TMI Blog1990 (8) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... of the old section 13AA by writ petitions filed in this Court. These writ petitions were dismissed (Wipro Products Limited v. State of Maharashtra [1989] 72 STC 69). The petitioners preferred appeals to the Supreme Court. Special leave to appeal was granted. Stay of recovery of penalty was ordered by the Supreme Court at the interim stage. It was stated also that if the petitioners succeeded in the appeals the amount of the additional purchase tax and interest recovered from them would be refunded with interest at the rate of 12 per cent per annum. The appeals were allowed on October 19, 1989 ([1990] 76 STC 71). Before refunds as ordered were made, Maharashtra Ordinance No. 9 of 1989 introduced a new section 13AA into the said Act effective from July 1, 1982. The said Ordinance also sought to validate recoveries made in pursuance of the old section 13AA. These petitions were filed to challenge the said Ordinance and were amended to challenge Maharashtra Act No. 2 of 1990, which replaced it. At the interim stage* of the writ petitions the validating provision was stayed, refund as ordered by the Supreme Court was directed and the petitioners were given liberty to pay tax under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder issued in this behalf by the Commissioner, furnish a consolidated return including therein the turnover of such purchases for the period aforesaid, within a period of three months from the date of the commencement of the said Act.' 3.. Validating provisions and saving.-(1) Notwithstanding anything contained in any judgment, decree or order of any court or Tribunal to the contrary, any assessment, reassessment, levy or collection of tax in respect of purchases effected by any dealer made or purporting to have been made, or any action taken or thing done in relation to such assessment, reassessment, levy or collection, under the provisions of the principal Act during the period commencing on the 1st day of July, 1982 and ending on and including the day immediately preceding the date of commencement of this Act, shall be deemed to be as valid and effective as if such assessment, reassessment, levy or collection or action or thing had been duly made, taken or done under the principal Act, as amended by this Act; and accordingly,- (a) all acts, proceedings or things done or taken by the State Government or by any officer of the State Government or by any other authority in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Haryana, against the orders of the Punjab and Haryana High Court in writ petitions which impugned the constitutionality of section 9 of the Haryana General Sales Tax Act, 1973. Having set out the provisions of the old section 13AA, we shall state the relevant portions of the Supreme Court judgment (which we shall call "the Goodyear judgment [1990] 76 STC 71", first dealing with the old section 13AA and then dealing with section 9 of the Haryana General Sales Tax Act. The old section 13AA read thus: "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 India, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax occurred only when the goods so purchased were used in the manufacture of taxable goods and such taxable goods were despatched outside the State by a dealer-manufacturer. The proper question which the court had to address itself to was whether, the old section was, in pith and substance, not levying tax on purchase but one levying tax on consignment. It was well-settled that while determining the nature of a tax, though the standard or the measure on which the tax was levied might be a relevant consideration, it was not the conclusive consideration. One had to have regard not to the name of the tax but to its real nature, its pith and substance. This determined into which category the tax fell. On an analysis of the old section 13AA, the court found that the goods which were despatched were different from the goods on the purchase of which the purchase tax had been paid. The true test to find out what was the pith and substance of the legislation was to ascertain its true intent. This would determine its validity. The charging event was the event the occurrence of which immediately attracted the charge. The taxable event could not be postponed to the occurrence of a subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity to pay the tax created. The identification of the subject-matter of the tax was to be found in the charging section. Analysing the provision, it appeared that the two conditions specified before the event of despatch outside the State, namely, the purchase of goods in the State and the use of them for the manufacture of other goods in the State, were only descriptive of the goods liable to tax under the provision in the event of their despatch outside the State. It was necessary in all cases to find out what was the essence of the duty that was attracted. A taxable event was that which was closely related to imposition. In the provision there was such close relationship only with despatch. Therefore, the goods purchased were used in the manufacture of a new independent commodity and, thereafter, the manufactured commodity was despatched outside the State. In this series of transactions, when the levy was imposed at the third stage of despatch after manufacture, the original transaction was completely eclipsed or ceased to exist. The levy had no direct connection with the transaction of purchase of raw materials, it had only a remote connection or lineage. It might be indirectl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an impossibility. Shorn of verbiage which is unnecessary in the context, sub-section (1) of the new section 13AA reads thus: "where a dealer who is liable to pay tax under the said Act, purchases any goods specified in Part I of Schedule C 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, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods so used in the manufacture". The words "unless the goods so manufactured are sold by the dealer" in the sub-section have to be read in the context of the definition of sale in section 2(28) of the Act. Thereunder sale means a sale of goods made within the State. Reading sub-section (1) of section 13AA accordingly, we are of the view that the charging event under the new section 13AA is the use of goods specified in Part I of Schedule C which have been purchased by the dealer, in the. manufacture of taxable goods. The word "then" in the sub-section is of great significance. When does the levy attach? It attaches "then ", that is to say, when the dealer "uses the goods in the manufacture of taxable goods". This interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods which the