Writ Petn.(C) No. 1732 of 1981

8th April, 1994.

Cases Cited:
1993 AIR SCW 3,88 STC 98,AIR 1993 SC 1048 (Foll.) [Para 2]
1991 AIR SCW 553,(1991) 2 SCC 580 [Para 3]
(1991) 80 STC 356 (Tribunal) [Para 4]
AIR 1990 SC 781,(1990) 2 SCC 71 (Overruled) [Para 5]

JUDGMENT

B. P. JEEVAN REDDY, J.:-Leave granted in the Special Leave Petition. In Goodyear India Limited v State of Haryana, (1990) 2 SCC 71: (AIR 1990 SC 781), a Bench of this Court comprising Sabyasachi Mukharji and S. Ranganathan, JJ. declared Section 9(l)(b) of the Haryana General Sales Tax Act, 1973 ultra vires the powers of the State Legislature insofar as it imposed tax to the despatch of goods outside the territory of the State. It was held that "the tax and despatch of goods outside the territory of the State certainly is in the course of Inter-State trade or commerce and, in other words, amounts to imposition of consignment tax". Section 9(1)(b) levied purchase tax on goods purchased by a dealer who used them in the manufacture of other goods and disposed of such manufactured goods to a place outside the place 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 the Central Sales Tax Act, 1956. The said tax was also leviable in a case where the manufactured goods were disposed of within the States otherwise than by way of sale in the State. Section 13AA of the Bombay Sales Tax Act, 1959 also came up for consideration in the same decision. Section 13AA provided that where a dealer purchased goods and used such goods in the manufacture of taxable goods and despatched the goods so manufactured to his own place of business or to his agent's place of business situated outside the State within the territory of India, such dealer shall pay an additional purchase tax at the rate of two paise in the Rupee on the purchase price of the goods so used in the manufacture. The Division Bench held the said provision is equally beyond the legislative competence of the Maharashtra Legislature inasmuch as it purported to levy a consignment tax.

2. Relying upon the decision in Goodyear (AIR 1990 SC 781), dealers from various States challenged the validity of similar provisions in their respective enactments, all of which were referred to a three-Judge Bench. They were posted for hearing before a Bench comprising S. Ranganathan, V, Ramaswami, JJ. and one of us (B. P. Jeevan Reddy, J.). Having regard to the constraint of time, the Bench confined its attention only to the relevant provisions in three enactments, viz., Section 15B of the Gujarat Sales Tax Act, Section 3AAAA of the U.P. Sales Tax Act and Section 6A of the Andhra Pradesh General Sales Tax Act, dealing the matters relating to other State enactments. The delinked matters were directed to be heard separately. 'Two opinions were delivered in the batch of cases heard by the Bench (reported in Hotel Balaji v. State of Andhra Pradesh, (1993) 88 STC 98: (1993 AIR SCW 3). One opinion was delivered by one of us (B.P. Jeevan Reddy, J.) speaking for himself and V. Ramaswami, J. In his opinion, it was held that the decision in Goodyear declaring the relevant provisions in Haryana and Bombay Acts as outside the legislative competency of respective State Legislature is not correct in law. It was held that the said provisions in both the enactments were perfectly competent, valid and effective. On that reasoning, the relevant provisions in Gujarat, Uttar Pradesh and Andhra Pradesh enactments were held to be perfectly valid and effective. S. Ranganathan, J., in his separate opinion, agreed that the provisions in the said three enactments were perfectly valid. The learned Judge recalled his observations in his concurring opinion in Goodyear (AIR 1990 SC 781), and observed that the particular view-point presented in Hotel Balaji (1993 AIR SCW 3) was not presented in Goodyear and that on reconsideration, he finds the reasoning in support of the validity of the provisions more persuasive. The learned Judge said (at p. 13, para 8 of AIR):

"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."

