HOTEL BALAJI AND OTHERS ETC. ETC. v. STATE OF ANDHRA PRADESH AND ORS. ETC. ETC.

The Judgments of the Court were delivered by F RANGANATHAN, J. Taking a cue from the decision of this Court in Goodyear India Ltd. v. State of Haryana (1990] 2 S.C.C. 71, to which I was a party, a contention has been raised, in these appeals and writ petitions, that corresponding provisions of the Gujarat Sales Tax Act, the U.P. Sales Tax Act and the Andhra Pradesh General Sales Tax Act, are ultra vires the G powers of the State Legislature insofar as they seek to levy a purchase tax in certain circumstances. My learned brother, Jeevan Reddy, J., has dis- cussed the provisions and contentions elaborately and exhaustively in his judgment. It is unnecessary for me to set out over• again the statutory provisions considered in Goodyear or, those which are challenged in these H

196 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A petitions and appeals or the details of the decision in Goodyear as these have been discussed in great detail in the judgment of my learned brother. I however, think that I owe it to myself to add a separate judgment as I was a party to Goodyear and explain my views on the provisions presently under challenge in the light of what has already been stated by me in Goodyear. B So far as the U.P. Sales Tax Act is concerned, I do not think that the impugned provision of the said Act (viz. S.3AAAA, as inserted in 1992 with retrospective effect from 1.4.1974) bears any comparison with the provisions that were considered in Goodyear. S.3AAAA is a very simple C provision. According to its marginal note, its effect is the imposition of a liability to purchase tax on certain transactions. This liability is attracted in respect of goods, which are liable to tax at the point of sale to the cons..,mer. In other words, the goods in question as such have run through their gamut of sales in the State. There will be no more sales in the State D of the goods in that form, which can be taxed by the State, whether intra-State or inter-State, or in the course of export. Such goods arc then made liable to tax in the hands of a- purchaser dealer-cum-consumer either because he purchases them from a registered dealer by whom tax is not payable or because he pmchases them from a person other than a registered dealer i.e. a person who is not accessible to the revenue, whose sales cannot be easily verified or from whom tax may not be easily recovered. To put it differently, since the tax is at the point of sale to the consumer, the Legislature, in order to ensure that goods do not escape tax in the State altogether, make the purchaser liable in respect of the last sale in the State of the goods in question, if otherwise the sale of the goods have not borne tax earlier in the State. This, on the face of it, is a provision which seems to be perfectly within the legislative competence of the State Legislature.

The argument urged on behali of the assessees, however, is that no person can be said to be the "consumer" of the goods in the State unless he consumes the goods himself or utilises the goods (where they are in the nature of raw material) for the manufacture or production of other goods. It is urged, therefore, that as no sale can be postulated to be a sale to the consumer unless and until one of the above events happen, the real taxable event is not the purchase of the goods but their consumption, manufacture or production in the State, or their despatch, otherwise than by way of a

HOTEL BALAJI v. STATE OF AP. [RANGANATHAN, J.] 197

sale outside the State, whether in the same form or in a manufactured condition. It is therefore said that, in substance, the statutory provision is no different from the one considered by us in Goodyear and that the ratio of Goodyear will apply here equally.

So far as the Andhra Pradesh provision is concerned, t~e argument is the same, with an added advantage to the assessees that the section brings out more emphatically their point of view. Under section 6-A(i), purchase of goods from a registered dealer is subjected to tax because, though the sale or purchase of that item of goods is generally liable to tax, no tax became payable by the registered dealer on the sale because of the circumstances set out in section 5 or 6. This corresponds to s. 3AAAA(a) c of the U.P. Act. As against this, clause (ii) of section 6-A deals with purchase of goods liable to tax from a person other than a registered dealer and imposes a liability to pay tax where the goods purchased are consumed by the purchaser either in the manufacture of other goods for sale or otherwise and the goods are disposed of otherwise than by way of sale or D despatched outside the State otherwise than in the course of inter-State trade or commerce. In other words, the real taxable event for the charge under section 6-A(ii), it is said, is not the purchase of goods but the consumption, manufacture or consignment of the same or other goods outside the State. If that be so, it is said, the imposition is ultra vires the State Legislature on the principle of the decision in Goodyear. E

So far as the State of Gujarat is concerned, the provisions of section 15B, inserted by a retrospective amendment of 1990, are somewhat dif- ferent. Cutting out certain words not relevant in the present context, it provides that where a dealer, being liable to pay tax under the Act, purchases any taxable goods and uses them in the manufacture of taxable goods, a purchase tax will be levied on the turnover of such purchases. Rule 42-E, which was also framed w.e.f. 1.5.90, provides that, where the assessee is a registered dealer and the goods manufactured by him have been sold in the State of Gujarat, he will be entitled to relief in respect of the purchase tax levied under section 15B. Here again, it is argued, the provision is tainted because it refers to manufacture of the purchased goods and the rule ensures that no purchase tax is levied if the manufac· tured goods are sold in the State itself; in other words, the levy comes in only if they are consigned outside the State, attracting Goodyear. H

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A It will be seen at once that the three provisions under consideration vary from one another. S.3AAAA of the U.P. Act does not make the tax conditional on the use or consumption of raw materials purchased or the manner of dealing with the goods manufactured out of such purchases of raw materials. Section 158 of the Gujarat Act is slightly different. It talks of the use of tile goods purchased in the manufacture of other taxable B goods but it does not make any reference to the consumption of the goods otherwise or their despatch or consigmnent. The Andhra Pradesh Act is more elaborate and deals with various situations in relation to the pur- chased goods.

c Of these, I am of opinion that the provisions of the U.P. and Gujarat Acts are clearly beyond challenge on the grounds put forward by the petitioners. The section in the U.P. Act is a very direct and simple provision to the effect that a tax will be levied on purchases made within the State in certain circumstances. The ambit of Entry 54 in the State List D in the Constitution of India must be interpreted in the widest possible manner. The State has full powers to levy a tax with reference to sales or purchases inside the State and to a certain extent even sales made in the course of inter-State trade or commerce. It certainly comprehends a power to tax the last sale in the State of certain goods. I have explained earlier the reason why the incidence of tax in such sales is thrown under the Act E on the consumer. The tax is nothing but a tax on purchase, pure and simple, well within the scope of the State's Legislative power. The attempt, on behalf of the petitioners, to undertake an analysis of what will eventually happen to the purchased goods where the purchaser is the consumer and, on the basis thereof, to suggest that the legislature really intends to tax . F consumptio.n, production or consignment is no doubt ingenious but far- fctched, artificial and unrealistic. It is true that one has to look at not merely the form but the substance of the statute and examine what exactly it is that the State purports to levy a tax in respect of but one should not permit one's imagination to read a purpose or words into the statute which are not there. G The Gujarat provision is more careful but makes a mention of the purchased goods being used for manufacture. But, as pointed out by Mukharji J. in Goodyear, these are only words descriptive of a class of goods the purchase of which is sought to be brought to tax. Here again, H the intention of the legislature is to tax, at purchase point, a class of goods

HOTEL BALAJI v. STATE OF A.P. [RANGANATHAN, J.] 199

viz. goods purchased by a manufacturer. It has no concern, unlike the A.P. A or Haryana Acts, with what he does with the manufactured goods. Presumably the idea is that the manufacturer is able to profit by adding value to the purchased raw material by utilising the infrastructure, fillips or facilities provided in the State to encourage setting up of industries therein and so can afford to pay tax on the purchased raw materials. The concession provided by rule 42£ is an independent provision relieving him and the public consuming the manufactured goods of additional burden where such goods are sold inside the State and get taxed on the added value.

