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TMI Blog2025 (5) TMI 854X X X X Extracts X X X X X X X X Extracts X X X X ..... K Poulose, Adv. Mr. Nihar Dharmadhikari, Adv. Mr. K. Radhakrishnan, Sr. Adv. Mr. Sabarish Subramanian, AOR Mr. C. Kranthi Kumar, Adv. Mr. Vishnu Unnikrishnan, Adv. Mr. Sarathraj B, Adv. Mr. Danish Saifi, Adv. Ms. Aswani Satheesh, Adv. JUDGMENT SANJIV KHANNA, CJI. Leave granted in SLP (C) Nos. 9420-9422 of 2012. 2. This judgment decides a batch of matters pertaining to Section 5A of the Kerala General Sales Tax Act, 1963 For short, "Kerala Act" and the pari materia provision of Section 7A of the Tamil Nadu General Sales Tax Act, 1959. For short, "Tamil Nadu Act". 3. The following issues arise for our consideration: I. Whether the purchase of goods by the appellants from dealers who were exempted from payment of tax by virtue of notifications or exemptions issued under the Kerala Act or the Tamil Nadu Act, is a purchase "which is liable to tax" within the meaning of Section 5A of the Kerala Act or Section 7A of the Tamil Nadu Act? II. Whether the appellant-assessee who had purchased goods, that were exempt from payment of sales tax or from the dealers who were exempt from payment of sales tax, are liable to pay purchase tax under Section 5A of the Kerala Act or Section 7A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of, or as part of, any service or in any other manner whatsoever of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is for cash, deferred payment or other valuable consideration; Explanation (1)- A society (including a co-operative society), club or firm or an association which, whether or not in the course of business, buys, sells, supplies or distributes goods from or to its members for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act . Explanation (2)- The Central Government or any State Government which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, shall be deemed to be a dealer for the purposes of this Act; XX XX XX Section 2(j) "goods" means all kinds of movable property (other than newspapers, actionable claims, stocks and shares and securities) and includes all materials, commodities, and articles including the goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er party is prior or subsequent to such appropriation. Explanation (3)-(b) Where there is a single contract of sale or purchase of goods, situated at more places than one, the provisions of clause (a) shall apply as if there were separate contracts in respect of the goods at each of such places. XX XX XX Section 2(q) "total turnover" means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any portion of such turnover is liable to tax; Section 2(r) ["turnover" means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n), by a dealer] either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce other than tea, [and rubber (natural rubber latex) and all varieties and grades of raw rubber] grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le, the tax under this Act shall be payable by a dealer at the rate and [only] at the point specified therein on the turnover in each year relating to such goods: Provided that all spare parts, components and accessories of such goods shall also be taxed at the same rate as that of the goods if such spare parts, components and accessories are not specifically enumerated in the First Schedule and made liable to tax under that Schedule; [Provided further that in the case of goods mentioned in the First Schedule which are taxable at the point of first sale, the tax under this Act shall be payable by the first or earliest of the successive dealers in the State who is liable to tax under this section.] Section 3(2-A) Subject to the provisions of sub-section (1), in the case of goods mentioned in the Fifth Schedule, the tax under this Act shall be payable by a dealer at the rate and at the point specified therein on the turnover in each year relating to such goods: Provided that in respect of sale by the first dealer to another registered dealer, the dealer selling the goods shall furnish to the assessing authority in the prescribed manner within the prescribed period a declarati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed classes of goods by specified classes of dealers in regard to the whole or part of their turnover. Section 17(4) The Government may, in such circumstances and subject to such conditions as may be prescribed, by notification, remit the whole or any part of the tax or penalty or fee payable in respect of any period by any dealer under this Act." Kerala General Sales Tax Act, 1963 " 5. Levy of tax on sale or purchase of goods: - (1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year is not less than [one lakh rupees] and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year,-- (i) in the case of goods specified in the First or Second Schedule, at the rates and only at the points specified against such goods in the said Schedule; [ x x x ] (iii) in the case of transfer of the right to use any goods for any purpose (whether or not for a specified