(Emphasis supplied)

3. The matters relating to other States have now come up before us. They relate to Punjab, Tamil Nadu, Kerala, West Bengal and Bombay. The main contention of the counsel for the dealers is that the reasoning and approach adopted and conclusion arrived at in Goodyear (AIR 1990 SC 781) is the correct one. Counsel faulted the reasoning and conclusion in Hotel Balaji (1993 AIR SCW 3) and asked for its reconsideration. Counsel submitted that the decision in Hotel Balaji is also contrary to the reasoning in Mukerian Papers v. State of Punjab (1991) 2 SCC 580 : (1991 AIR SCW 553), a decision rendered by a Bench of three-Judges. It is argued that the decision in Mukerian Papers squarely affirms the decision in Goodyear, For this reason, it is submitted, these matters must be placed before a larger Bench to

resolve the conflict between Hotel Balaji and Mukerian Papers. It is urged that the test of taxable event adopted in Goodyear is the correct one whereas the ratio of Hotel Balaji has the effect of taxing the despatch of manufactured goods though purporting to tax the purchase of the raw material. The nexus, if any, between the purchase of raw material and the point of levy, it is submitted, is absent where the tax is levied at the stage of despatch of manufactured goods beyond the State. There can be no levy on non-existent goods, it is contended further.

4. Mukerian Papers (1991 AIR SCW 523) was decided by a Bench comprising Ranganathan Misra, C.J., and two of us, M. N. Venkatachaliah, J. and A.M. Ahmadi, J. The only contention before the Bench was that the point arising therein was concluded by Goodyear (AIR 1990 SC 781) and the Bench agreed with the said contention in the facts of that case. The correctness of Goodyear was not questioned before the Bench which fact was expressly recorded in the Judgment. There was, therefore, no occasion for the Bench either to affirm or dissent from the decision in Goodyear. This aspect has been dealt with in Para 101 of the decision in Hotel Balaji (1993 AIR SCW 3) and we agree with it. Accordingly, we see no conflict between Hotel Balaji and Mukerian Papers.

5. Now coming to the merits of the contention, we are of the considered opinion that, there is no reason to take a view different from the one taken in Hotel Balaji (1993 AIR SCW 3). All the contentions urged now have been considered and dealt with in the said decision. In our opinion, the approach adopted in Goodyear (AIR 1990 SC 781) does not accord with the scheme, intendment and language of the relevant provisions of the Haryana and Bombay Acts and cannot be accepted.

6. The challenge in this batch is to Section 4B of the Punjab General Sales Tax Act, Section 7A of the Tamil Nadu Sales Tax Act, Section 5A of the Kerala Sales Tax Sections 4(2)(i) and 4(6)(ii) of the West Bengal Sales Tax Acts, 1941 and 1954 respectively and Section 13AA of the Bombay Sales Tax Act. The sole basis of the attack on the said provisions is the reasoning in and ratio of Goodyear (AIR 1990 SC 781). No separate arguments are addressed each provision-wise. Even so, it would be appropriate to notice briefly the relevant provisions in each State enactment.

7. Section 4B of the Punjab General Sales Tax Act, 1948 reads thus:

"Section 4B: Levy of purchase tax on goods -where a dealer who is liable to pay tax under this Act purchases any goods other than those specified in Schedule 'B' from any source and:-

(i) Uses them within the State in the manufacture of goods specified in Schedule 'B' or

(ii) Uses them within the State in the manufacture of any goods, other than those specified in Schedule 'B' and sends the goods so manufactured outside State in any manner other 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, or

(iv) sends them outside the State other 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 and no tax is payable on the purchase of such goods under any other provision of this Act, there shall be levied a tax on the purchase of such goods at such rate not exceeding the rate specified under sub-section (1) of Section 5 as the State Government may direct."

(Extracted from Para 7 of Writ Petition No,1732 of 1981).

8. It is evident that Section 4B of the Punjab Act is in substance similar to Section 9(l)(b) of the Haryana Sales Tax Act. For the reasons given hereinabove, validity of Section 4B is sustained. It cannot be said to be beyond the legislative competence of the State Legislature.

