (I)  of Section  5.  By Amendment Act  4 of  1989 the entire scheme of Section 5 has been changed.  The  present  section  says  that  the  goods mentioned in  Schedules I to VII shall be taxed at the point and at  the rate  specified therein.  Schedule VII which has been inserted  by the  very same  Amendment Act  is  in  the nature of  a residuary  Schedule, the good which do not fall in any  of the  Schedules I  to VI  fall under Schedule VII. Even such  goods have  also been  made taxable  only at  one point and at the rate specified. After the coming into force of the  said Amendment  Act of  1989, fresh  milk would fall under Schedule VII and taxable as such. It is, therefore wrong to  say that  sale of milk was or is not taxable under the Act.      Section 9  empowers the Government to exempt either the sale of  certain goods  or sates  by certain  persons either wholly or partly. Section reads as follows:      "9. Power  of State  Government  to      notify exemptions and reductions of      tax (or interest):      (1) The  State Government  may,  by      notification in  the Andhra Pradesh      Gazette,  make   an  exemption,  or      reduction in  rate, in  respect  of      any tax  or interest  payable under      the Act-      (i) on  the sale or purchase of any      specified class  of goods,  at  all      points or at any specified point or      points  in   series  of   sales  or      purchases by successive dealers; or      (ii)  by  any  specified  class  of      persons, in  regard to the whole or      any part of their turnover.      (2)  Any   exemption  from  tax  or      interest or  reduction in  the rate      of tax  notified under  sub-section      (I)      (a) may  extend to the whole of the      State or  to any specified  area or      areas therein;      (b)  may   he   subject   to   such      restrictions and  conditions as may      be specified  in the  notification,      including conditions as to licences      and licence fees."      It may  be noticed  that while  exempting the  sale  or purchase of  any specified  class of goods the Government is empowered to  specify whether  the exemption operates at all points or  any specified  point or  points in  the scries of sales  or   purchases   of   successive   dealers.   Several notifications have  been issued  by the Government from time to time exempting certain dealers or exempting certain goods at the  point of  sale or  purchase, as  the  case  may  be. G.O.Ms. No.1091  is one of them. We have already noticed the rather qualified terms in which the exemption is couched. It is not a general exemption but a qualified one. In the light

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of the  specific scheme  of Section  9 and  the language  of G.O.Ms. No.1091,  the exemption  at the  point of  sale by a particular  category  of  persons  cannot  be  construed  as operating to  exempt the  purchase tax  under Section 6-A as well, much less in all cases.      For the  above reasons,  appeals and writ petitions are dismissed with  no order as to costs.                           PART- V          (DOES GOODYEAR REQUlRE RE-CONSIDERATION?)      As mentioned  earlier, counsel for all the assessees in these matters   strongly  rely on the decision of this Court in Goodyear  which invalidated  a purchase tax levied by the Haryana and  Maharashtra Sales  Tax Acts. We may, therefore, notice this  decision in  some detail. What precisely is the ratio of Goodyear?      Provisions relating  to purchase  tax in  Haryana Sales Tax Act  and Bombay  Sales Tax Act fall for consideration in this case.  Section 9  of the  Haryana Act,  before  it  was amended by  Haryana General Sales (Amendment and Validation) Act, 1983, read as follows:      9, Where a dealer liable to pay tax      under  this   Act  purchases  goods      other  than   those  specified   in      Schedule B  from any  source in the      State and-      (a) uses  them in  the State in the      manufacture of,-       (i)  goods specified In Schedule B      or      (ii) any  other goods  and disposes      of the  manufactured goods  in  any      manner otherwise  than  by  way  of      sale whether within the State or in      the course  of inter-State trade or      commerce or  within the  meaning of      sub-section (l) of Section 5 of the      Central Sales Tax Act, 1956, in the      course  of   export  out   of   the      territory of India.      (b)   exports    them,    in    the      circumstances in  which no  tax  is      payable under  any other provisions      of this Act, there shall be levied,      of subject  to  the  provisions  of      Section 17,  a tax  on the purchase      of such  goods at  such rate as may      be notified under Section 15."      A notification  dated 19th July, 1974 was issued by the Government of  Haryana under  the said  provision read  with Section 15(1)  of the Act in purported implementation of the said provision.  Validity of  Section 9  as well  as of  the notification was  challenged in  a batch  of writ  petitions filed   in the  High Court  of Punjab  and Haryana. The High Court upheld  the challenge  holding that  "whereas the said provision (Section  9) provided  only  for  the  levy  of  a purchase tax  on the  disposal of  manufactured  goods,  the notification by  making a  mere despatch  of  goods  to  the dealers them  selves  taxable  in  essence,  legislates  and imposes  a  substantive  tax  which  it  obviously  cannot." Goodyear India Ltd. v. State of Haryana (1990) 76 S.T.C. 71.      After it  was amended  by the  aforesaid amendment Act, sub-sections (]  ) and  (2) of  Section 9  read as  follows:      "9. Liability  to pay purchase tax,      - (1)  Where a dealer liable to pay      tax under this Act,-