period) at the rate of [six per cent] at all points of such transfer on an aggregate turnover of [rupees one lakh] and above; [(iv) (a) in the case of transfer of goods involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in the Second Schedule and such goods are sold in the course of interstate trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be prescribed [(2A) (i) Notwithstanding anything contained in this Act or the rules made thereunder every dealer shall pay turnover tax on the turnover of goods as specified hereunder, namely:- (a) by an oil company defined in the Explanation under serial number [97] of the First Schedule to this Act whose total turnover in a year exceeds rupees fifty Iakhs at the rate of three per cent on the turnover from the Ist day of April, 1991 till 31st day of July, 1991 and thereafter at the rate of four per cent on the turnover: [(b) by any dealer in Foreign Liquor (Indian made) or Foreign Liquor (Foreign made) as specified in entries against serial numbers 53 and 54 of the First Schedule at the rate of three per cent on the turnover at all points; (c) by any dealer in jewellery made of gold, silver and platinum group of metals at the rate of three per cent on the turnover; (d) by any dealer in cooked food including beverages not falling under the entries against serial numb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regular practice of the dealer or is in accordance with the terms of a contract or agreement entered into in a particular case and provided also that the accounts show that the purchaser has paid only the sum originally charged less discount; (g) all amounts allowed to purchasers in respect of goods returned by them to the dealer when the goods are taxable on sales provided that the goods were returned within a period of three months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was made; and (h) all amounts received from the sellers in respect of goods returned to them by the dealer, when the goods are taxable on the purchase value provided that the goods were returned within a period of three months from the date of delivery of the goods and the accounts show the date on which the goods were returned and the date on which and the amount for which refund was received: Provided further that save as otherwise provided in this sub-section, no other deduction shall be made from the total turnover of a dealer for the purposes of this sub-section. (i) The provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f which is liable to tax under subsection (1). [(5) Notwithstanding anything contained in sub-section (1) or sub- section (2), but subject to sub-section (6), where goods sold are contained in containers or are packed in any packing materials, the rate of tax and the point of levy applicable to such containers or packing materials, as the case may be, shalI, whether the price of the containers or the packing materials is charged separately or not be the same as those applicable to goods contained or packed, and in determining turnover of the goods, the turnover in respect of the containers or packing materials shall be included therein. (6) Where the sale or purchases of goods, contained in any containers or packed in any packing materials is exempt from tax, then, the sale or purchase of such containers or packing materials shall also be exempt from tax. Explanation:- In sub-section (5) and sub-section (6), the word "containers'' includes gunny bags, tins, bottles or any other containers.] 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm 'turnover' is defined in section 2(r) of the Tamil Nadu Act to include the total value of goods bought, sold, supplied or distributed by a dealer, whether directly or through others, and whether on the dealer's own account or on behalf of another. However, the definition excludes the sale proceeds of agricultural or horticultural produce, except where the produce is tea grown in Tamil Nadu either by the dealer or on land in which the dealer holds an interest. The Explanation to this provision clarifies that produce which has undergone physical, chemical or other processing for the purpose of making it fit for consumption ceases to be treated as agricultural produce. This exclusion does not apply where the processing is limited to cleaning, grading, sorting or drying. * Section 3(2) of the Tamil Nadu Act further provides that, in the case of goods enumerated in the First Schedule, tax is payable at the rate and point of levy specified therein, irrespective of the dealer's aggregate turnover. * Section 8 of the Tamil Nadu Act deals with exemptions and states that no tax shall be payable on the sale of goods specified in the Third Schedule, subject to such conditions and restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered dealer or any other person, but no tax is payable under section 5 in respect of such transaction. If such goods are (i) consumed in the manufacture of other goods, whether for sale or otherwise, (ii) used or disposed of in a manner other than by sale within the State, or (iii) dispatched to a place outside the