9. Section 5A of the Kerala General Sales Tax Act reads thus:

"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 a year, pay tax on the taxable turnover relating to such purchase for the year at the rates mentioned in Section 5.

(2) Notwithstanding anything contained in sub-section (1), a dealer (other than a casual trader or agent of a non-resident dealer purchasing goods, the sale of which is liable to tax under Section 5, shall not be liable to pay tax under sub-section (1) if his total turnover for a year is less than one lakh rupees:

Provided that where the total turnover of such dealer for the year in respect of the goods mentioned in clause (i) of sub-section (1) of Section 5 is not less than fifty thousand rupees, he shall be liable to pay tax on the taxable turnover in respect of those goods.

(3) Omitted as unnecessary." .

10. It is evident that Section 5B of the Kerala Act broadly corresponds to Section 6A of the Andhra Pradesh General Sales Tax Act, which has been upheld in Hotel Balaji (1993 AIR SCW 3). For the reasons given hereinabove, the validity of Section 5A is also sustained.

11. Section 7A of the Tamil Nadu Sales Tax Act, reads thus:

"7-A. Levy of purchase tax. - (1) Every dealer who in course of his business purchases from a registered dealer 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 3, 4 or 5 as the case may be 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 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 the purchase of aforesaid at the rate mentioned in Section 3, 4 or 5 as the case may be, whatever be the quantum of such turnover in a year.

Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods the sale of which is liable to tax under sub-section (1) of Section 3 shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than one lakh rupees.

Sub-sections (2) and- (3) are omitted as unnecessary."

It is evident that Section 7A(l) of the Tamil Nadu Act is similar to Section 6A of, the Andhra Pradesh General Sales Tax Act. Accordingly, the attack upon its constitutionality is liable to fail.

12. In West Bengal, the purchase tax is levied by Section 4(6)(ii) of the Bengal Finance (Sales Tax) Act, 1941 and Section 4(2)(i) of the West Bengal Sales Tax Act, 1954, which read thus:

"4(6)(ii) - Every dealer, who has become liable to pay tax under sub-section (1) or subsection (2) or sub-section (4) of this section or sub-section (3) of Section 9 and is registered under this Act, shall, in addition to the tax referred to therein, be also liable to pay tax under this Act on all his purchases from-

(i) .......................................

(ii) a registered dealer, to whom a declaration referred to in the proviso to clause (bb) of sub-section (1) of Section 5 has been or will be furnished by him in respect of sales referred to in sub-clause (i) or sub-clause (ii) of the said clause, of goods purchased against such declaration, and used by him directly in the

manufacture of West Bengal, of goods or in the packing of such goods, when such manufactured goods are transferred by him to a place outside West Bengal or disposed of by him, otherwise than by way of sale in West Bengal.

Section 4(2)(i) - A dealer to pay tax under sub-section (1) availing himself of the benefit under Section 23A by furnishing a declaration referred to in the proviso thereto shall, in addition to the tax payable under sub-section (1), be liable to pay tax under this Act,-

(i) on all such purchases against the declaration issued or to be issued by him goods required for use by him directly, in manufacturing, making, processing or packing in West Bengal of notified commodities, when such notified commodities are transferred by him to a place outside West Bengal or disposed of by him otherwise than by way of sale in West Bengal."

13. Following the decision in Goodyear (AIR 1990 SC 781), the Tribunal held in Rasoi Limited v. State of West Bengal, (1991) 80 STC 356 (a decision rendered on Sept. 11, 1990) that the aforesaid provisions were ultra vires the powers of the State Legislature and, therefore, invalid. The State Legislature then stepped in and amended the said provisions by the West Bengal Taxation Laws (Amendment) Act, 1990 amending the said provisions. By the said (Amendment) Act, in Section 4(6)(ii) of the 1941 Act, the words beginning with "and used by him directly in the manufacture" and ending with "by way of sale in West Bengal" were omitted with retrospective effect from October 10, 1977. The said (Amendment) Act also substituted clause (i) in sub-section (2) of Section 4 of 1954 Act. The substituted clause (i) reads as follows:

"(i) on all such purchases of goods against the declaration issued or to be issued by him."

