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TMI Blog1992 (10) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... V. AND JEEVAN REDDY B.P. JJ. W.P. (Civil) No. 655-659 of 1983, 8125-8133, W.P. (Civil) No. 8146, W.P. (Civil) No. 8147, W.P. (Civil) No. 8148, W.P. (Civil) No. 8149, W.P. (Civil) No. 8150, W.P. (Civil) No. 8151, W.P. (Civil) No. 8152, W.P. (Civil) No. 8153, W.P. (Civil) No. 8154, W.P. (Civil) No. 8155, W.P. (Civil) No. 8156, W.P. (Civil) No. 8157, W.P. (Civil) No. 8158, W.P. (Civil) No. 8159, W.P. (Civil) No. 8160, W.P. (Civil) No. 8161, W.P. (Civil) No. 8162, W.P. (Civil) No. 8163, W.P. (Civil) No. 8164, W.P. (Civil) No. 8165, W.P. (Civil) No. 8166, W.P. (Civil) No. 8349, W.P. (Civil) No. 8350, W.P. (Civil) No. 8351, W.P. (Civil) No. 8352, W.P. (Civil) No. 8353, W.P. (Civil) No. 8354, W.P. (Civil) No. 8355, W.P. (Civil) No. 8356, W.P. (Civil) No. 8357, W.P. (Civil) No. 8358, W.P. (Civil) No. 8359, W.P. (Civil) No. 8360, W.P. (Civil) No. 8361, W.P. (Civil) No. 8362, W.P. (Civil) No. 8363, W.P. (Civil) No. 8364, W.P. (Civil) No. 8365, W.P. (Civil) No. 8366, W.P. (Civil) No. 8367, W.P. (Civil) No. 8368, W.P. (Civil) No. 9610, W.P. (Civil) No. 9611, W.P. (Civil) No. 9612, W.P. (Civil) No. 9613, W.P. (Civil) No. 9614, W.P. (Civil) No. 9615, W.P. (Civil) No. 9616, W.P. (Civil) No. 961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) No. 3775, W.P. (Civil) No. 3776, W.P. (Civil) No. 3777, W.P. (Civil) No. 3778, W.P. (Civil) No. 3779, W.P. (Civil) No. 3780, W.P. (Civil) No. 3781, W.P. (Civil) No. 3782, W.P. (Civil) No. 3783, W.P. (Civil) No. 3784, W.P. (Civil) No. 3785, W.P. (Civil) No. 3786, W.P. (Civil) No. 3787 of 1983, W.P. (Civil) No. 12834 of 1985, W.P. (Civil) No. 250 of 1986, W.P. (Civil) No. 175 of 1992, C.A. Nos. 4099, C.A. Nos. 4100, C.A. Nos. 4101, C.A. Nos. 4102, C.A. Nos. 4103 of 1982, C.A. Nos. 10753, C.A. Nos. 10754, C.A. Nos. 10755, C.A. Nos. 10756, C.A. Nos. 10757, C.A. Nos. 10758, C.A. Nos. 10759, C.A. Nos. 10760, C.A. Nos. 10761 of 1983, C.A. Nos. 2850, C.A. Nos. 2866, C.A. Nos. 3410, C.A. Nos. 3481, C.A. Nos. 3171, C.A. Nos. 3905, C.A. Nos. 3906, C.A. Nos. 3907, C.A. Nos. 3908, C.A. Nos. 3909, C.A. Nos. 3910, C.A. Nos. 3911, C.A. Nos. 3912, C.A. Nos. 4202, C.A. Nos. 4203, C.A. Nos. 4204, C.A. Nos. 4205, C.A. Nos. 4302, C.A. Nos. 4737 of 1991, C.A. Nos. 70, C.A. Nos. 1280, C.A. Nos. 1281, C.A. Nos. 1282, C.A. Nos. 1283 of 1992, S.L.P. (Civil) No. 1045 of 1989, T.C. (Civil) No. 220 of 1988 T.V.S.N. Chari and Ms. Suruchi Aggarwal, Advocates, for the respondent in W.P. Nos. 655 to 659 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71 and explain my views on the provisions presently under challenge in the light of what has already been stated by me in Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71. So far as the U.P. Sales Tax Act is concerned, I do not think that the impugned provision of the said Act (viz., section 3-AAAA, as inserted in 1992 with retrospective effect from April 1, 1974) bears any comparison with the provisions that were considered in Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71. Section 3-AAAA 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 State of the goods in that form, which can be taxed by the State, whether intrastate or inter-State, or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71. So far as the State of Gujarat is concerned, the provisions of section 15-B, 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 with effect from May 1, 1990, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly intends to tax consumption, production or consignment is no doubt ingenious but far-fetched, 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutory provisions in question which had perhaps escaped our notice in the Goodyear case [1990] 76 STC 71 (SC); [1990] 2 SCC 71. 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 at least 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h we shall advert in detail when we ex- amine the arguments advanced on behalf of the parties, we are compelled to reach the conclusion that Cloth Trader's case [1979] 118 ITR 243 (SC) must be regarded as wrongly decided. The view taken in that case in regard to the construction of section 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 (AMY 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 follow truth wherever it may lead: and courageous enough to acknowledge his errors'." For the reasons abovementioned, I agree with my learned brother and hold that the impugned 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 peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as Madhu Silica Private Ltd. v. State of Gujarat in [1992] 85 STC 258. of a Division Bench of the High Court of Gujarat upholding the constitutional validity of section 15-B 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 15-A 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 15-B was introduced by Amendment Act of 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 agen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee 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 15-B 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 Sri. B.K. Mehta, learned counsel appearing for the State of Gujarat that the legislative competence of the Gujarat Legislature to enact section 15-B 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 wha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of goods specified in Schedule III, a purchase tax on the turnover of such purchases at a rate equivalent to the rate of sales tax set out against them in that Schedule." The said section has, however, been substituted by Gujarat Amendment Act 9 of 1992 with effect from April 1, 1992, but since the amendment is not a retrospective one, it is unnecessary to notice the amended provision. Section 15-A 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 Amendment Act 9 of 1992, section 15-A read as follows: "15-A. 