In my opinion, there is considerable force in the substance of the contention of these States that these provisions only impose a tax on purchases. The marginal title to the provisions indicates that their direct purpose is to levy a tax on purchases effected in the State in certain circumstances. The tax is couched as a tax on all goods (in U.P.) and on raw or processing materials and consumable stores (in the State of D Gujarat). It is designated as a purchase tax. It is levied on the turnover of such purchases. There is no reference in the U . P. statute to any condition for imposition of the tax except that it should be a sale to the consumer and in the State of Gujarat that it should be a purchase by a manufacturer. It is very difficult to read into these provisions any ulterior motive on the part of the States to levy a tax on use, consumption or consignment in the guise of a purchase tax. The language of these two provisions is wholly different from that used in the Haryana and Bombay Acts. As I have stated in my judgment in Goodyear, even in the context of those Acts, it may be equally plausible to consider the provision either as a purchase tax or a tax on consignment. There is no such ambiguity in the language used in these provisioins. I have no doubt that, so far as these provisions are concerned, on the face of these acts, the levy is only of a purchase tax. Such a levy is clearly within the domain of the State Legislature.

The Andhra Pradesh Act, however, is different in its arrangement. The provisions of section 6-A of this Act are more or less analogous to the provisions of the Haryana Act considered in Goodyear. The question, therefore, arises as to whether the decision in Goodyear should be applied in the context of the Andhra Pradesh Act. On behalf of the State of Andhra Pradesh - and indeed the other two States also - it has been contended that Goodyear needs reconsideration. Our attention has been drawn to one H

200 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A angle of approach lo the statutory provisions in question which had. per- haps escaped our notice in the Goodyear case. It was pointed out that the sum and substance of these provisions is that no sale or purchase of any goods should go without being taxed atleasl once in the State. Primarily the tax is levied on sales. Where a registered dealer sells his goods he will be liable to tax normally in respect of the taxable goods except where his B turnover does nol reach up to the minimum prescribed under the Sales Tax Act. Sometimes, he may not pay any tax or may pay a concessional rate of tax on his sales because of certain declarations or certificates he may receive that the goods will be used inside the State. Again, where goods are purchased from a person other than a registered dealer, the tax at the c sales point may escape actual taxation for many reasons : such person may not be a dealer at all or, being an unregistered dealer, the State may not be able to ascertain his whereabouts and ensure that he is taxed or that the tax is collected. In cases where no sales tax is paid al the point of sale, it becomes necessary for the State Legislature to provide that the tax will be met by the purchaser. Invariably in such cases the legislations attach levy of tax to the last purchase made in the State, of a particular item of goods. Of course, the legislation could have simply said that tlie last purchase in the State will attract tax unless the tax is payable or has been paid at one of the earlier stages of sale and could not have been objected to. But that type of legislative wording might lead to difficult questions as to the definition of the expression 'last purchase". That is why the section imposing purchase tax is worded in the manner in which it has been worded in the Andhra and Haryana Acts. As pointed out by the learned counsel for the assessees in the U.P. cases, a person can be said to be the last purchaser of certain goods only when he consumes those goods himself or, in case they are raw materials/stores and the like, unless he uses them in the manufacture of other goods for sale. From this category have to be excluded cases where the manufactured goods are either sold in the State or sold in the course of inter-State trade or commerce because, in those two instances, the State will be in a position to collect the tax in respect of the sale of the manufactured goods - the sale price of which will also include the price of raw materials on which a priori the State could have only got a lesser amount of tax - and to tax both would escalate the price and affect the consumer. Also excluded are cases where the manufactured goods are exported abroad to earn foreign currency. If these situations are H

HOTEL BALAJI v. STATE OF AP. [RANGANATHAN, J.] 201

borne in mind, one would realise that the language used in the various clauses and phrases used in these legislations is only to levy a tax on.the last purchase in the State and not with a view to levy a tax either on the use or consumption of raw materials or on the maufacture or production ' . of manufactured goods or on the despatch of the goods manufactured from the State otherwise than by way of sale. In the Haryana case also the statute mentioned these several alternatives but a consideration of section 9(1) (b) of the Haryana Act as well as of the corresponding clause of the Bombay Act were posed in isolation before us and emphasis placed on consignment being a sine qua non of the levy. 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 c 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.

It is true that it is difficult to define a last purchase except with D

reference to the mode of the use of the purchased goods subsequent to that purchase and in that sense the levy of tax can c1ystallise only at a point of time when the goods have been utilised in a particular way but will it be correct to say that the power of the Stale to levy a tax on sales or purchases cannot include a right or power to tax goods at the point of their first sale in the Slate or their last purchase in the State? The mere fact that the purchase cannot be characterised as a last purchase except by reference to the subsequent utilisation of those goods cannot mean that the taxable event is not the purchase but something else. What we are really concerned with in deciding the question of constitutional validity of the levy of a sales tax is to pose the question -

"Is the tax levied one with reference to the sale or purchase of goods ?11 G The ambit of the power to levy a tax in respect of sale of goods is very wide and will cover any tax which has a nexus with the sale or purchase of goods including a last purchase in the State. This I think is a more appropriate test to be applied in these cases rather than the test of "taxable event" which is somewhat ambiguous in the context. I am not inclined to agree that a H

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A tax on the sale or purchase of goods will cease to be so merely because the determination of its character as a last purchase would depend upon certain subsequent events which may be spread over a subsequent period of time. Jn this view of the matter I am inclined to agree with my learned brother Jeevan Reddy, J. that the levy under the Andhra Pradesh Act is .' also within the legislative competence of the State. B I am quite conscious that the conclusion I have expressed here as to the vires of the provision impugned is contrary to the conclusion I reached in Goodyear on somewhat analogous provisions. I need not, for the pur- poses of the present cases, express any final conclusion as to whether the C conclusion in Goodyear was rightly reached in the context of the provisions of the statutes there considered or would need a second look and fresh consideration in the context of what has been said here. But, I should not, I think, hesitate to accept the point of view now presented to us which

