TMI Blog1991 (4) TMI 376X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 main point urged in support of the challenge to the provision by the learned counsel for the petitioners was that the taxable event is not the purchase of the goods described in the provision but the utilization of the goods purchased within the State for manufacturing some other goods and thereupon their despatch outside the State by way of stock transfer or consignment or by way of despatch of the goods in the course of export. In effect, it was urged the impugned tax is (i) on consumption of the goods purchased within the State, (ii) on the consignment of the goods in the course of inter-State trade or commerce and (iii) on the export of the goods. In each of these contingencies, it was argued, the levy of the tax would be beyond the legislative competence of the State. Before examining these contentions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision (as it stands at present) was enacted by U.P. Taxation Laws (Amendment and Validation) Act, 1979 (U.P. Act No. 12 of 1979) with retrospective effect from April 1, 1974. We will take up these issues later, if necessary. In the counter-affidavit filed on behalf of the State, the stand taken by the State is this. The taxable event is the purchase of the goods by the petitioner under the circumstances set out in section 3-AAAA. The incidence of the tax is at the point of the sale to the consumer and this incidence remains the same. Only the liability shifts to the purchaser instead of the seller in cases covered by section 3-AAAA. Further, even though the incidence of purchase tax arises at the point of purchase, the liability to pay the said tax shifts to the point at which all the conditions envisaged under that provision are fulfilled. The provision does not in the slightest degree hamper the free flow of trade and commerce envisaged under article 301 of the Constitution of India nor, it is contended, does the provision violate article 19(1)(g) or 286 or any other provision of the Constitution of India. The State further contends that the impugned legislation does not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or commerce." It was in this background that entry 92-B was added to the Union List. Taking note of the changes brought about by the Forty-sixth Amendment in the shape of entry 92-B and insertion of new sub-clause (h) in article 269(1) of the Constitution, their Lordships of the Supreme Court observed in the case of Goodyear India Ltd. v. State of Haryana reported in [1990] 76 STC 71 at page 99; 1990 UPTC 198 at page 223: "It appears to us that the effect of the aforesaid amendment is that the field of taxation on the consignment/despatch of goods in the course of interState trade or commerce expressly comes within the purview of the legislative competence of the Parliament. It is well-settled that the nomenclature of the Act is not conclusive and for determining the true character and nature of a particular tax, with reference to the legislative competence of a particular Legislature, the court will look into its pith and substance." This then is the constitutional perspective from which we have to judge the validity of section 3-AAAA. On a simple analysis of this provision, it is apparent that the liability to purchase tax would arise on the fulfilment cumulatively of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject of discussion before the Supreme Court, read as follows at the relevant time: "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 (1) of section 5 of the Cen- tral 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 provision of this Act, there shall be levied, 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." The vires of this provision was challenged principally on the self-same ground, viz., that the impugned tax was not purchase tax but in truth and substance, a tax on the consignment outside the State other than by way of sale in the course of inter-State trade or commerce and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said section, it appears that section 9(1)(b) has to be judged as and when liability accrues under that section. The liability to pay tax under 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 alleged 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 their 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. It is the cumulative effect of that event which occasions or causes the tax to be imposed, to draw a familiar analogy, it is the last straw on the camel's back." (Emphasis* supplied). Again, in paragraph 74 of the judgment at page 111 of STC; 232 of UPTC the learned Chief Justice observed: "It is, therefore, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The only distinction is that in the former the taxable events have been expressed in positive terms, namely, the use of the goods purchased by the dealer in the manufacture of some other taxable goods and then their disposal otherwise than in the course of sale within the State or in the course of inter-State trade and commerce. In the U.P. enactment, on the other hand, the ultimate taxable event has been expressed in section 3-AAAA negatively, viz., "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 words quoted clearly indicate that it is the use and the disposal of the goods by the purchasing