State, except where such dispatch is in the course of inter-State trade or commerce, the dealer becomes liable to pay tax on the purchase turnover relating to such goods. The rate applicable shall be as specified in section 5. DECISIONS OF THIS COURT INTERPRETING SIMILAR OR IDENTICAL PROVISIONS 7. A three-Judges Bench of this Court in State of Tamil Nadu v. M.K.Kandaswami and Others, (1975) 4 SCC 745 way back in the year 1975, had interpreted Section 7A of the Madras General Sales Tax Act, 1959. For short, "Madras Act" On analysis of sub- section (1) to Section 7A, this Court delineated the following ingredients that must be cumulatively satisfied for the purpose of levy : i. The person who purchases the goods is a dealer; ii. The purchase is made by him in the course of his business; iii. Such purchase is either from a registered dealer or from any other person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere, as explained hereinafter, refers to goods on which no sales or purchase tax can be levied. not being "taxable goods", cannot be brought to charge under Section 7-A. 9. Elaborating further on the contours of Section 7A, viz. the expression "under the Act", M.K.Kandaswami (supra), elucidates that Section 7A creates a separate and independent charge which is distinct and not subject to Section 3. In effect, Section 7A is a charging provision itself, intended to bring to tax goods which, under normal circumstances, would have been taxed at some point in the State, but in the circumstances, no tax was payable under Sections 3, 4 or 5 of the Madras Act. Section 7A brings such goods to tax at the hands of the purchaser, provided the purchaser is a dealer, in the following three alternative circumstances: a) when he consumes the goods in the manufacture of other goods for sale or otherwise, or b) despatches them 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. Referring to ingredient (iv) and (v) Ingredient (iv). The goods purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned Section 7-A of the Madras Act. "Goods the sale or purchase of which is liable to tax under this Act in Section 7-A(1)" means "taxable goods", that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that Section 7-A itself is a charging section. It creates a liability against a dealer on his purchase turnover with regard to goods, the sale or purchase of which though generally liable to tax under the Act, have not due to the circumstances of particular sales, suffered tax under Sections 3, 4 or 5, and which after the purchase, have been dealt by him in any of the modes indicated in clauses (a), (b) and (c) of Section 7-A(1)." In view of the reasoning given, the appeals preferred by the State of Tamil Nadu were allowed and the judgment of the High Court was reversed. The decisions of the High Court of Kerala in Malabar Fruit Products (supra) and Yusuf Shabeer (supra), as observed above, were approved. 11. We have examined the judgment of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. This is established by the statute and defines who is legally bound to pay tax. Second, assessment, which quantifies the liability, but does not create it; the liability already exists under the law. Lastly, recovery, this is initiated when the taxpayer fails to pay voluntarily. Crucially, the liability to pay tax arises on the occurrence of the taxable event, it does not exist or accrue prior to that event, nor can it arise at a later point in time. Referring to the clauses of Section 9, the Court held that the key phrase attracting taxation is: "goods, the sale and purchase of which is liable to tax under the Act." This phrase relates to the nature and category of goods in terms of their taxability. 13. Contrary to the interpretation in M.K.Kandaswami (supra), the decision in Goodyear (supra) observes that Section 9 of the Haryana Act does not itself impose purchase tax merely on the act of purchasing taxable goods. Instead, the tax is imposed when these goods are used in such a way that they lose their original identity and are transformed into new taxable goods or goods which are then dispatched outside the State. Only at that stage is the tax levied, and the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed in M.K.Kandaswami (supra), while disagreeing with the ratio in Goodyear (supra). The ratio in Goodyear (supra), it was stated, cannot be accepted for detailed reasons being set out in Part-V of the judgment. Referring to the relevant State enactments, it was stated that where a purchaser uses goods as raw material, processing material, or consumable stores in the manufacture of taxable goods, purchase tax becomes leviable upon the occurrence of such events. In such a situation, it is immaterial whether the manufactured goods are sold within the State or dealt with in some other manner, including consigning to the manufacturer's own depots or to the depots of his agents outside the State. The contention that such a levy amounts to excise duty or use tax-since it attaches on the use of goods in manufacturing of other goods and not on the purchase of goods-was rejected