- appeals to me as more realistic, appropriate and preferable, particularly when I see that the view one way or the other would affect the validity of D a large m;mber of similar legislations all over India, merely because it may not be consistent with the view I took in Goodyear. Consistency, for the mere sake of it, is no virtue. If precedent is needed to justify my change of mind, I may quote Bhai,<wati J. (as he then was) in Distributors (Baroda) P. Ltd. v. Union of India, (1985) 155 I.T.R. 120 S.C. : E ''We havC given our most an.icious consideration to this question, particularly since one of us, namely, P.N. Bhag- wati, J. was a party to the decision in Cloth Traders' case. But having regard to the various considerations to which we shall advert in detail when we examine the arguments advanced on behalf of the parties, we are compelled to reach the conclusion that Cloth Traders' case must be regarded as wrongly decided. The view taken in that case in regard to the construction of s. SOM must be held to be erroneous and it must be corrected. To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. ln this, we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y. at page 18) : "a judge ought to be wise enough to know thal he is fallible and. therefore, ever ready to learn : great and honest enough to discard all mere

HOTEL Bi\IAJI '"STATE OF A.P. [.JEEVAN REDDY, J.[ 203

pride of opinion and follows truth wherever it may lead : A and courageous enough to acknowledge his errors".

' . For the reasons above mentioned, I agree with my learned brother and hold that the impunged provisions under all the three enactments are intra-vires the powers of the concerned State Legislature. B

B.P. JEEVAN REDDY, J. Validity of provisions of several States Sales Tax enactments imposing purchase tax fall for our consideration in this group of appeals and writ petitions. Initially the matters arising from Andhra Pradesh (writ petitions 655-669/83 Hotel Balaji and Ors. v. State of C Andhra Pradesh and Civil Apeal No. 10753-57/83 Hindustan Milk Food Manufacturers Limited v. State of Andhra Pradesh) came up for hearing. During the course of hearing, counsel for the petitioners/appellants relied upon the decision of this court in Goodyear India Ltd. v. State of Haryana (1990) 76 S.T.C. 71 whereas the counsel for the State of Andhra Pradesh D challenged the correctness of the said decision and pleaded for re-con- sideration of the said judgment. It was then brought to our notice that a large number of matters corning from different States raising inter alia the question relating to the correctness of the ratio of Goodyear were also posted before us. Indeed it was brought to our notice that a bench of three-Judges comprising M.N. Venkatachaliah, A.M. Ahmadi, JJ. and one of us (B.P. Jeevan Reddy, J.) had directed two matters namely State of Punjab v. Industrial Cables India Ltd., C.A. No. 2990 (N.T.) of 1991 and the State of Punjab v. Hindustan Lever Ltd., C.A.480/91 raising a similar question to be posted before a Bench of three-Judges. Those matters are also before us. It is in this manner that a large number of appeals and writ petitions arising from several States came to be posted before us for hearing. During the course of hearing, however, we found that on account of restriction of time it would not be possible for this Bench to hear all the matters. Accordingly, we indicated to the counsel that we shall confine our attention only to three State enactments namely, Gujarat, Uttar Pradesh G and Andhra Pradesh. Counsel appearing in these matters have been heard fully. This judgment, therefore, deals only with the validity of Section !SB of the Gujarat Sales Tax Act, Section 3-AAAA of Uttar Pradesh Sales Tax Act and Section 6-A of the Andhra Pradesh General Sales Tax Act. We shall first take up Section 15B of the Gujarat Sales Tax Act. H

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A PART - fl (GUJARAT)

Though several appeals and writ petitions from this State are placed before us, it is sufficient to refer to the facts in Civil Appeal No. 3410 (N.T.) of 1992 as representative of the facts in all the matters. This appeal is preferred by the writ petitioner against the judgment of a Division Bench B of the High Court of Gujarat upholding the constitutional validity of Section 15B of the Gujarat Sales Tax Act, 1969 as substituted by the Gujarat Sales Tax (Amendment) Act 6 of 1990.

The Gujarat Sales Tax Act, 1969 (b°eing Act No. 1of1970) came into c effect on and from May 6, 1970, replacing the Bombay Sales Tax Act, which was in force in the State of Gujarat till then. Section 15 of the Act levied purchase tax on purchases made by a dealer from a person who is not a registered dealer. Section 15A was introduced by amendment Act 7 of

1983. It provided for levy of concessional rate of tax in respect of purchase of raw material made by Recognised dealers (who are necessarily manufac- turers), provided the goods (raw material) purchased by them fell in Schedule II or Ill (other than prohibited goods). Section 15B was intro- duced by Amendment Act of 1986. It provided for levy of an additional purchase tax on raw material purchased by a manufacturing dealer in case he used the said raw material for the manufacture of other goods which he despatched to his own place of business or to his agent's place of business situated outside the State but within India. By an Amendment Act made in 1987, the Section was substituted. There was, however, no substantial change in the Section. Following upon the decision of this court in Goodyear, a batch of writ petitions was filed in the Gujarat High Court F challenging the validity of Section 15B on the ground that in truth and effect it levied a consignment tax and, hence was outside the competence of the State Legislature. While the said writ petitions were pending, Section 15B was substituted by an Ordinance being Ordinance No. 3 of 1990 issued on 20.4.1990. Subsequently, the Gujarat Sales Tax Amendment Act 6 of 1990 was enacted in terms of and replacing the Ordinance. The substituted G Section 15(B) was given retrospective effect on and from April 1, 1986, the date on which Section 15(B) first came into force. In view of the said Amendment Act, the batch of writ petitions challenging Section 15(B), as it stood prior to its substitution by the 1990 Amendment Act, were dis- missed as having become infructuous. A fresh batch of writ petitions H followed questioning the validity of the substituted Section 15(B), again on

HOTEL BALAJI v. STATE OF A.P. [JEEVAN REDDY, .I.] 205

the· ground that it continued to be, in essence, a consignment tax. The A contention was that Section 15(B) must be read along with Rule 42(E) of the Gujarat Sales Taxe Rules (inserted by Notification dated 1.5.90) and if so read, the position is the same as was obtaining prior to 1990 Amend- ment. Yet another ground urged was that the levy imposed by the new provision is really in the nature of an excise duty, and thus beyond the competence of the State legislature. The assessees placed strong reliance B upon the decision of the Division Bench of the Bombay High Court in Hindustan Lever Ltd. v. State of Maharashtra, 79 S.T.C. 255 where, the petitioners say, construing a similar provision in the Bombay ~ales Tax Act it was held that the levy created by the said provision is in the nature of an excise duty. Disagreeing with the Bombay judgment, the High Court c dismissed the writ petitions.