dealer otherwise than by way of sale within the State or in the course of inter-State sale in the same form and condition in which he had purchased them that was intended to be brought to tax. Put differently, the fourth and last condition attracting the levy is the use of the goods purchased by the dealer in a manner that renders the sale of the goods within the State and in the course of inter-State trade and commerce in the same form and condition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm 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 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciate the controversy. Section 13-AA of the Bombay Act (as amended) in so far as relevant for our purpose reads thus: "Where a dealer, who is liable to pay tax under this 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. " Their Lordships emphasised the words "unless the goods so manufactured are sold by the dealer" and the word "then" and held that the tax becomes chargeable not at the point of purchase but only at the point when the purchasing dealer does some act which makes the subsequent sale of the manufactured articles within the State an impossibility. It was observed that the tax was in truth and substance on the use of the goods purchased in the manufacture of taxable goods and consequently being in the nature of excise the same was beyond the legislative competence of the State Legislature. This is how the learned Judges summed up the law at page 266 of the Report: "To consider, now, the validity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompetence of the State Legislature. The learned Judges then went on to add that even if the levy attaches on "non-sale" of the goods as contended by the State counsel, that is upon the despatch of goods, the levy would be wholly unauthorised in view of the fact that the taxable event would in that case get much too distanced from the original transaction of purchase. Their Lordships also observed that even if it was assumed that the levy gets attracted on the point of despatch of the manufactured goods, the provision would be lacking the legislative competence in view of Goodyear's case [1990] 76 STC 71 (SC); 1990 UPTC 198 (SC). We entirely agree, with respect, with the analysis and summing up of the law on the subject. The ratio squarely applies, as basically there is a striking similarity between the enactments of the two States. The taxable event under the first illustration in the present case would be the use of the *Here italicised. goods purchased in the manufacture of some other taxable goods and, therefore, the levy would be beyond the legislative competence being in the nature of excise. The second illustration of the use and disposal of the goods rendering the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the point at which all the conditions envisaged under that provision are fulfilled. A complete answer to this submission is furnished by their Lordships of the Supreme Court in Goodyear's case [1990] 76 STC 71; 1990 UPTC 198 in which an identical contention raised on behalf of the States of Maharashtra and Haryana was rejected vide the discussion in paragraph 74 of the judgment at page 111 of STC (232 of UPTC). It was observed that the charging event is that on the occurrence of which the tax gets immediately attracted. The taxable event could not be postponed to the occurrence of the subsequent condition. Their Lordships further observed that in case there is any such postponement it is the subsequent condition or event the occurrence or the happening of which the charge gets immediately affixed. Sri Upadhya next contended that the words "and the purchasing dealer does not resell such goods.........." occurring in section 3-AAAA are not indicative of any condition but they are merely suggestive of a provision for exemption. That is to say, if the goods purchased are resold in the State or in the course of inter-State trade and commerce in the same form and condition, there wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC). We are unable to agree. Both the decisions cited by the learned counsel for the State were considered at some length by their Lordships in Goodyear's case [1990] 76 STC 71 (SC); 1990 UPTC 198 (SC) but they were distinguished on the ground that neither Kandaswami's case [1975] 36 STC 191 (SC) nor Malabar Fruit Products' case [1972] 30 STC 537 (Ker) was really concerned with the question falling for consideration in Goodyear's case [1990] 76 STC 71 (SC); 1990 UPTC 198 (SC). As the question involved in the present case is,-in our opinion, clearly covered by the law laid down in the later Supreme Court decision in Goodyear's case [1990] 76 STC 71; 1990 UPTC 198 and as their Lordships had specifically noticed the decision cited above on behalf of the State and distinguished them, we cannot ignore the ratio of the subsequent Supreme Court decision in Goodyear's case [1990] 76 STC 71; 1990 UPTC 198 and follow the earlier decision in Kandaswami's case [1975] 36 STC 191 (SC). Further the decisions in both Kandaswami's case [1975] 36 STC 191 (SC) as well as Malabar Fruit Products' case [1972] 30 STC 537 (Ker) were rendered in a constitutional setting which has undergone radical chan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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