M/S Devi Dass Gopal Krishan Pvt. Ltd. Etc. Etc. v. State of Punjab and Anr. Etc. Etc.
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B.P. JEEV AN REDDY, J. Leave granted in the Special leave Petition.
In Goodyear India Limited v. State of Haryana, [1990] 2 S.C.C. 71, a
Bench of this Court comprising Sabyasachi Mukharji and S. Ranganathan,
JJ. declared Section 9(1)(b) of the Haryana General Sales Tax Act; 1973 H
420 SUPREME COURT REPORTS [1994) 3 S.C.R.
A ultravires the powers of the State Legislature insofar as it imposed a tax on
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
B 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
C the manufactured goods were disposed of within the State otherwise than
by way of sale in the State. Section BAA of the Bombay Sales Tax Act,
1959 also came up for consideration in the same decision. Section BAA
provided that where a dealer purchased goods and. used such goods in the
manufacture of taxable goods and despatched the goods so manufactured
D 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 that the said provision is equally beyond the legislative com-
petence of the Maharashtra Legislature inasmuch as it purported to levy a
consignment tax.
Relying upon the decision in Goodyear, 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
F 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 15-B of the Gujarat Sales Tax Act, Section
3AAAA of the U.P. Sales Tax Act and Section 6-A of the Andhra Pradesh
G General Sales Tax Act, delinking the matters relating to other State enact
ments. The <lelinked matters were directed to be heard separately. Two
opinions were delivered in the batch of cases heard by the Bench (reported
in Hotel Ba/aji & Ors. v. State of Andhra Pradesh & Ors., (1993) 88 S.T.C.
98). One opinion was delivered by one of us (B.P. Jeevan Reddy, J.)
speaking for himself and V. Ramaswami, J. In this opinion, it was held that
H the decision in Goodyear declaring the relevant provisions in Haryana and
DEVI DASS GOPALKRISHAN LTD. v. STATE [JEEV AN REDDY, J.] 421
Bombay Acts as outside the legislative competency of respective State A
Legislatures 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. Ran
ganathan, 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 and observed that the
particular view-point presented in Hotel Balaji 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 :
"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 consign
ment 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 D
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 fron;i the area of vulnerability." .
(Emphasis supplied) E
The matters relating to other States have now come up before us.
They relate to Punjab, Tan1il 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 is the correct one.' p
1 Counsel faulted the reasoning and conclusion in Hotel Balaji 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 S.C.C. 580, a decision rendered by 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 G
before a larger Bench lo 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 H
A 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.
Mukerian Papers was decided by a Bench comprising Ranganathan
Misra, C.J., and iwo ~f us, M.N. Venkatachaliah and A.M. Ahmadi, J. T)le
only contention before the Bench was that the point arising therein was
concluded by Goodyear 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
C the decision in Goodyear. This aspect has been dealt with in Para 101 of
the decision in Hotel Balaji and we agree with it. Accordingly, we see no
conflict between Hotel Balaji and Mukerian Papers.
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
D in Hotel Balaji. All the contentions urged now have been considered and
dealt with in the said decision. In our opinion, the approach adopted in
Goodyear does not accord with the scheme, intendment and language of
the relevant provisions of the Haryana and Bombay Acts, and cannot be
accepted.
The challenge in this batch is to Section 4-B of the Punjab General
Sales Tax Act, Section 7-A of the Tamil Nadu Sales Tax Act, Section 5-A
of the Kerala Sales Tax Act, 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 Act. The sole basis of the attack on the said provisions
is the reasoning in and ratio of Goodyear. No separate arguments are
addressed each provision-wise: Even so, it would be appropriate to notice
briefly the relevant provisions in each State enactment.
Section 4-B of the Punjab General Sales Tax Act, 1948 reads thus :
"Section 4-B : Levy of purchases tax on goods - where a dealers
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
H specified in Schedule 'B' or
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DEVI DASS GOPALKRISHANLTD. v. STATE[JEEVANREDDY,J.) 423
...... (ii) Uses them within the State in the manufacture of any goods, A
other than those specified in Schedule 'B' and sends the goods so
manufactured outside the 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 liy way of sale in the B
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) or Section (5) c
as the State Government may direct."
(Extracted from Para 7 of Writ Petition No. 1732 of 1981)
It is evident that Section 4-B of the Punjab Act is in substance similar
D to Section 9(1)(b) of the Haryana Sales Tax Act. For the reasons given
hereinabove, the validity of Section 4-B is sustained. It cannot be said to
\ be beyond the legislative competence of the State Legislature. ,
Section 5-A of the Kerala General Tax Act read thus :
"SA levy or purchase tax. -- (1) Every dealer who, in the course of E
his bµsiness, 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--
1 (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) despatchs them to any place outside the state except as a direct
result of sale or purchase in the course of interstate 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. H
424 SUPREME COURT REPORTS (1994] 3 S.C.R.
(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 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."