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 (1) 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 1 in Schedule III." Inasmuch as strong reliance is placed by the assessee/appellants upon rule 42-E inserted by GSR 1090 (64) TH dated May 1, 1990, it would be appropriate to read the said rule here: "42-E. Drawback, set-off or refund of purchase tax under section 15-B. -In assessing the purchase tax levied under section 15-B 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 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 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 g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gns them to his own depots or the depots of his agents outside the State. Therefore, the ratio of Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71-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 the 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 15-B cannot be characterised as a consignment tax. The main contention of the appellants, however, is that section 15-B should not be read in isolation but in conjunction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 401: "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 alter or vary the meaning of the statute itself where it is unambiguous, and it is doubtful whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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] 87 STC 186; [1992] 4 JT 317 (SC). It is difficult to see how can it be said that by reading rule 42-E into section 15-B, the levy becomes a consignment tax. In any event, the ratio of Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71 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 of 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 decision either by this Court or the Gujarat High Court. Writ petitions were no doubt pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71, 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 be presumed to know its limitations and acted within those limits. Transgression must be clearly established, and is not to 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. v. State of Andhra Pradesh [1968] 21 STC 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 3-A 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 (2-A) which alone is relevant herein, read as follows: "3-A(2-A). 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 cent: Provided that the State Government may from time to time, by notification in the Gazette modify the rate or point of 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 (2-A) of section 3-A]. The State Government issued a Notification dated May 30, 1975, in terms of and as contemplated by the proviso to sub-section (2-A) of section 3-A declaring that with effect from June 1, 1975, the turnover in respect of goods specified in column (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture 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 therein, the Governor of Uttar Pradesh issued an Ordinance being Ordinance No. 45 of 1991 on December 12, 1991 substituting section 3-AAAA in its entirety with effect from April 1, 1974. The said Ordinance has since been replaced by the 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71 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 be l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 unrelated 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The section was understood by the Division Bench in the following manner: "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. 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 of goods purchased within the State or in the course of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71. There is a substantial and qualitative difference between the language employed in section 9 of the Haryana Act and section 13-AA of the Bombay Act and in section 3-AAAA of the 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 Nos. 655 to 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., the State of Andhra Pradesh and its sales tax authorities not to levy and collect purchase tax on milk at 4 per cent under section 6-A as also the surcharge tax at 10 per cent 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows: "fresh milk, curd and buttermilk 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 May 26, 1975, the Government of Andhra Pradesh exempted the sale of pasteurised 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. In the civil appeals the appellant is Hindustan Milkfood 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 District 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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) 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 at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 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 the nature or character of the tax. Be that as it may, we may as well set out the section as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." The proviso which governs both the above situations provides that in case of declared goods the total tax shall not exceed 4 per cent 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 pasteurised milk. The purchaser of pasteurised milk from the Corporation is taxed provided he satisfies one of the conditions specified in clauses (i) to (iii) Presumably clauses (i) to (iii) refer to clauses (iii), (iv) and (v) of A and B as analysed by the Supreme Court: See page 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation reads as follows: "Explanation II.