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    (a)  purchases  goods,  other  than      those specified in Schedule B, from      any source  in the  State and  uses      them   in    the   State   in   the      manufacture of  goods specified  in      Schedule B; or      (b)  purchases  goods,  other  than      those specified in Schedule B, from      any source  in the  State and  uses      than   in    the   State   in   the      manufacture of  any other goods and      either disposes of the manufactured      goods in  any manner otherwise than      by way  of sale  in  the  State  or      despatches the  manufactured  goods      to a place outside the State in any      manner otherwise  than  by  way  of      sale in  the course  of inter-State      trade or  commerce or in the course      of export  outside the territory of      India   within the  meaning of sub-      section (1)  of Section 5 of B  the      Central Sales Tax Act, 1956; or      (c)  purchases  goods,  other  than      those specified in Schedule B, from      any source in the State and exports      them, in the circumstances in which      no tax  is payable  under any other      provision of  the Act,  there shall      be   levied,    subject   to    the      provisions of  Section 17  a tax on      the purchases of such goods at such      rate  as   may  be  notified  under      Section 15.      (2)    Notwithstanding     anything      contained in  this Act or the rules      made  thereunder,   if  the   goods      leviable to  tax under this section      are exported  in the same condition      in which  they wore  purchased, the      tax shall  be levied,  charged  and      paid at  the station of despatch or      at any  other  station  before  the      goods leave  the State  and the tax      so levied,  charged and  paid shall      be provisional  and the  same shall      be adjustable  towards the  tax due      from the dealer on such purchase as      a  result   of  assessment  or  re-      assessment made  in accordance with      the provisions  of this Act and the      rules  made   there  under  on  the      production of  proof regarding  the      payment thereof in the State."      Again a  batch of  writ petitions was filed questioning the validity  of the  amended provision  which challenge too was upheld  by the  High Court in its decision in Bata India Ltd. v.  State of  Haryana, 54  S.T.C. 226.  The main ground upon which  the High  Court allowed  the writ  petitions was that mere  despatch of goods to a place outside the State in any manner other than by way of sale in the course of inter- State trade or commerce is synonymous with or is in any case included within  the ambit  of consignment  of goods  to the person making  it or  to any  other person  in the course of inter-state  trade  or  commerce  as  specified  in  Article

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269(l)(iv) and Entry 92(B) of List-l of the Seventh Schedule to the  Constitution and  thus beyond  the competence of the State legislature.  According to the High Court, the taxable event was not the purchase of goods nor the use of such goods in  manufacture of  end-products but  the despatch  of goods.      Doubting the  view taken  in Bata  India,  one  of  the learned  Judges  of  the  Punjab  and  Haryana  High  Court, Punchhi, J.  (as he  then was) referred the matter to a Bull Bench which  took a  different view  in Desraj  Pushp  Kumar Gulati v.  State of Punjab, 58 S.T.C.393. The Full Bench was of the view that according to Section 9 (amended) the taxing event is  the act of purchase of goods which are used in the manufacture of  end-products and  not the act of despatch or consignment as held in Bata India.      The correctness  of all  the three  decisions aforesaid was questioned  in appeals  filed  before  this  Court.  The appeals  were   heard  by   a  Bench  comprising  Sabyasachi Mukharji, J.  (as he then was) and one of us (S.Ranganathan, J.). Mukharji,  J., in  his separate  judgment, set  out the test for  determining the  taxable event  in  the  following words:  "It   is  well   settled  that  the  main  test  for determining the  taxable event  is that  on the happening of which the  charge  is  affixed.  The  realisation  often  is postponed to  further date.  The quantification  of the levy and the  recovery of  tax are  also postponed  in some cases Taxable event  is that  which on  its occurrence  creates or attracts the  liability to  tax."  Then  the  learned  Judge proceeded to  analyse Section  9 (amended)  and concluded as follows: "Analysing  the  section  it  appears  to  us  that conditions specified,  before the  event of despatch outside the State  as  mentioned  in  Section  9(1)(b)  namely,  (i) purchase of  goods in  the State and (ii) using them for the manufacture of  any other  goods  in  the  State,  are  only descriptive of the goods liable to tax under Section 9(1)(b) in the  event of despatch outside the State. If the goods do not answer  both the  descriptions cumulatively, even though these are  despatched outside  the  State  of  Haryana,  the purchase of  those goods  would not  be  tax  under  Section (I)(b) The  liability to  pay tax  in this  section does not accrue on  purchasing the  goods simplicitor,  but only when these are  despatched or  consigned  out  of  the  State  of Haryana. In  all these   cases,  it is necessary to find out the true  nature of  the tax.  