Counsel for the appellant/assessee urged that Section 15B (as sub- stituted in 1990) is no different from the earlier provision. The basic scheme of the earlier provision is now split into two provisions namely, substituted Section 15B and Rule 42E, which Rule was inserted into the Rules simultaneously. This is a dear instance of colourable legislation and ought not to be countenanced by this court. The High Court was in error in justifying the same on the theory that just as it is open to an assessee to reduce the tax burden by resorting to legitimate tax planning, similarly it is open to a legislature to ~ake an appropriate enactment .to remain outside the mischief pointed out by the court. It is submitted that as rightly held by the Bombay High Court construing a similar provision, the levy created by the substituted Section 15B is really upon the manufacture of goods and, therefore, not a tax referable to Entry 54 of List II of the Seventh Schedule to the Constitution. On the other hand, it is argued by F Sri B.K. Mehta, learned counsel appearing for the State of Gujarat that the Legislative competence of the Gujarat Legislature to enact Section 15B ought to be determined on its own language and not with reference to a Rule made by the Government of Gujarat as the delegate of the legislature. He submitted that on its own language, Section 15B levies a pure and G simple purchase tax on raw material purchased by a manufacturer. It is unconcerned with what happens to the manufactured goods. For the purpose of Section 15B, it is immaterial whether the manufactured goods are sold inside the State ur despatched to a place outside the State of Gujarat or are dealt with or disposed of otherwise. The principle of H.

206 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A Goodyear has absolutely no application to this provision. Counsel also submitted that when the tax is upon the purchase price of the raw material and is rclatable to the act of purchase, it cannot be held to be an excise duty which is levied on the act of manufacture and is levied with reference to the value of such manufactured goods. B For a proper a~prcciation of the contentions arising herein it would be appropriate to notice.a few relevant provisions of the Act. Clause (16) in Section 2 defines the expression 'manufacture' in the following words :

' manufacture" with all its grammatical variations and cog- 1

c nate expressions, means producing, making, extracting, collecting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing processes as 11 may be prescribed.

D Clauses 35 and 36 define the expressions "turn-over of purchases" and "turn-over of sales". It would be enough to notice the definition of the expression 11 turn-ovcr of purchases 11 • It reads :

1 'turn over of purchases' means the aggregate of the E amounts of purchase price pair! and payable by a dealer in respect of any purchase of goods made by him during a given period, after deducting the amount of purchase price, if any, refunded to the dealer by the seller in respect of any goods purchased from the seller and returned lo him within the prescribed period." F Section 3 is a charging section. Section 15 which levied purchase tax on purchase of certain goods from a person who is not a registered dealer read as follows ot the relevant time :

"15 Purchase tax payable on certain purchases of goods. G Where a dealer who is liable to pay tax under this Act purchases any goods specified in Schedule II or III from a person who is not a Registered dealer, then, unless the goods so purchased are resold by the dealer, there shall H be levied, subject to the provisions of section 9.

HOTEL BALAJI v. STATE 01' A.P. [JEEVAN REDDY, J.] 207

(i) in the case of goods specified in Schedule II, a A purchase tax on the turnover of such purchase at the rate set out against them in that Schedule, and

(ii) in the case of goods specified in Schedule III, a purchase tax on the turnover of such purchase at B a rate equivalent to the rate of sales tax set out against them in that Schedule."

The said Section has, however, been substituted by Gujarat Amend- ment Act 9 of 1992 with effect from 1.4.1992, but since the Amendment is not a retrospective one, it is unnecessary to notice the amended provision. c Section 15A provides for a concessional rate of tax in the case of purchases of raw material by a recognised dealer provided the goods pur- chased are those specified in Schedule II or lII (other than the prohibited goods) and he issues a certificate contemplated by Section 13(1)(B). Prior to the Amendment Act 9of1992, Section 15(A) read as follows:

"!SA. Purchase tax payable on purchases of goods by certain dealers where · (i) a recognised dealer purchases any goods specified in Schedule II or Ill other than prohibited goods, under a certificate given by him under clause (B) of sub-section (1) of section 13, or

(ii) a commission agent holding permit purchases any ' goods specified in Schedule. II or III other than prohibited goods on behalf of his principal who is recognised under a certificate given by him under clause (C) of sub-section (1) F of section 13,·

there shall be levied a purchase tax on the turnover of such purchase at the rate of two paise in the rupee." G Since the Amendment of this provision in 1992 is also not retrospec- tive, it is unnecessary to notice the same.

We may now set out Section 15B both as it obtained prior to Amendment Act 6 of 1990 and as substituted thereby. Prior to Amend- ment, it read thus : H

208 SUPREME COURT REPORTS I 1992] SUPP. 2 S.C.R.

A "Where any dealer liable lo pay tax under this Act uses any goods other than declared goods purchased by him or through commission agent as ra\v or processing n1aterials or consumable stores (irrespective of whether su~h goods are prohibited goods or not) in the manufacture of taxable goods and despatches any of the goods so manufactured • B to his own place of business or to his agents place of business situate outside the State but within India such dealer will be liable to pay, in addition to any tax paid or payable under other provisions of this Act, a purchase tax at the rate of four paise in the rupee on the purchase price c of such raw or processing materials or consumable stores used in the goods so manufactured and despatched and accordingly he shall include the purchase price thereof in his turnover of purchases in his declaration or return under section 40 which he is to furnish next thereafter.

D Provided that where the raw materials so used is bul- lion or specie, the purchase tax payable on such bullion or specie under this section shall not exceed the aggregate of the rates of sales tax and the general sales tax payable on bullion or specie." E After it is substituted in 1990 with retrospective effect from 1.4.1986, this Section reads thus:

"Where a dealer who being liable to pay tax nnder this Act purchases either directly or through a commission agent any taxable goods (not being declared goods) and uses them as raw or processing materials or consumable stores, in the manufacture of taxable goods, then there shall he levied in addition to any tax levied under the other provisions of this Act, a purchase tax at the rate of - G (a) two paise in a rupee on the turnover of such purchases made during the period commencing on the 1st Aprtil, 1986 and ending on the 5th August, 1988; and

(b) four paise in rupee on the turnover of such purchases H made at any time after the 5th August, 1988, provided that

HOTEL BALA!! v. STATE OF A.P. [JEEVAN REDDY, J.] 209

where the raw materials purchased for use in the manufacA A ture of goods are bullion or specie, the rate of purchase tax on the turnover of purchases of such raw materials shall not exceed the aggregate of the rates of sales tax and general sales tax leviable on bullion or specie under Entry I in Schedule III." B Inasmuch as strong reliance is placed by the asse>See/appellants upon Rule 42E inserted by G.S.R. 1090 (64) T.H. dated 1.5.1990, it would be appropriate to read the said Rule here:

"42-E. Drawback, set off or refund of purchased Tax under section 158: c 42-E. In assessing the purchase tax levied under section 15B and payable by a dealer (hereinafter referred to as "the assessee") the Commissioner shall subject to conditions of rule 47 in so far as they apply, and further conditions specified below, grant him a draw-back, set off or as the D case may be refund of the whole of the purchase tax paid in respect of purchase of goods effect on and from the 1st April, 1986 used by him, as raw materials, procesSing materials, or consumable stores, in the manufacture of taxable goods." E Conditions:-(1) the assessee is a registered dealer,

(2) the goods purchased are taxable goods other than declared goods, F (3) the said goods have been used by the assessee within the State as raw materials or processing materials or conA sumable stores in the manufacture of taxable goods,

(4) the goods so manufactured have been sold by the assessee in the State of Gujarat. 11 G In view of the retrospective amendment of Section 15B, it may not be necess;iry to refer to Section 15B as it obtained prior to the 1990 amendment except to point out that in material particulars, it was similar to Section 13AA of Bombay Sales Tax Act, which was considered in Goodyear and held to be outside the legislative competence of the State H

210 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A Legislature. The correctness of the ratio in Goodyear has been discussed by us in Part V.