as missing the true nature of the tax. This Court clarified that such a tax is on the purchase price of raw materials used in the manufacture of goods, not on the value of manufactured products. A concession granted to the manufacturers in the purchase of certain types of raw material etc. does not preclude the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, no tax is payable on such removal. Goodyear takes only the last eventuality and holds that the taxable event is the removal of goods from the State and since such removal is to dealers' own depots/agents outside the State, it is consignment, which cannot be taxed by the State legislature. With the greatest respect at our command, we beg to disagree. The levy created by the said provision is a levy on the purchase of raw material purchased within the State which is consumed in the manufacture of other goods within the State. If, however, the manufactured goods are sold within the State, no purchase tax is collected on the raw material, evidently because the State gets larger revenue by taxing the sale of such goods. (The value of manufactured goods is bound to be higher than the value of the raw material.) The State legislature does not wish to - in the interest of trade and general public - tax both the raw material and the finished (manufactured) product. This is a well-known policy in the field of taxation. But where the manufactured goods are not sold within the State but are yet disposed of or where the manufactured goods are sent outside the State (otherwise than by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 9 and amount to its nullification in effect. The most that can perhaps be said is that it is plausible (as pointed out by Ranganathan, J. in his separate opinion) to characterise the said tax both as purchase tax as well as consignment tax. But where two interpretations are possible, one which sustains the constitutionality and/or effectuates its purpose and intendment and the other which effectively nullifies the provision, the former must be preferred, according to all known canons of interpretation. This is also the view expressly approved by Mukharji, J. in his opinion, as pointed out hereinbefore. In para 71 of his opinion, the learned Judge states: "It is well settled that reasonable construction should be followed and literal construction may be avoided if that defeats the manifest object and purpose of the Act. See C.W.T. v. Kripashankar Dayashankar Worah and Income Tax Commissioner for City of London v. Gibbs" ( emphasis supplied )" 92. However, we would presently show that merely because the levy attaches on the happening or non-happening of a subsequent event, the nature and character of the levy does not change. In several enactments, for instance, tax is levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s true that sales tax is a tax imposed on the occasion of the sale of goods. But it has no reference to the point of time at which the sale or purchase takes place. It refers to the connection with the event of purchase or sale and not the point of time at which such purchase or sale takes place. To read it otherwise would render any retrospective imposition of sales tax invalid as in every such case the tax would not be one which arises on the occasion of sale. By the same logic, it would not be possible to tax any goods at the last purchase point in the State, for the last purchase point in regard to any goods could be determined only when the goods are sold later and not when the goods are purchased. On the same reasoning as urged by counsel, one should say in such a case that since the goods are taxed only when the goods are sold outside the State or are despatched for such sale outside the State and so the last purchases are taxed not on the 'occasion' of the purchases and, consequently, it is beyond the competence of the Legislature. That certainly cannot be and that Supreme Court has held in the decision in State of Madras v. Narayanaswami Naidu [(1968) 21 STC 1 (SC)] that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the High Court is repugnant to this cardinal canon of interpretation." 97. In the light of the above scheme of Section 9, it would not be right, in our respectful opinion, to say that the tax is not upon the purchase of raw material but on the consignment of the manufactured goods. It is well settled that taxing power can be utilised to encourage commerce and industry. It can also be used to serve the interests of economy and promote social and economic planning. Section 9 of Haryana Act and Section 13-AA of Bombay Act are intended to encourage the industry and at the same time derive revenue. It is also not right to concentrate only on one situation viz., consignment of goods to manufacturer's own depots (or to the depots of his agents) outside the State. Disposal of goods within the State without effecting a sale also stands on the same footing, an instance of which may be captive consumption of manufactured products in the manufacture of yet other products. Once the scheme and policy of the provision is appreciated, there is no room, in our respectful opinion, for saying that the tax is on the consignment of manufactured goods." 