Constitution Act assigned exclusively to the Provincial Legislatures was a tax levied on the occasion of the sale of the goods. A tax levied on the first sale was, in the nature of things, a tax on the sale by the manufacturer or producer but it was levied upon him qua seller and not qua manufacturer or producer. In In re Sea Customs Act, section 20(2) AIR 1963 SC 1760, the same point was made. It was said that the taxable event in the case of duties of excise was the manufacture of goods and the duty was not directly on the goods but on the manufacture thereof. In the case of sales tax, which was also imposed with reference to goods, the taxable event was the act of sale. Though both excise duty and sales tax were levied with reference to goods, the two were very different imposts. In the one case the imposition was on the act of manufacture or production while in the other it was on sale. The levy under the new section 13AA is attracted when a dealer who has purchased goods specified in Part I of Schedule C of the said Act uses these goods in the manufacture of taxable goods. That the levy is called a purchase tax or that it is computed at the rate of 2 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals with the manufactured article in such a manner as renders its subsequent sale in the State an impossibility. In this series of transactions, when the levy is imposed at the third stage of rendering the sale of the manufactured article within the State an impossibility, the original transaction is completely eclipsed or ceases to exist. The levy has no direct connection with the purchase of the Schedule C, Part I raw materials. It has only a remote connection or lineage. It may be indirectly and very remotely connected with the transaction of the purchase of raw material. The levy loses its character of purchase tax on that transaction. The learned Government Pleader submitted that the Supreme Court had rendered the Goodyear judgment [1990] 76 STC 71 only with reference to the charging event and not with reference to the subject-matter or incidence of the levy. The Goodyear judgment [1990] 76 STC 71 (SC), itself shows the contrary. It states (at page 95 of the report in the Sales Tax Cases), "the identification of the subject-matter of a tax is to be found in the charging section". The charging section must be analysed. The taxable event must be located. This will show what t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered 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 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 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 nonresident 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 subsection, if his total turnover for a year is less than twenty-five thousand rupees.........." The court was of the view that the provision was a charging as well as a remedial provision. Its main object was to plug leakage and prevent evasion of tax. In interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Upon the language used, the levy imposed by section 13AA is, in our view, a levy on the use of Schedule C, Part I goods purchased by a dealer in the manufacture of taxable goods. The levy takes effect on the occasion of manufacture and, therefore, the levy is in the nature of excise. The State Legislature is not competent to make laws in respect of such levy. Even if we accept the argument that the levy attaches upon some act of the dealer which renders the subsequent sale of the manufactured article in the State an impossibility, we are not persuaded to hold that the levy is on the purchase of goods specified in Part I of Schedule C which, after being purchased by the dealer, are used by him in the manufacture of taxable goods. The charging event is, on that basis, far too remotely connected with the transaction of the original purchase. The levy, therefore, does not bear the character of a purchase tax on the transaction of such purchase and is, therefore, outside entry 54 of List II. The learned Government Pleader urged that the purchase tax which was levied under the said Act at the time of the purchase of the Schedule C, Part I goods was at a concessional rate. This, she su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the validating provision in section 3 would be bad in law even if the new section 13AA were held to be intra vires. A Legislature may re-enact a legislation which has been struck down as invalid and validate what has been done under it provided the Legislature cures the defect for which it was struck down. Where the legislation has been struck down on the ground that it fell outside the competence of a Legislature, that Legislature cannot cure the defect. The old section 13AA was found by the Supreme Court in the Goodyear judgment [1990] 76 STC 71, to impose a tax on consignment and, therefore, to be outside the competence of the State Legislature. The State Legislature, therefore, could not, short of an amendment to the Seventh Schedule of the Constitution, cure the defect by reason of which the old section 13AA was struck down. Nor could it do so by insisting in section 3 that the old section 13AA had imposed a "tax in respect of purchases effected by any dealer" in the face of the finding of the Supreme Court in the Goodyear judgment [1990] 76 STC 71, to the contrary. Reference need be made in this behalf only to the judgment of the Supreme Court in Shri P.C. Mills Ltd. v. Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and make it retrospective so as to bind even past transactions. The validity of a validating law, therefore, depends upon whether the Legislature possesses the competence which it claims over the subject-matter and whether in making the validation it removes the defect which the courts had found in the existing law and makes adequate provisions in the validating law for a valid imposition of the tax." The interim orders that this Court had passed on these writ petitions provided that the petitioners were at liberty to pay the tax under the new section 13AA as and from December 6, 1989, under protest. The tax so paid would be subject to the outcome of the petitions and would be refundable by the respondents with interest at the rate of 12 per cent per annum in the event of the petitioners succeeding in the petitions. The orders of the Supreme Court at the interim stage of the appeals in the earlier writ petitions challenging the old section 13AA was that if the petitioners succeeded therein the amount of tax paid thereunder would be refunded by the respondents with interest at the rate of 12 per cent per annum. Upon the decision being rendered in the Goodyear judgment [1990] 76 ST ..... X X X X Extracts X X X X X X X X Extracts X X X X
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