-Where a grower of agricultural or horticultural produce sells such produce grown by himself on any land in which he has an interest whether as owner, usufructuary mortgagee, 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. If, 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 at the rate prescribed [sub-section (2)]. Schedule III comprises of declared goods while Schedule IV sets out goods which are totally exempted from tax under section 8 of the Act. Schedule V deals with jaggery and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empting 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 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 require reconsideration) As mentioned earlier, counsel for all the assessees in these matters strongly rely on the decision of this Court in Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71 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 the Haryana Sales Tax Act and Bombay Sales Tax Act fell for consideration in this case. Section 9 of the Haryana Act, befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 were 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 reassessment made in accordance with the provisions of this Act and the rules made thereunder on the production of proof regarding the payment thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 put to tax under section 9(1)(b)........ The liability to pay tax in this section does not accrue on purchasing the goods simpliciter, 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 liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the goods taxed under section 13-AA 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 13-AA. 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 13-AA 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 (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 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 (sic) 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71 takes only the last eventuality and holds t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erlying the provision. The object is to tax the purchase by a manufacturer of goods 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 of sale or are consigned to the manufacturing dealer's depots/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 plausibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 pur- chase for a year, pay tax on the taxable 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 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 connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 [1975] 36 STC 191 (SC) 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 be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purposes may be 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 for 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. [1943] 322 US 327; 88 L Ed. 1305 and C.G. Naidu and Co. v. State of Madras AIR 1953 Mad. 116 at 127-128; [1952] 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 irrelevant......... To appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struction, 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 & Co. v. State of Haryana [1991] 80 STC 79 (SC); [1991] 1 SCC 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 [1990] 76 STC 71 (SC); [1990] 2 SCC 71 a Bench of three Judges of this Court has independently approved and affirmed the correctness of the ratio and reasoning in Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect of the matter is elaborately dealt with in pages 96-97 of STC (paragraphs 31 to 34 at page 796 of AIR). We need not dilate on this any more since the correctness of the judgment in Goodyear India Ltd. [1990] 76 STC 71 (SC); [1990] 2 SCC 71 is not canvassed before us." It is, thus, clear that the main argument for the Bench was that the ratio of Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71 governs the said case and it was so found. It is equally clear that the correctness of the decision in Goodyear [1990] 76 STC 71 (SC); [1990] 2 SCC 71 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] 80 STC 79 (SC); [1991] 1 SCC 377 is concerned, it arose under the Haryana General Sales Tax Act and explains the meaning of export sale referred to in section 9(1)(b) of the Act. There is no discussion in this decision about the point at issue before us. The same is the position under section 13-AA of the Bombay Sales Tax Act. The said provision, properly analysed, yields the following ingredients: (i) where a dealer who is liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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