Section 15 makes the purchaser liable to pay the tax provided there- under in case he purchases the goods mentioned in Schedule II and III B from a person who i& not a registered dealer. If, however, the good& '° purchased are resold by him, he is not liable to pay the &aid tax. Section 15A applies only to Recognised dealers. A recognised dealer is defined in section 32 in short, it means a dealer who is a manufacturer and whose turnover of sales or purchases exceeds the specified limit. If the recognised dealer purchases goods &pecified in Schedule II or III (other than c prohibited goods) and i&&ues a certificate contempleted by Section 13 (1).(B), he is entitled to pay purchase tax on a concessional rate. Then come& Section 15B which provides for levy of an additional purchase tax. An analysi& of the Section yields the following ingredients: (i) where a dealer who being liable to pay tax under Act; (ii) purchases either directly or through a comm1ss10n agent; (iii) any taxable goods not being declared goods and (iv) uses them as raw or proce&&ing materials or a& consumable stores in the manufacture of taxable goods (v) then there shall be le;ied in addition to any tax levied under other provi&ions of the Act, a purchase tax at the rates &pecified. It is. thus clear that section 15B does not speak of nor does it refer in any manner to the movement sale or disposal of manufactured goods. According to this section, it is immaterial whether the manufactured good& arc sold within the State or dealt with in some other manner. It is equally immaterial whether the manufacturer consigns them to his own depot& or the depots of his agents outside the State. Therefore, the ratio of Goodyear - keeping aside its correctness for the time being - has absolutely no application. The Haryana and Bombay provisions considered in the said decision spoke of the manufactured goods being disposed of within the State otherwise than by way of sale or de&patched out of State othervise than in the course of inter-State trade or commerce or in the cour&e of export within the meaning of Section 5(1) of the Central Sales Tax Act. Similarly the Bombay provision spoke of the manufactured good& being sent to the depots of the manufacturer or his agents outside the State of Mahara&htra. It was these features which weighed with thi& court in characterising the tax a& one in the nature of a consignment tax (This aspect has been dealt with in part V). Since the said feature is absent in the impugned provision, we hold, agreeing with the H High Court, that the tax imposed hy Section !SB cannot be characterised

HOTEL BALAll v. STATE OF AP. [.!EEV/\N REDDY, J.[ 211

as a consignment tax. A The main contention of the appellants, however, is that Section 158 should not be read in isolation but in conjunction with Rule 42E which was introduced in the Rules simultaneously with the amendment of Section 15(B) and which Rule indeed supplements Section 15B. They say that if both the provisions are read together, the effect and consequence is the B same as that of Section 15B as it obtained prior to 1990 amendment, which means the tax is really upon the consignment of manufactured goods.

We shall first notice what Rule 42E pro,ides. It says that, in assessing the purchase tax levied under Section 15B, the assessee shall be granted a C drawback, set-off or as the case may be, refund of the whole of the purchase tax paid in respect of purchase of goods effected on or after 1.4.1986 and which goods have been used by him as raw material, process- ing material or as consumable stores in the manufacture or taxable goods - subject however to the conditions prescribed in the said Rule and further subject to the conditions specified in Rule 47 in so far as they are ap- plicable. The four conditions specified in the Rule 42E are:

(1) the assessee is a registered dealer,

(2). the goods purchased are taxable goods other than declared goods,

(3) the said goods have been used by the assessee within the State as raw materials or processing materials or con- sumable stores in the manufacture of taxable goods, F (4) the goods so manufactured have been sold by the assessee in the State of Gujarat.

Condition No. 4, emphasised by the assessees says that the benefit of set off/drawback/refund shall be available only if the manufactured goods G are sold within the State of Gujarat. According to them it means that, where the manufactured goods are consigned by the manufacturer to his own depots or to his agents, depots outside the State of Gujarat, the benefit of drawback etc. will not be available, which means that purchase tax shall be levied upon the purchase of raw material. This, say the appellants, is precisely what the old Section 15-B provided for. According to them, the H

212 SUPREME COURT REPORTS IJ992] SUPP. 2 S.C.R.

A present Section JSB read with Rule 42E is nothing but a re-incarnation of Section l5B as it stood prior to 1990 Amendment Act and falls squarely within the ratio of Goodyear This argument raises in turn the question: how far is it permissible to refer to the Rules made under an Act while judging the legislative competence of a legislature to enact a particular provision? The necessity and significance of the delegated legislation is well-accepted and needs no elaboration at our hands. Even so, it is well to remind ourselves that Rules represent subordinate legislation. They cannot travel beyond the purview of the Act. Where the Act says that Rules on being made shall be deemed "as if enacted in this Act", the position may be different. (It is not necessary to express any definite opinion on this aspect for the purpose of this case). But where the Act does not say so, the Rules do not become part of the Aot. Sri Mehta relies upon the following statement of law in Halsbury's Laws of England (3rd Edn.) Vol. 36 at page 401 :

D "Where a statute provides that subordinate legislation made under it is to have effect as if enacted in the statute such legislation may be referred to for the purpose of construing a provision in the statute itself. Where a statute docs not contain such a provision, and does not confer any power to modify the application of the statute by subor- E dinate legislation, it is clear that subordinate legislation made under the statute cannot alter or vary the meaning of the statute itself where it is unambiguous, and it is doubtful whether such legislation can be referred to for the purpose of construing an expression in the statute, even if the meaning of the expression is ambiguous. 11

He says that this statement of law has been referred to with approval by Hegde, J. in his opinion in J.K. Steel Ltd. v Union of India, A.LR. 1970 S.C. 1173. Though the opinion of Hegde, J. is a dissenting one, he submits, the majority has not held to the contrary on this aspect. He also relies upon the English decisions referred to in the opinion of Hegde, J. and points out that no decision of this court has expressed any opinion on the subject, a fact noted by Hegde, J.. He commends the view taken by Hegde, J. for our acceptance. Sri Mehta points out further that Section 86 which confers the Rule making power upon the Government does not say that the Rules

HOTEL BALAJI v. STATE OF AP. [JEEYAN REDDY, J.] 213

when made shall be treated as if enacted in the Act. Being a rule made by the Government, he says, Rule 42E can be deleted, amended or modified at any time. In such a situation, the legislative competence of a legislature to enact a particular provision in the Act cannot be made to depend upon the Rule or Rules, as the case may be, obtaining at a given point of time, he submits. We are inclined to agree with the learned counsel. His submis- B sion appears to represent the correct principle in matters where the legislative competence of a legislature to enact a particular provision arises. If so, the very foundation of the appellants' arguments collapses.