18. Ranganathan, J., in his concurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State, regardless of when the raw materials were purchased or converted into a new commodity. The Revenue relied on the decision in Kandaswami (supra), contending that it was rendered in the context of a similar provision and thus its ratio covers the case. Rejecting this argument, this Court in Mukerian Papers Ltd. (supra), observed that although Kandaswami (supra) was indeed rendered in relation to an analogous provision, it had been distinguished in Goodyear (supra) on the ground that it did not address the core that arose in the latter case. Notably, Mukerian Papers Ltd. (supra), in paragraph 6, holds that the Bench need not dilate on that issue further, as the correctness of Goodyear (supra) had not been questioned before it. 20. Mukerian Papers Ltd. (supra), Goodyear (supra), as well as the decision in Hotel Balaji (supra), were considered by a three-Judge Bench of this Court in Devi Dass Gopal Krishan Pvt. Ltd. and Others v. State of Punjab and Others. (1994) Supp 2 SCC 59 The three-Judge Bench in Devi Dass (supra) comprised two Judges - A.M. Ahmadi, J. (as his Lordship then was) and M.N. Venkatachaliah, CJI. - who were also members of the Bench in Mukerian Papers Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)" This Court in Devi Dass (supra) affirmed the reasoning in Hotel Balaji (supra), clearly holding that the decision in Goodyear (supra) did not lay down the correct law: "6. 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 Supp (4) SCC 536 : (1993) 88 STC 98] . All the contentions urged now have been considered and dealt with in the said decision. In our opinion, the approach adopted in Goodyear [(1990) 2 SCC 71 : 1990 SCC (Tax) 223] does not accord with the scheme, intendment and language of the relevant provisions of the Haryana and Bombay Acts and cannot be accepted." 21. Appropriate at this stage would be to refer to the order dated 27.10.2009 passed in the present batch of appeals, wherein the two-Judge Bench referred the matter to a larger Bench. After making a reference to Section 5A of the Kerala Act, this Court distinguished 'payability' and 'liability' to observe: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain object of Section 7A of the Madras Act is to plug leakage and prevent evasion of tax. It further stated that, in interpretation of such a provision, a construction which would defeat the purpose of the Act should be eschewed. It further observed that the phraseology used in Section 7A of the Madras Act, though somewhat involved, is fairly plain when it comes to giving meaning of the Section. The Court further observed that the language of Section 7A of the Madras Act [which is akin to Section 5A of the Act] indicates the meaning of the word "taxability/liability" is to be read in the context of the expression "taxable goods". If one reads the judgement, it clearly indicates what we have said in the earlier paragraphs, namely, that the concept of "taxability/leviability" is different and distinct from the concept of "payability". That is why when the goods, which are otherwise liable to tax, are exempted by virtue of notification from payability under Section 10 of the Act, Section 5A of the Act has been enacted to levy tax on certain transactions on which otherwise the State loses its revenue. This distinction has not been kept in mind in the decision of a two-Judge Bench of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t are distinct and independent, relying on the observations in M.K.Kandaswami (supra). The Court quotes the finding that Section 7A of the Madras Act is a self-contained charging provision and applies the same reasoning to uphold the validity of the levy under Section 5A of the Kerala Act. 24. However, the two-judge Bench in Peekay Re-Rolling Mills (P) Ltd. (supra) states that the observations in M.K. Kandaswami (supra) have no real bearing on the relevant issue, since M.K. Kandaswami (supra) did not involve a question of tax on declared goods under Section 14 of the Central Sales Tax Act, 1956 For short, "Central Act". and conditions laid down in this regard, particularly that of a single- point levy. Since Section 15 of the Central Act mandates that tax on declared goods must be levied at a single point, the Court held that once the goods are declared goods they cannot again be taxed under Section 5A. That would amount to a second-stage levy, contrary to the scheme under Section 15 of the Central Act. 25. Peekay Re-Rolling Mills (P) Ltd. (supra) then turns to the majority view in Bhawani Cotton Mills (supra). In Bhawani Cotton Mills (supra) the majority judgment of the Constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity. If there is no liability to tax there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertained without any reference whatever to the same. There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The Legislature cannot enact a law imposing or authorising the imposition of a tax thereupon as they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Bihar and Others, (2004) 7 SCC 642 which clarified that exemption is relevant only when there is liability. Thus, goods can be liable or exigible to tax, but due to exemption, the obligation to pay may not arise. 