Analysing the Section, if one looks to  the purchase  tax under  Section 9,  one gets  the conclusion that  the Section  itself does  not  provide  for imposition  of  the  purchase  tax  on  the  transaction  of purchase of  the taxable  goods but  when further  the  said taxable goods  are  used  up  and  turned  into  independent taxable goods,  losing its original identity, and thereafter when the manufactured goods are despatched outside the State of Haryana and only then tax  is levied and liability to pay tax is  created "According , the learned judge held , the is in the  nature of  a consignment  tax which  the  Parliament alone could impose and not the State legislature.      The correctness  of the  said view is questioned by the learned counsel  for the  State of  Andhra Pradesh and other counsel for  the State  Governments. The  question  for  our consideration is  whether the learned Judge was not right in holding that  the taxable event under the section Is not the purchase goods  used in  the manufacture of end-products but the   despatch    of   manufactured   goods   to   out-state destinations.      The other  provision considered in the said decision is the one  contained in  Section 13AA  of the Bombay Sales Tax

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Act. The said provision which was introduced into the Act by the Maharashtra  Act (28  of 82)  read  as  follows  at  the relevant time:      "13AA.  Purchase   tax  payable  on      goods in  Schedule C,  Part I  when      manufactured goods  are transferred      to outside branches.-      Where a  dealer, who  is liable  to      pay tax  under this  Act, purchases      any goods  specified in  Part I  of      Schedule  C,  directly  or  through      Commission agent, from a person who      is or  is not  a Registered  dealer      and  uses   such   goods   in   the      manufacture of  taxable  goods  and      despatches    the     goods,     so      manufactured, to  his own  place of      business or to his agent’s place of      business situated outside the State      within  Indian   then  such  dealer      shall be liable to pay, in addition      to the  sales tax  paid or payable,      or as the case may be, the purchase      tax levied  or leviable  under  the      other provisions  of  this  Act  in      respect of purchases of such goods,      a purchase  tax at  the rate of two      paise in  the rupee on the purchase      price of  the goods  so used in the      manufacture,  and  accordingly  the      dealer shall include purchase price      of such  goods in  his turnover  of      purchases  in   his  return   under      Section 32,  which he is to furnish      next thereafter.      The validity of the said provision was challenged inter alia by  Hindustan Lever  Limited which was negatived by the Bombay High Court in  its decision reported in 72 S.T.C. 69. The High  Court was  of  the  opinion  that  the  additional purchase tax  leviable under  the said  provision is  on the purchase value of V.N.E.Oil used in the manufacture of goods transferred outside  the State  and not  on the value of the manufactured goods so  transferred. It held further that the goods taxed  under Section 13AA are consumed in the State as raw  material   in  the   process  of   manufacturing  other commodities and therefore tax imposed thereon cannot be said to hinder  the free  flow of  trade within  the  meaning  of Article 301 of the Constitution.      The question  again was  which  is  the  taxable  event according to  Section 13AA.  Mukharji, J.  on an analysis of the section  held that  the taxable event is the despatch of manufactured goods  outside the  State which  means that the levy is  beyond the competence of the State legislature. The attack based  upon Article  301  of  the  Constitution  was, however, repelled.      Though agreeing  with  the  conclusion  arrived  at  by Mukharji,  J.,   Ranganathan,  J.   made  a   few  pertinent observations in  his separate  opinion.  The  learned  Judge opined that  both Section  9 of the Haryana Act and  Section 13AA of  the Bombay  Sales Tax  Act "purport  only to levy a purchase tax"  and further  that "the  tax, however, becomes exigible not  on the  occasion or event of purchase but only later. It  materialises only  if the  purchaser (a) utilises the goods  purchased in the manufacture of taxable goods and (b) despatches  the goods so manufactured (otherwise than by

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way of  sale) to  a place  of business  situated outside the State. The  legislature, however,  is careful  to impose the tax only  on the  price  at  which  the  raw  materials  are purchased and  not on  the value  of the  manufactured goods consigned outside  the State. The State describes the tax as one levied  on the  purchase of a class of goods viz., those purchased in  the State  and utilised as raw material in the manufacture of  goods which  are consigned outside the State otherwise than  by way  of sale."  The learned Judge opined: "to me  it appeared  as plausible  to describe the levy as a tax on  purchase of  goods inside  the State (which attaches itself only in certain eventualities) as to describe it as a tax on  goods consigned outside the state but limited to the value of raw material purchase inside the State and utilised therein." The learned Judge stated that he had "considerable doubts"  as  to  the  taxable  event  but  that  on  further reflection he  was inclined  to agree  with H S.Mukharji, J. that the  tax though  described as  a purchase  tax actually became effective with reference to a totally different class of goods  and   that too  only on  the happening of an event which is  unrelated to the Act of purchase and therefore, in truth and essence, it was a consignment tax.      