Even if we agree with the appellants and read Rule 42E along with Section lS(B), they cannot succeed. Rule 14E provides for set off etc. in c case the manufactured goods are sold within the State of Gujarat. It no doubt means that set off etc. is not available if the manufactured goods are disposed of otherwise than by way of sale or are consigned to manufacturer's own depots (or to the depots of his agents) outside the State of Gujarat. What in effect the State says is this: "Raw material when purchased is taxable but I won't tax the raw material if you sell the goods manufactured out of such raw material within the State because I derive larger revenue there; I do not want to tax both the raw material and the manufactured goods, in the interest of trade and public. But if you dispose of the manufactured goods in some other manner, I will tax the purchase of raw material because there is no reason why I should forego the purchase tax due on raw material, when I am not getting any revenue from your method of disposal or despatch of manufactured products." There is nothing objectionable in the State saying so. It can indeed rely on the principle of the decision of this court in Godrej & Boyce Mfg. Co. v. F Commissioner of Sales Tax, reported in (1992) 4 J.T. S.C. 317. It is difficult to see how can it be said that by reading Rule 42E into Section JSB, the levy becomes a consignment tax. In any event, the ratio of Goodyear cannot be accepted as good law for the reasons mentioned in part V. G We are equally not satisfied with the argument that the Gujarat legislature has resorted to a device, a stratagem to circumvent the decision of this court or that it is an instance of fraud on power - what is sometimes referred to as 'colourable legislation'. That a legislature is empowered to amend a provision to remove the defect pointed out by a court is well-ac- H

214 SUPREME COURT REPORTS l199:i.j SUPP. 2 S.C.R.

A cepted. So far as the Gujarat Act is concerned, it was never the subject- matter of an adverse decision either by this court or the Gujarat High Court. Writ Petitions were no doubt pending challenging the validity of Section 15B as it then stood. It was perfectly open to the Legislature to act to set its house in order to obviate a possible adverse verdict applying the ratio of Goodyear. The question is whether the provision now enacted, with B retrospective effect, is beyond the legislative competence of Gujarat Legis- lature? It not, no further question arises.

So far as the retrospectivity given to Section 15B by the 1990 Amend- ment Act is concerned, it is hardly open to doubt in the light of several c decisions of this court commencing from Ramakrishna v. State of Bihar, A.LR. 1963 S.C. 1667. This is not even a case where the old provision was struck down by a court. The period or retrospectivity covers only the period during which Section 15B has been in force. The levy was already there. In any event, in view of our conclusion that Goodyear does not represent the correct position in law, this aspect has really no relevance.

It is then contended that the levy is really in the nature of excise duty or use tax inasmuch as it attaches not on purchase of goods but on their use in manufacture of other goods. This argument in our opinion misses the true nature of tax. It is an additional tax on the purchase of raw material used in manufacture of other goods. A certain concession is given to manufacturers (recognised dealers) in purchase of certain types of raw material (Section 15A); an additional purchase tax is levied under Section 15B; and in certain situations, this tax is refunded or set off, as the case may be under Rule 42-E. All these provisions are intended to encourage industry and to derive revenue at the same. time. Counsel for the assessees placed strong reliance upon the word "then" occurring in the section and its placement. He e.nphasised that the tax is payable only when the dealer (1) purchases the goods and (2) uses them in the manufacture of other goods. It is not possible to agree. Heading of Section 15B is "Purchase tax on raw or processing materials or consumable stores used in manufacture of goods in certain cases." The Section, read as a whole, is applicable only to those goods which are used in the manufacture of other goods. The levy is upon the purchase price of raw material and not upon the value of the manufactured products. Entry 54 of List II must receive a liberal construc- H tion, being a legislative entry. The Legislature cannot be confined to only

IIOTEL BALA.II 1·. STATE OF AP. [JEEVAN REDDY . .I.] 215

one form of levy. So long as the levy retains the basic character of a tax on sale, the legislature can levy il in such mode or in such manner as it thinks appropriate. As affirmed by M ukharji, J. in Goodyear, the well-established principles in such matters is 11 that reasonable construction should be fol- lowed and literal construction may be avoided if that defeats the manifest object and purpose of the Act." The legislature must be presumed to know its limitations and acted within those limits. Transgression must be clearly established, and is not to be lightly assumed.

For the very same reasons, the argument that it is a use tax also fails. In essence, the provision is akin to the one considered by this court in Andhra Sugars Ltd. & Anr. v. The State of Andhra Pradesh & Anr., 21 S.T.C. c 212.

For the above reasons, the appeals and writ petitions are dismissed with no order as to costs. D PART - III (UTTAR PRADESH)

These Civil Appeals and Writ Petition are filed by the Tribeni Tissues Limited, Varanasi, Uttar Pradesh. The Appeals are preferred against the Judgment of a learned Single Judge of Allahabad High Court E allowing Sales Tax Reyisions No.325, 327 and 328 of 1989 preferred by the Commissioner of Sales-tax, Uttar Pradesh against the orders of the Sales- tax Appellate Tribunal. The assessment years concerned are 1978-79 to 1981-82.

The appellant is a dealer registered under the U.P. Sales tax Act, F having an office at Varanasi. It has a paper mill at Calcutta. The appellant purchases sun hemp, raw jute, old hemp rope cuttings, Old Jute rope cuttings and jute cuttings etc. at Varanasi and sends them to the paper-mill at Calcutta for being used as raw material. These purchases are made .by the appellant from farmers, 'kabadis' and other persons who arc not G registered dealers. The turnover relating to such purchases was subjected to purchase-tax under section 3-AAAA by the assessing authorities which the appellant objected to. The Tribunal, by a majority of 2:1 held in favour of the appellant against which the Commissioner preferred revisions before the High Court. Section-3AAAA read as follows at the relevant time. H