29. Peekay Re-Rolling Mills (P) Ltd. (supra) refers to Assistant Collector of Central Excise, Calcutta Division v. National Tobacco Co. of India Ltd., (1972) 2 SCC 560 which makes a distinction between "levy" and "assessment", holding that levy includes both imposition and assessment of tax but not collection. This interpretation stems from Article 265 of the Constitution, which separately mentions levy and collection. Cases like Somaiya Organics (India) Ltd. and Another v. State of Uttar Pradesh (2001) 5 SCC 519 and Collector of Central Excise, Hyderabad and Others v. Vazir Sultan Tobacco Company Ltd., Hyderabad and Others (1996) 3 SCC 434 are also cited, particularly with respect to excise duty under the Central Excise and Salt Act, 1944. These cases explain that levy is on manufacture, while collection is deferred to the stage of removal for administrative convenience, and this did not affect the nature of the levy, which was on the manufacture of the goods. These o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on' or 'recovery' of tax is the third aspect. Lastly, it must be remembered that Peekay Re-Rolling Mills (P) Ltd. (supra) is also a case of declared goods. CONCLUSION 31. In view of the aforesaid discussion and applying the ratio in terms thereof, we must reject the argument on behalf of the assessee that Section 7A of the Tamil Nadu Act and Section 5A of the Kerala Act will have no application when tax is exempt at the hands of the seller, or for that matter, the tax under Section 3 or Section 5 of the aforesaid Act at the hands of the seller is payable at the point of first sale. Sections 5A or 7A, as the case may be, impose purchase tax specifically in situations where the seller is granted exemption from payment of tax. The legal position is that exemption from payment of tax at the time of sale is a pre-condition for attracting Sections 5A and 7A respectively. Further, the fact that in case the goods were not exempt from payment of tax at the time of sale and the goods would have attracted tax at the first point of sale, is immaterial and inconsequential. Levy of purchase tax is governed by the provisions and stipulations of Sections 5A or 7A. They are independent and in a w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. The rationale explaining the validity have been elucidated in both Hotel Balaji (supra) and Devi Dass (supra). 33. While examining tax provisions, we must give sufficient latitude to the Legislature. Income generation in the form of taxes is an important source of revenue for both the State and the Central governments. Some play in the joints should be given to the Legislature while dealing with laws relating to taxation and economic activities except in case of encroachment upon the power to tax that is not vested with them in terms of the Union or the State List, etc. See Chief Commissioner of Central Goods and Service Tax and Others v. Safari Retreats (P) Ltd. and Others, (2025) 2 SCC 523; Elel Hotels and Investments Limited and Others v. Union of India, (1989) 3 SCC 698; Federation of Hotel and Restaurant Association of India, Etc. v. Union of India and Others, (1989) 3 SCC 634. 34. Realising the above legal position, a different set of arguments was raised in Civil Appeal Nos. 3024-3025 of 2012 filed by M/s Britannia Industries Limited. According to us, the arguments do not have any merit and must be rejected. We would briefly refer to the said arguments and our reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales and does not extend to purchase tax, which becomes payable only when sales tax is exempt. 37. In view of the above, we also reject the argument that the applicable rate of tax on purchase would be nil as the tax payable on the sale in view of the exemption from payment of sales tax is nil. Reliance placed on Casio India Company Private Limited v. State of Haryana (2016) 6 SCC 209 is misplaced and liable to be rejected as Casio India (supra) deals with the issue of payment of tax under the Central Act and not with the provisions we are concerned. The ratio of the said case cannot be applied in view of the direct judgments of this Court in Kandaswami (supra), Hotel Balaji (supra) and Devi Dass (supra). 38. The argument that the rate applicable under Section 7A would be the effective rate and not the rate mentioned in the Schedule must be rejected for the reasons set out above. The exemption in the present case relates only to payment of sales tax and not purchase tax. For the same reason, we would reject the argument relying upon the judgment in the case of Rajputana Agencies Ltd. v. CIT (1959) 35 ITR 168 and Thermax Private Limited v. Collector of Customs (Bombay). (1992) 4 S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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