The crucial  question, therefore,  is what is the basis of taxation  in either  of the  above provisions?  In  other words, the  question is  whether levy   of  tax  is  on  the purchase  of   goods  or   upon  the   consignment  of   the manufactured goods?  Let us first deal with Section 9 of the Haryana Act  (as amended  in 1983).  Properly analysed,  the following are  the ingredients  of the Section: (i) a dealer liable to  pay tax under the Act purchases goods (other than those specified  in Schedule B) from any source in the State and (ii)  uses them  in the  State in the manufacture of any other goods  and (iii)  either disposes  of the manufactured goods in  any manner  otherwise than  by way  of sale in the State or  despatches  the  manufactured  goods  to  a  place outside the  State in  any manner  otherwise than  by way of sale in  the course of a inter-State trade or commerce or in the course  of export  outside the territory of India within the meaning of sub-section (1) of  Section 5 of the (Central Sales Tax  Act, 1956. If all the above three ingredients are satisfied, the  dealer becomes  liable to  pay  tax  on  the purchase of  such goods  at such  rate, as  may be  notified under Section 15.      Now, what  does the above analysis signify? The section applies  only  in  those  cases  where  (a)  the  goods  are purchased (for convenience sake, I  may refer to them as raw material) by a dealer liable to pay tax under the Act in the State. (b)  the goods  so purchased  cease to  exist as such goods for the reason they are consumed in the manufacture of different commodities  and (e) such manufactured commodities are either  disposed of  within the  State otherwise than by way of  sale or  despatched to  a place   outside  the State otherwise than by way of an inter-State sale or export sale. It is  evident that  if such manufactured goods are not sold within the  State of Haryana, but yet disposed of within the State, no  tax is  payable on  such disposition;  similarly, where manufactured  goods are  despatched out  of State as a result of  an inter-State  sale or  export sale,  no tax  is payable  on   such  sale.   Similarly   again   where   such manufactured goods  are taken out  of State to manufacturers own depots or to the depots of his agents, no tax is payable on such  removal. Goodyear  takes only  the last eventuality and holds  that the  taxable event  is the  removal of goods from the  State and  since such  removal is  to dealers  own depots/agents outside  the State,  it is  consignment, which

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cannot be  taxed by the State legislature. With the greatest respect at our command, we beg to disagree. The levy created by the  said provision  is a  levy on  the purchase  of  raw material purchased within the State which is consumed in the manufacture of  other goods  within the  State. If, however, the  manufactured  goods  are  sold  within  the  State,  no purchase tax  is collected  on the  raw material,  evidently because the  State gets larger revenue by taxing the sale of such goods.  (The value of manufactured goods is hound to be higher than  the value  of  the  raw  material).  The  State legislature does  not wish to - in the interest of trade and general public  - tax both the raw material and the finished (manufactured) product.  This is  a well-known policy in the field of  taxation. But where the manufactured goods are not sold within  the State  but are yet disposed of or where the manufactured goods  are sent  outside the  State  (otherwise than by  way of inter-State sale or export sale) the tax has to be  paid on  the purchase  value of the raw material. The reason is  simple: if the manufactured goods are disposed of otherwise than  by sale  within the State or are sent out of State (i.e., consigned to dealers own depots or agents), the State  does   not  get   any  revenue  because  no  sale  of manufactured goods has taken place within Haryana. In such a situation, the  State says,  it would  retain the  levy  and collect it since there is no reason for waiving the purchase tax in  these two situations. Now coming to inter-State sale and export  sale, it  may be  noticed that  in the  case  of inter-State sale,  the State  of Haryana  does get  the tax- revenue   may not  be to the full extent. Though the Central Sales Tax  is levied  and collected  by  the  Government  of India, Article  269 of  the Constitution provides for making over the  tax collected  to the  States in  accordance  with certain principles.  Where, of course, the sale is an export sale within the meaning of Section 5(1) of the Central Sales Tax Act (export sales) the State may not get any revenue but larger national  interest is served thereby. It is for these reasons that  tax on  the purchase of raw material is waived in these  two situations.  Thus, there  is a  very sound and consistent policy underlying the provision. The object is to tax the  purchase of goods by a manufacturer whose existence as such  goods is  put an end to by him by using them in the manufacture of different goods in certain circumstances. The tax is  levied upon  the purchase price of raw material, not upon the sale price - or consignment value - of manufactured goods. Would  it be  right to  say that  the  levy  is  upon consignment of manufactured goods in such a case? True it is that the  levy materialises  only when  the purchased  goods (raw material)  is consumed  in the manufacture of different goods and those goods are disposed of within the State otherwise than  by way  act sale  or are  consigned  to  the manufacturing-dealer’s dopots/agents  outside the  State  of Haryana. But  does that  change the  nature and character of the levy?  