216 SUPREME COURT REPORTS I1992] SUPP. 2 S.C.R. A ' 1 3-AAAA. Liability to purchase tax on certain transactions - Where any goods liable lo lax al the point of sale lo the consumer are sold to a dealer but in view of any provision of this Act no sales tax is payable by the seller and the purchasing dealer does not resell such goods within the State or in the course of inter-State trade or commerce, in B the same form and condition in which he had purchased them the purchasing dealer shall subject to the provisions of Section 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; c Provided that if it is proved lo the satisfaction of the assessing authority that the goods so purchased had al- ready been subjected to tax or may be subjected lo tax under Section 3-AAA, no lax under this section shall be payable." D The section subjected the purchase of "goods liable to tax at the point of sale to the consumer" to purchase lax payable by the purchasing-dealer, in a case where the selling dealer was not liable to pay the sales-tax on such sale. Purchase tax was payable at the same ralc as the sales tax. If, E however, the purchasing dealer resold such goods within the State or in the course of inter-State trade or commerce, he ~'as not liable to pay the purchase tax. The expression "goods liable to tax at the point of the sale to the concumer" is explained in Section 3-AAA. Section 3A prescribes the rates of tax. As it stood al the relevant time, sub-sections (1) and (2) F prescribed different rates for different goods. Sub-section (2A) which alone is relevant herein, read as follows:

"3A (2A): The t·1rnover in respect of goods other than those referred to in sub-sections (1) and (2) shall be liable to tax at the point of sale by the manufacturer or importer at the rate of seven per cent, provided that the State Government may from time to time, hy notification in the Gazette modify the rate or point of tax on the turnover in respect of any such goods with effect from such date as may be notified in that behalf, so however, that the rate does not exceed seven per cent.''

HOTEL HALAll v. STATE OF A.P. [JEEVAN REDDY .I.[ 217

(The goods concerned herein, according to hoth the parties, fall within sub-section (2A) of Section 3A).

The State Government issued a notification dated 30.5.1975 in terms of and as contemplated by the proviso to sub-section (2A) of Section 3-A declaring that with effect from June I, 1975, the turnover in respect of guo<ls specified in colu1nn 2 l)f the Schedule lo th~ notific£ttion shall be liable to tax at the point of sale and at the rate specified respectively in columns (3) and (4) thereof. The Schedule, in so far as relevant may be set out:

"SCHEDULE c 'M' stands for sale by manufacturer in Uttar Pradesh. 'I' stands for sale by the Importer in Uttar Pradesh. SI. Description of goods Point at which Rate of tax No. tax shall be levied D (Items No.I to 14 omitted as unnecessary.)

15. Old, discarded, unservice- able or obsolete machinery, stores or vehicles including E \Vaste products except cinder, coal ash and such items a<.; are included in any other notification issued under the Act. (Item Nos. 16 to 25 omitted as sale to consumer 5 per cent unnecessary.) F

.. 26. Jute and Hemn Goods Mor I 4 ner cent

The controversy before the High Court was a limited one. It was: "whether the said goods will fall under the entry at SI. No. 15 of the notification dated 30th May, 1975 as contended by the learned standing G counsel (for the State of Uttar Pradesh) or under SI. No. 26 as .ll)te and Hemp goods under the notification dated 1st October, 1975 as urged on behalf of the assessee." (Quoted from the judgment of the High Court.) The learned Judge held that the goods fall under item No.15 and accord- ingly allo\ved the revisions filed hy the Commissioner. The correctness of the Judg1nent of the High Court is questioned in these Civil Appeals. H

218 SUPREMF COURT REPORTS [1992) SUPP. 2 S.C.R.

A While the Civil Appeals were pending in this Court, a Division Bench of the Allahabad High Court held in C.M.W.P.No.168 of 1983 and batch (decided on 3rd April, 1991) that Section 3-AAAA was ultra vires the legislative competence of the legislature of Uttar Pradesh and, therefore, void. The Division Bench followed and applied the ratio of Goodyear and • held that under the said provision the taxable event is not the purchase of B the goods by the purchasing dealer but the subsequent event namely use of said goods in the manufacture of other goods and their despatch without effecting a sale within the State of Uttar Pradesh to a place outside the Uttar Pradesh. To get over the said decision and to remove the defect pointed out therein, the Governor of Uttar Pradesh issued an Ordinance C being Ordinance No. 45 of 1991 on 12th December, 1991 substituting Section 3-AAAA in its entirety with effect from April 1, 1974. The said Ordinance has since been replaced by U.P. Sales-tax (Amendment) Act 8 of 1992. Section 3-AAAA as substituted by the aforesaid Amending Act reads thus:

D "3-AAAA. Liability to purchase tax on certain transactions.

(1) Except as provided in sub-section (2) and subject to the provision of Section 3, every dealer, who purchases any goods liable to tax at the point of sale to consumer- E (a) from any registered dealer in circumstances in which no tax is payable by such registered dealer, shall be liable to pay tax on the purchase price of such goods at the same rate at which, but for such circumstances, tax would have been payable on the sale of such goods; F (b) from any person other than a registered dealer, whether or not tax is payable by such person, shall be liable to pay tax on the purchase price of such goods at the same rate at which tax is payable on the sale of such goods. G (2) Exemption shall be granted in the tax payable under sub-section (1) to the extent of the amount of tax,-

(a) to which the goods purchased from a registered dealer have already been subjected or may be subjected under any provision of this Act or the Central Sales Tax Act, 1956;

HOTEL BALAJJ v. STATE OF AP. [JEEVAN REDDY, .I.[ 219

(b) already paid in respect of the goods purchased from any person other than a registered dealer;

(c) on the sale of goods liable to be exempted under Section 4-A;

( d) to which the sale of dressed hides and skins (or tanned leather) and ginned cotton obtained from raw hides and skins and raw cotton so purchased or rice obtained from paddy so purchased during the period commencing on September 2, 1976 and ending with April 30, 1977, are liable under any provision of this Act or the Central Sales Tax Act. 1956." c Writ Petition No. 175 of 1992 is preferred questioning the constitu- tional validity of the said provision.

We shall first deal with Civil Appeals. According to the statement of facts contained in the .Judgment of the High Court, the appellant purchased 1 'sun hemp, raw jute, old hemp rope cuttings, old jute rope cuttings and jute cuttings etc." Item No. 26 of the notification dated October 1, 1975 speaks of "jute and hemp goods". The appellant inter alia purcha<ed "sun- hemp" and "raw jute''. Certainly they do not fall under item 26 of the Schedule. Coming to "old hemp rope cuttings, old jute rope cuttings and jute cuttings" they fall, by their very nature more properly under item 15 because admittedly they are discarded, worn-out, and waste material. It would be rather odd lo call them "jute the hemp goods" in the presence of item (15). The High Court was, therefore, justified in holding that the goods purchased by the appellant are properly relatable to item 15 and not to item 26 of the notification. >

The learned counsel for the appellant urged that item 15 is confined only to oldi disL:an.led, unserviceable and obsolete 1'stores11 which in the context me.ans 11 stores11 maintained by a factory or industry. Having regard to the language of item 15, he submitted, it does not take in old discarded material coming fron1 other sources. W c see no warrant for this restricted reading of item 15. Be that as it may, once the said goods do not fall under item 26: as held by us, they n1ust fall under itctn 15, since it is not suggested that there is any other item which takes in these goods. The Civil Appeals accordingly fail and arc dismissed. No costs. H

220 SUPREME COURT REPORTS [1992) SUPP. 2 S.C.R.

A Writ Petition No.175 of 1992.