(It is not necessary to notice the other amendments in Section 4 for the purpose of this case.)

14. The amended provision was again challenged in a batch of writ petitions Chloride Industries Ltd. v. Commissioner of Commercial Taxes, Government of West Bengal and other and batch. By its judgment and order dated December 20, 1991, the Tribunal struck down the amended provisions as well on the very reasoning adopted in Goodyear. Since we have held that the law laid down" in Goodyear does not represent the correct view of law, the appeals filed by the State of West Bengal (Commissioner of Commercial Taxes, West Bengal and others have to be allowed declaring the aforesaid provisions both before and after amendment as perfectly valid, competent and effective.

15. So far as State of Maharashtra is concerned, Section 13AA which was incorporated in the Bombay Sales Tax Act, 1959 with effect from July 1, 1982 was declared to be beyond the competence of the State Legislature in Goodyear (AIR 1990 SC 781). With a view to get over the said Judgment and its consequences, the Governor -of Bombay issued the Bombay Sales Tax (Amendment) Ordinance, 1989 which was subsequently enacted into an Amendment Act substituting Section 13AA altogether with retrospective effect from July, 1982. The substituted Section 13AA reads as follows:

"13AA. (1) Where a dealer, who is liable to pay tax under this Act, purchases any goods specified in Part I of the 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, then, unless the goods so manufactured are sold by the dealer, there shall be levied, in addition to the Sales Tax, paid or payable, if any, as the case may be, the purchase tax levied or leviable, if any, 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."

16. The validity of this provision was questioned in a batch of writ petition's which have been allowed by a Division Bench of the

Bombay High Court by its judgment and order dated August 28, 1990 in Writ Petitions Nos. 477, 587 and 924 of 1990. Civil Appeals Nos. 226-228 ( NT) of 1991 are preferred against the said judgment. The basis upon which the Division Bench has struck down the amended Section 13AA is the one contained in Goodyear (AIR 1990 SC 781). For the reasons given hereinabove, these appeals are allowed and it is declared that Section 13AA as substituted by Bombay Sales Tax (Amendment) Act 2 of 1990 (which replaced Maharashtra Ordinance IX of 1989) is perfectly valid and competent piece of Legislation. Indeed, the result of our judgment would be that the decision in Goodyear insofar as it declared the original Section 13AA as invalid must be deemed to be not correct in law.

17. It is brought to our notice that besides West Bengal and Bombay, other States too have amended/ substituted the relevant provisions with a view to neutralise the attack based on Goodyear (AIR 1990 SC 781). The amended provisions in these enactments have not been placed before us. It is evident that our opinion pertains to the provisions which are the subject-matter or the matters before us. However, if the provisions in the other statutes are similar, those cases will be governed by the ratio of this decision.

18. For the above reasons, the writ petitions and appeals filed by the dealers, viz., W. P. 1732/ 81, W. P. 28 / 81, W.P. 1316/ 82, C.A. 3523-25/79, C.A. 3266/79, C.A. 649/80, S.L.P. (C) 6958/94 C.A. No. 2352/94 (CC16536), C.A. 2551-61/92 and C.A.563/91are dismissed. The appeals filed by the States, viz., C.A.2990/91, C.A.4807/91, C.A.543/86, C.A.3410/84, C.A.2125/91, C.A.1649/92, C.A.1650/92, C.A.-4562/92, C.A.1941/92, C.A.2289/92, C.A.1645/92, C.A. 2256/92, C.A.5900/92, C.A.1898-99/91, C.A.4850-51/91, C.A.3437-38/91, C.A.1646-48/92, C.A.709-09A/91, C.A.2452/91, C.A.1389-90, C.A.1816/91 and C.A.226-228/91 are allowed. No order as to costs.

19. Civil Appeal No. 407 of 1993 is not concerned with the batch. Accordingly, it is de-linked and may be posted for hearing in usual course.

Order Accordingly