Does such  postponement -  if one  can call it as such -  convert what  is avowedly  a purchase tax what is on raw material  (levied on  the purchase  price  of  such  raw material) to a consignment tax on the manufactured goods? We think not. Saying otherwise would defeat the very object and purpose of  Section 9  and amount  to its  nullification  in effect. The  most that  can perhaps  be said  is that  it is plausible (as pointed out by Ranganathan, J. in his separate opinion) to  characterise the  said tax both as purchase tax as well  as consignment  tax. But  where two interpretations are  possible,  one  which  sustains  the  constitutionality and/or effectuates  its purpose and intendment and the other which effectively  nullifies the  provision, the former must

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be   preferred,   according   to   all   known   canons   of interpretation. This  is also the view expressly approved by Mukharji, J. in his opinion, as pointed out hereinbefore. In para 71  of his  opinion, the  learned Judge  states: ‘it is well settled that reasonable construction should be followed and literal  construction may be avoided if that defeats the manifest object  and purpose  of the  Act.  Commissioner  of Wealth Tax,  Bihar and  Orissa v. Kirpa Shankar Daya Shankar Vorah  (1971)  81  ITR  763  at  page  768  and  Income  Tax Commissioners for  City of  London v.  Gibbs’ (1942)  10 ITR Suppl. 121 at page 132 (H.L.)".                     (emphasis supplied)      However, we  would presently  show that  merely because the levy  attaches on  the happening  or non-happening  of a subsequent event,  the nature and character of the levy does not change.  In several  enactments. for  instance,  tax  is levied at the last sale point or last purchase point, as the case may  be. How does one determine the last purchase point in the  State’? Only  when one  knows that  no purchase took place within  the State  thereafter. But  that can  only  be known later.  If there  is a  subsequent purchase within the State, the  purchase in  question  ceases  to  be  the  last purchase. As  pointed out pertinently by P.S.Poti, J. (as he then was)  in Malabar Fruit Products Company and Ors. v. The Sales Tax  Officer and  Ors, (1972)  30 S.T.C. 537, applying the logic  of the  dealers, it  would not be possible to tax any goods  at the last purchase point in the State, inasmuch as the  last purchase  point in regard to any goods could be determined only  when the  goods are sold later and not when the goods  are purchased.  In the said decision. the learned Judge was  dealing with  the validity  and  construction  of Section 5-A  of Kerala  General Sales  Tax Act,  1963,  sub- section (l) whereof read as follows:      "5A. Levy of purchase tax (1) Every      dealer who  in the  course  of  his      business    purchases     from    a      registered dealer or from any other      person  any   goods.  the  sale  or      purchase of  which is liable to tax      under this Act, in circumstances in      which  no   tax  is  payable  under      Section 5, and either-      (a)  consumes  such  goods  in  the      manufacture of other goods for sale      or otherwise; or      (b) disposes  of such  goods in any      manner other than by way of sale in      the State; or      (c) despatches  them to  any  place      outside  the   State  except  as  a      direct result  of sale  or purchase      in the  course of inter-State trade      or commerce,  shall whatever be the      quantum of the turnover relating to      such purchase  for that year at the      rates mentioned in Section 5."      One of  the arguments urged against the validity of the said provision  was that  inasmuch  as  the  tax  is  levied depending upon  the mode  in which  the goods  purchased are consumed, disposed  of or  despatched, the tax is really one in the  nature of  consumption tax or use tax, but not sales tax. This  argument was answered by the learned Judge in the following words:      According to me, this contention is      based on  a  misconception  of  the

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    scope of  taxation on  the sale  of      goods. It is true that sales tax is      a tax  imposed on  the occasion  of      the sale  of goods.  But it  has no      reference to  the point  of time at      which the  sale or  purchase  takes      place. It  refers to the connection      with the  event of purchase or sale      and not  the point of time at which      such purchase  or sale takes place.      To read  it otherwise  would render      any retrospective  in  position  of      sales tax  invalid as in every such      case the tax would not be one which      arises on  the occasion of sale. By      the same  logic, it  would  not  he      possible to  tax any  goods at  the      last purchase  point in  the State,      for  the  last  purchase  point  in      regard  to   any  goods   could  be      determined only  when the goods arc      sold later  and not  when the goods      are   purchased.    