It is evident that Section 5-B of the Kerala Act broadly corresponds
to Section 6-A of the Andhra Pradesh General Sales Tax Act, which has
been upheld in Hotel Balaji. For the reasons given hereinabove, the validity
of Section 5-A is also sustained.
Section 7-A 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 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
G 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
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DEVIDASS GOP AL KRISHAN LIB. v. STATE [JEEV AN REDDY.J.] 425
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a non-resident dealer) purchasing goods the sale of which is liable A
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 7-A(l) of the Tamil Nadu Act is similar to
Section 6-A of the Andhra Pradesh General Sale.' Tax Act. Accordingly,
the attack upon its constitutionality is liable to fail.
In West Bengal, the purchase tax is levied by Section 4(6)(ii) of the
c 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 sub-section (2) or sub-section (4) of this section
or sub-section (3) of section 8 and is registered under this Act,
shall, in addition to the tax referred to therein, be also liable to D
"
pay tax under this Act on all his purchases from-
I
(i) .......................................
(ii) a registered dealer, to whom a declaration referred to in the E
proviso to clause (bb) of sub-section (1) of section 5 has been or
will be furnished by him 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 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
S.4(2)(i) -A dealer to pay tax under sub-section (1) availing him-
self of the benefit under section 23A by furnishing a declaration G 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 manufac-
luring, making, processing or packing in West Bengal of notified H
A 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."
Following the decision in Goodyear, the Tribunal held in Rasoi
Limited v. State of West Bengal & Ors. (1991) 80 S.T.C. 356 (a decision
rendered on September 11, 1990) that the aforesaid provisions were
ultravires 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
c Act, the words beginning with "and used by him directly in the manufac-
ture" 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 (1) reads as follows :
D "(i) on all such purchase 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.)
E The amended provision was again challenged in a batch of writ
petitions - Chloride Industries Ltd. v. Commissioner of Commercial Taxes,
Government of West Bengal & Ors. & 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
F 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 (Com-
missioner of Commercial Taxes, West Bengal and Ors.) have to be allowed
declaring the aforesaid provisions both before and after amendment as
perfectly valid, competent and effective.
G So far as State of Maharashtra is con.cerned, Section BAA 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. With a view to get over the said judgment and its consequen-
ces, the Governor of Bombay issued the Bombay Sales Tax (Amendment)
H Ordinance, 1989 which was subsequently enacted into an Amendment Act
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DEVI DASS GOPALKRISHANLTD. v. STATE(JEEVANREDDY.J.] 427
·-4- substituting Section 13AA altogether with retrospective effect from July, A
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
B Registered dealer and uses such goods in the manufacture of
taxable goods, then, unless the goods so manufactured are sold by
r the dealer, there shall be levied, in addition to the Sales Tax, paid
or payable, if any, or 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 c
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."
The validity of this provision was questioned in a batch of writ D
petitions which have been allowed by a Division Bench of the Bombay High
"
Court by its judgment and order dated August 28, 1990 in Writ Petition
I Nos. 477, 587 and 924 of 1990. Civil Appeal Nos. 226-228(NT) of 1991 are
preferred against the said judgment . The basi• upon which the division
' Bench has struck down the amended Section 13AA is the one contained E
in Goodyear. 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
F it declared the original Section 13AA as invalid must be deemed to not
" correct in law. j
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. The amended provisions G in these enactments have not been placed before us. It is evident that our
opinion pertains to the provisions which are the subject-matter of 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.
For the above reasons, the writ petitions and appeals filed by the H
A dealers, viz, W.P. 1732/81, W.P. 28/81, W.P. 1316/82, C.A. 3523-25/79, C.A.
3266/79, CA. 649/80, S.L.P. (C)6958/94 C.A.No. 2352/94 (CC16536), C.A.
2551-61/92 and CA. 1563/91 are dismissed. The appeals filed by the States,
viz. C.A.2990/91, C.A.4807/91, CA. 543/86, CA.3410/84, CA. 2125/91,
C.A.1649/92, C.A.1650/92, C.A.2562/92, C.A.1941/92, C.A.2289/92,
B C.A.1645/92, C.A.2256/92, C.A. arising from SLP 5626/94 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.1389-90/91, C.A.1816/91 and C.A. 226-
228/91 are allowed. No order as to costs.
Civil appeal No. 407 of 1993 is not concerned with the batch. Ac
C cordingly, it is delinked and may be posted for hearing in usual course.
V.M. W.P. and Appeals filed by dealers are dismissed.
Appeals filed by the States are allowed.
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(