In view of the fact that Section 3-AAAA has been substituted by the 1992 Amendment Act with retrospective effect from April I, 1974, it is not re;;lly necessary for us to deal at any length with the Section as it stood prior to the said amendment or with the correctness of the judgment of B the Division Bench .of the Allahabad High Court declaring the same as beyond the legislative eµmpctence of the U.P. Legislature. Suffice it to say that the decision of the Division Bench closely follows and applies the ratio of Goodyear which according lo us does not represent the correct position in law as explained in Part V. c Coming to Section 3-AAAA as it now stands, an analysis of the Section yields the following ingredients:

A. (i) A dealer who purchases any goods liable lo tax at the point of sale to the consumer~ D (ii) from any registered dealer in circumstances in which no lax is payable hy such registered dealer,

(iii) the purchasing dealer shall be liable lo pay tax on the purchase price of such goods al the same rate al which the lax would have been payable on the sale of such goods.

B. (i) A dealer who purchases any goods liable to tax at the point of sale to consumer,

(ii) from any person other than a registered dealer, whether or not such person is liable to pay the tax on such sale,

(iii) the purchasing dealer shall he liable to pay tax on the purchase price of such goods at the same rate at which tax is payahle on the sale of such goods.

G C. The purchasing dealer is, however, entitled to be exM empted from the tax payahle under the above two heads to the extent of the amount of tax n1entioned in clauses (a),(b),(c) and (d) of sub-section (2). Clause (a) speaks of the tax paid or p<.Jyablc under any of the pro\~sion of U.P. H Act or C.S.T. Act. Clause (b) speaks of the tax already paid,

HOTEL BALAfl v. STATE OF AP. [JEEVAN REDDY. J.J 221

if any, in respect of goods purchased from any perosn other than a registered dealer. Clause (c) refers to sale of goods entitled to exemption under section 4A and clause (d) refers to sale of dressed hides and skins.

In short, the scheme of the section is this: (1) if a dealer purchases the goods liable to tax at the point of sale to the consumer from any registered dealer who is not liable to pay tax on such sale, the purchasing dealer shall pay such lax. If, however, the purchasing dealer establishes that the goods purchased by him have already been subjected to er may be subjected to tax under the U.P. Act or Central Sales Tax Act, he will get an exemption to that extent. (2) If the said goods arc purchased from a c person other than a registered dealer the purchasing dealer shall pay the tax payable on sale of such goods. If, however, he proves that tax payable has been paid, either wholly or partly, by the seller, the tax payable by the purchasing dealer shall be exempted to that extent. (3) Similar exemption will be available to the purchasing dealer in case he establishes any of the D facts mentioned in clauses (c) and (d) of sub-section (2). The central idea is that no transaction of sale (of goods taxable at the point of sale to consu111er) should go untaxed. Either the seller pays the tax or the pur- chaser pays. It is for achieving this central purpose that Section 3-AAAA has been enacted providing for several situations. E It would be immediately evident that section that Section 3-AAAA does not speak of and does not refer in any manner to the user of the goods purchased. It is immaterial whether the goods purchased are used in the manufacture of other goods or dealt with otherwise. Much less does it speak of the manner in which the goods manufactured out of such pur- F chased goods, if any, are dealt with. The exemptions provided in sub-sec- tion (2) are equally un-related to the above aspects. Sub-section (1) is clear and simple. The tax becomes payable by the purchasing dealer in the two situations contemplated by clauses (a) and (b) of the said sub-section. If he can establish any of the facts mentioned in clauses (a) to ( d) of sub-section (2), he gets an ap;iropriate exemption. Otherwise not. We are, G therefore, unable to see any room for contending that the tax imposed by the said section is in the nature of consignment tax or a use or consumption tax. Simply because the petitioner chooses to take the goods purchased by him out of the State, in the sa1ae form and condition or otherwise, for being used as raw material in his factory at Calcutta, makes no difference to the H

222 SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.

A levy. The validity of the levy cannot depend upon what a particular dealer or person chooses to do with the goods.

It was argued for the petitioner that sub-section (2) of Section 3-AAAA places a heavy and uncalled for burden upon the purchasing dealer; that it is not practicable for the purchaser to establish that the B selling person (other than the the registered dealer) has paid the tax or not. It is submitted that the petitioner purchases his goods from hundreds of persons who are not registered dealers and it cannot reasonably be expected of the petitioner to gather the particulars of or from all such persons. We are unable to appreciate this contention. A person other than c a registered dealer is not amenable to the discipline of the Act. He cannot indeed collect any tax [Section 8(A) (2)] and, therefore, will not, ordinarily speaking, make over or pay any tax. This the legislature is justified in presuming. If, however, in any case it is proved that such person has paid the tax, the purchasing dealer will get an exemption to that extent. It a D benefit is claimed by the purchasing dealer, it is for him to prove the fact which enables him to claim the benefit. That burden cannot be passed on to any one else. So far as registered dealers arc concerned, all that the purchasing dealer need prove is that the said goods have already been or may be subjected to tax under State Act or Central Sales Tax Act. On this score, we see no difficulty for the purchasing dealer. From the bill given by the selling dealer, the purchasing dealer can prove the payment. Or he can simply prove, as a matter of law that the said goods are liable to be taxed under any other provision of the Act or under the Central Sales Tax Act. We are equally unable to see any vagueness in the provision nor is it established that any such vagueness is operating to the prejudice of the petitioner.

In this view of the matter, it is unnecessary, strictly speaking, to consider whether the present Section 3-AAAA is in effect and substance the same as the one obtaining prior to 1992 Amendment Act. For the sake of completeness; however, we may mention that under Section 3·AAAA G (before it was substituted in 1992) tax was payable by the purchasing dealer where he purchased goods liable to tax at the point of sale to the consumer in circumstances where no tax is payable by the seller, provided he did not resell the said goods, in the same form and condition, within the State or in the course of inter-State, trade or commerce. The section was under- H stood by the Division Bench in the following manner :

HOTEL BALAJI v. STATE OF AP. [JEEV AN REDDY, J.] 223

"23. That brings us to the vital question as to which are the circumstances in which sale of the goods purchased within the State or in the course of inter-State trade and com- merce in the same form 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:

1Copy pinpoint1. use and consumption of the goods purchased by the purchasing dealer in the manufacture of some other tax- able goods within the State;

2Copy pinpoint2. despatch of the manufactured goods, without sale, c outside the State otherwise than in the course of inter- State trade and commerce;

3Copy pinpoint3. despatch of the goods out of the territory of India pursuant to a contract of sale, i.e. despatch in the course D of an export sale;