On   the   same      reasoning as  urged by counsel, one      should say  in  such  a  case  that      since the goods are taxed only when      the  goods  are  sold  outside  the      State or  are despatched  for  such      sale outside  the State  and so the      last purchases are taxed not on the      "occasion" of  the  purchases  and,      consequently,  it   is  beyond  the      competence of the Legislature. That      certainly cannot be and the Supreme      Court has  held in  the decision in      State of  Madras  v.  Narayanaswami      Naidu, (1968)  21  S.T.C.1  (S.C.),      that the  goods are taxable in such      cases in  the financial  year  when      they become the last purchases." C:      The decision  of Poti,  J. was  affirmed by  a Division Bench of  Kerala High  Court in  Yusuf Shabeer  and Ors.  v. State of  Kerala and  Ors., (1973) 32 S.T.C. 359. Both these decisions were  expressly referred  to  and  approved  by  a three-Judge Bench  of this  Court in  State of Tamil Nadu v. Kandaswami and  Ors., (1975)  36 S.T.C. page 191. Kandaswami was concerned  with the  construction of  Section 7-A of the Tamil Nadu General Sales Tax Act which too a levied purchase tax and is couched in language similar to Section 5-A of the Kerala Act.  While dealing  with the  scheme of Section 7-A, this court  quoted with  approval certain  passages from the judgment of Poti, J. including the following sentence:      "If the  goods are not available in      the State  for subsequent  taxation      by reason  of one  or other  of the      circumstances mentioned  in clauses      (a), (b)  and (c) of Section 5-A(1)      ofthe Act  then  the  purchaser  is      sought  to  be  made  liable  under      Section 5-A.      This statement  accords with  our understanding  of the scheme of  Section 9  of Haryana Act as set out hereinabove. To repeat, the scheme of Section 9 of Haryana Act is to levy the tax  on purchase  of raw  material and  not to forego it where the goods manufactured out of them are disposed of (or

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despatched, as the case may be) in a manner not yielding any revenue to the State nor serving the interests of nation and its economy,  as explained hereinbefore. The purchased goods are put  an end  to by  their consumption  in manufacture of other goods and yet the manufactured goods are dealt with in a manner  as to  deprive the  State of  any revenue; in such cases, there  is no  reason why  the State should forego its tax revenue on purchase of raw material.      Another observation  in  Kandaswami  relevant  for  the present purpose may also be noticed:      "It may  be remembered that Section      7-A is  at once  a charging as well      as a  remedial provision.  Its main      object  is   to  plug  leakage  and      prevent   evasion    of   tax.   In      interpreting such  a  provision,  a      construction which would defeat its      purpose and,  in effect, obliterate      it from the statute book, should he      eschewed.   If    more   than   one      construction is possible that which      preserves   its   workability   and      efficacy is  to be preferred to the      one which would render it otiose or      sterile. The view taken by the High      Court is repugnant to this cardinal      canon of interpretation."      In the light of the above scheme of Section 9, it would not be right, in our respectful opinion, to say that the tax is not  upon  the  purchase  of  raw  material  but  on  the consignment of  the manufactured  goods. It  is well-settled that taxing  power can be utilised to encourage commerce and industry. It  can also  be used  to serve  the interests  of economy and  promote social and economic planning. Section 9 of Haryana  Act and  Section 13AA of Bombay Act are intended to encourage  the industry  and  at  the  same  time  derive revenue. It  is also  not right  to concentrate  only on one situation viz.,  consignment of  goods to manufacturer’s own depots (or  to the  depots of  his agents) outside the Side. Disposal of  goods within the State without effecting a sale also stands on the same footing, an instance of which may be captive  consumption   of  manufactured   products  in   the manufacture of  yet other  products.  Once  the  scheme  and policy of the provision is appreciated, there is no room, in our respectful  opinion, for  saying that  the tax is on the consignment of manufactured goods.      We may  in this  connection refer  to the decision of a Constitution Bench  of this  Court in Andhra Sugars v. State of Andhra  Pradesh, 21  S.T.C, 212, relating to the validity of Section 21 of the A.P. Sugarcane Regulation of Supply and Purchase Act,  1961. Sub-section  (1) of  Section 21 read as follows:      "21. (1)  The  Government  may,  by      notification, levy  a tax  at  such      rate not  exceeding five rupees per      metric tonne  as may  be prescribed      on the  purchase of  cane  required      for   use, consumption or sale in a      factory."      One of  the arguments urged against the validity of the levy was  that since  the levy  is not  on every purchase of sugarcane but  only "on  the purchase  of cane  required for use, consumption or sale in a factory" the tax is not really a purchase tax referable to Entry 54 of List II of the VIIth Schedule to  the Constitution  but a  use tax,  a tax  of  a

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different character  altogether not  falling under Entry 54. It was also argued that since the tax is levied at the stage of entry  of cane  into  the  factory  for  being  used  and consumed in the manufacture of sugar, it is in the nature of an entry  tax but  since the  factory was not a "local area" within the  meaning of  Entry 52  of List  II, the  levy was incompetent.  Both   the  arguments  were  rejected  in  the following words:      "Under  that   entry,   the   State      Legislature is not bound to  levy a      tax on all purchase of cane. It may      levy a  tax on  purchases  of  cane      required for  "use, consumption  or      sale in  a factory. The Legislature      is competent  to tax  and  also  to      exempt from payment of tax sales or      purchases  of  goods  required  for      specific purposes.  Other instances      of  special   treatment  of   goods      required for particular purpose may      he given. Section 6 and Schedule I,      item 23  of the  Bombay   Sales Tax      Act, 1946,  levy tax on fabrics and      articles for personal wear. Section      2(j)(a)(ii) of  the C.P.  and Berar      Sales Tax  Act, 1947, exempts sales      of goods  intended  for  use  by  a      registered dealer  as raw materials      tor the manufacture of goods.      Mr. Chatterjee  submitted that  the      tax levied  under Section  21 was a      use tax  and referred  to Mcleod v.      Dilworth and  Co. 322  U.S. 327; 88      L.Ed. 1305,  and C.G. Naidu and Co.      v. The State of Madras, A.I.R. 1953      Mad. 116,  127-128; 3  STC 405.  He      argued that  the State  Legislature      could not  levy a use tax which was      essentially   different    from   a      purchase  tax.  The  assumption  of      counsel that  Section 21  levies  a      use tax  is not  well-founded.  The      taxable event  under Section  21 is      the purchase  of goods  and not the      use  or   enjoyment  of   what   is      purchased.    The    constitutional      implication  of   a  use   tax   in      American    law     is     entirely      irrelevent.".......      "To appreciate  another argument of      Mr. Chatterjee,  it is necessary to      refer to  a few  Acts.  It  appears      that  paragraph   21  of  the  Bill      published in  the Gazette  on March      3, 1960  preliminary to the passing      of Act  No. 43 of 1961 provided for      a levy  of a  cess on  the entry of      cane into the premises of a factory      for  use,   consumption   or   sale      therein. On December 13, 1960, this      court in  Diamond Sugar Mills Ltd.,      and Another  v. The  State of Uttar      Pardesh  and   Another,  [1961]   3      S.C.R. 242,  struck down  a similar      provision  in  the  U.P.  Sugarcane

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    Cess Act,  1956, on the ground that      the  State   Legislature  was   not      competent to  enact it  under Entry      52, List  II, as  the premises of a      factory was not a local area within      the meaning  of the  entry.  Having      regard to  this decision, paragraph      21 of  the  Bill  was  amended  and      Section 21  in its present form was      passed by  the  State  Legislature.      The  Act   was  published   in  the      Gazette on  December 30,  1961. Mr.      Chatterjee submitted  that in  this      context the  levy under  Section 21      was really  a levy  on the entry of      goods   into    a    factory    for      consumption, use  or said  therein.      We  are   unable  to   accept  this      contention. As  the proposed tax on      the entry  of goods  into a factory      was unconstitutional,  paragraph 21      of the  original Bill  was  amended      and Section  21 in its present form      was enacted.  The tax under Section      21 is essentially a tax on purchase      of goods  The taxable  event is the      purchase   of    cane   for    use,      consumption or  sale in  a  factory      and not  the entry  of cane  into a      factory. As  the tax  is not on the      entry of  the cane  into a factory,      it   is   not   payable   on   cane      cultivated  by   the  factory   and      entering the factory premises."      For the  above reasons,  we find  it difficult to agree with the  reasoning of  Mukharji, J, in Goodyear. It is also not possible  to agree  with the  learned Judge when he says that "the  two conditions  specified, before  the  event  of despatch outside  the State as mentioned in Section 9(1)(b), namely (i)  purchase of  goods in  the State  and (ii) using them for the manufacture of any other goods in the State are only descriptive  of the  goods liable  to tax under Section 9(1)(h) in  the event  to despatch  outside the State". When the tax  is levied  on the  purchase of  raw material on the purchase price and not on the manufacture of goods or on the consignment value (such a concept is unknown to Haryana Act) or  sale  price  of  the  manufactured  goods  -  the  above construction, in  our respectful  opinion, runs  against the very grain of the provision and has the effect of nullifying the very  provision. By  placing  the  said  interpretation, Section 9  has been  rendered nugatory;  except for  the two minor areas  pointed out  in Murli  Manohar and  Company  v. State of  Haryana, [1991]  1 S.C.C. 377, the Section - which has  its  parallels  in  all  the  State  enactments  -  has practically become  redundant. This  was the  main reason we undertook to  reconsider the  said decision  which course we would not have ordinarily agreed to adopt. In our respectful opinion, the  tax purports  to be and is in truth a purchase tax levied  on the  purchase price of raw material purchased by  a   manufacturer.  In   certain  situations  (the  three situations mentioned  above viz,  sale of manufactured goods within the  State,  inter-State  sale  and  export  sale  of manufactured goods) it is waived. In other cases, it is not.      It is argued for the assessees that apart from Goodyear a Bench  of three  Judges of  this Court  has  independently

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approved and  affirmed the  correctness  of  the  ratio  and reasoning in  Goodyear. Reference is to Mukerian Papers Ltd. v. State  of Punjab,  [1991] 2  S.C.C. 580.  The case  arose under the  Punjab General  Sales Tax  Act and  the provision which fell  for interpretation  was Section  4B.  It  levied purchase tax  on the raw material used in the manufacture of goods which  in turn  are sold  outside the  State otherwise than by  way of  sale in  the course of inter-State trade or commerce or  in the course of export out of the territory of India. The argument for the assessee/appellant was "that the main question  of law  involved in this case is concluded by the decision  of this  court in Goodyear India Ltd. v. State of Haryana which was an appeal arising from the High Court’s decision in the case of the same assessee.... ". It was this contention which  was examined  by the  Bench. Section 4B of the Punjab  Act was  analysed and it was found that it is in material particulars,  similar to  Section 9  of the Haryana Act even though the language was not identical. Ahmadi, J. speaking for the Bench observed: "therefore, even though the language of  Section 4B of the Act is not identical with the relevant part  of Section  9(1) of the Haryana Act, it is in substance  similar  in  certain  respects,  particularly  in respect of  the point  of time when the liability to pay tax arises. Under  that provision, as here, the liability to pay purchase tax  on the  raw material  purchased in  the  State which was  consumed in  the manufacture of any other taxable goods arose  only on  the despatch  of the goods outside the State. We  are, therefore,  of the opinion that the ratio of the said  decision of  this Court  in  Goodyear  India  Ltd. applies on  all fours  to the main question at issue in this case." When  the counsel  for the  revenue sought  to  argue that the  decision of  this  court  in  Kandaswami  takes  a different view the Bench did not permit the same to be urged in the view of the fact that the correctness of the judgment in Goodyear  was not  canvassed before  them. The Bench said "the decision  in Kandaswami  though in  the context  of  an analogous provision  was  distinguished  by  this  court  in Goodyear India  Ltd. on the ground that it did not touch the core of  the question  at issue   in  the latter  case. This aspect of the matter is elaborately dealt with in paragraphs 31 to  34 at  page 796  of the report. We need not dilate on this any  more since  the correctness  of  the  judgment  in Goodyear India Ltd. is not canvassed before us."      It is, thus, clear that the main argument for the Bench was that  the ratio of Goodyear governs the said case and it was so  found. It  is equally  clear that the correctness of the decision in Goodyear was not questioned before the Bench and that  is why  the Bench took care to specifically advert to and record the said circumstance.      So far  as the decision in Murli Manohar & Co. v. State of Haryana  [1991] 1 S.C.C. 377 is concerned, it arose under Haryana Sales  Tax Act  and explains  the meaning  of export sale referred  to in Section 9(1)(h) of the Act. There is no discussion in  this decision about the point at issue before us.      The same  is the  position under  Section 13AA  of  the Bombay Sales Tax Act. The said provision, properly analysed, yields the  following ingredients: (i) where a dealer who is liable to  pay  tax  under  this  Act  purchases  any  goods specified in  Part I  of Schedule  (C)  either  directly  or through commission  agent, from  a person who is or is not a registered  dealer   and  (ii)   uses  such   goods  in  the manufacture of  taxable goods and (iii) despatches the goods so manufactured  to his  own place  of business  or  to  his agent’s place  or business situated outside the State within

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India. (iv)  such dealer shall pay, in addition to the sales tax/purchase tax  paid or  payable or levied or leviable, as the case  may be, a purchase tax at the rate of two paise in the rupee  on the purchase price of the goods so used in the manufacture. Here  again it  may be  noticed  that  the  tax levied is a purchase tax on the purchase of raw material and not upon  the consignment  of  the  manufactured  goods  The object of  this provision  too is the same as of the Haryana provision The  levy is  waived where  the manufactured goods are sold  within the  State, or sold in the course of inter- State trade  or commerce or sold in the course of export. It is retained  and  collected where the goods are taken out of Maharashtra State  by way of consignment, in which event the State sees  no reason  not to retain and collect the levy on purchase of  raw material  The provisions  is  substantially similar to  Section 9  of Haryana Act. Whatever we have said with respect  to the  Haryana provision  applies equally  to this provision. It is not necessary to repeat the same here.      Before parting  with this  matter, it  is necessary  to clarify: it  was brought to our notice that both the Haryana and Bombay  provisions  have  since  been  substituted  with retrospective  effect.   We  have   not  referred  to  those provisions in this part for the reason that we are concerned only with the reasoning in Goodyear.      For  the   reasons  mentioned   above,  we  uphold  the constitutional validity of the impugned provisions.      The  appeals,   writ   petitions,   S.L.Ps   and   T.C. accordingly fail and are dismissed No order as to costs G.N.                                Petitions dismissed.