# GOODYEAR INDIA LTD. ETC. ETC v. STATE OF HARYANA & ANR. ETC. ETC

- **Citation:** [1989] Supp. 1 S.C.R. 510
- **Court:** Supreme Court of India
- **Decided:** 1989-10-19
- **Case number:** Civil Appeals Nos. 1166-72 of 1985
- **Bench:** Sabyasachi Mukharji, S. Ranganathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/goodyear-india-ltd-etc-etc-v-state-of-haryana-anr-etc-etc-10501
- **Pages:** 52

## Headnote

Haryana General Sales Tax Act, 1973: Section 9 (Prior to its
amendment by Act No. 11of1979)-Purchase Tax-Provision for levy
of purchase tax on 'Disposal' of manufactured goods-Notification-
(No. S.O J19/H.A. 20/73/Ss. 9 & 15/74 dated July 19, 1974)-Levy of
C tax on mere despatch of goods to the dealers themselves outside the
State-Validity of.
Section 9(1)(b) (As amended by Haryana General Sales Tax
(Amendment and Validation Act), 1983-Purchase Tax-Taxing of
purchase of raw material if goods manufactured therefrom despatched
D outside the State otherwise than by way of sale in the course of inter State
trade-Whether taxing of consignments in the course of inter State
trade-Whether beyond the legislative competence of State Legislature-Effect of Constitution (Forty-Sixth) Amendment Act, 1982.
Section 9( l)(c)-Purchase tax on Exports-Food Corporation of
E India-Purchase of foodgrains from farmers within the State-Despatch of food grains to its Branches outside the State-Levy of Tax at the
Point of Despatch-Validity of.
Section 24(3)-Validity of:
F Haryana General Sales Tax (Amendment and Validation) Act, 1983- Law
declared ultra vires State Legislature-Validating Act-No change made
in substantive law mere direction to ignore judgment-Whether void.
G
Section 5{}-Penalty-Charging provision held ultra viresPenalty proceedings based on charging provision whether invalid.
Bombay Sales Tax Act 1959: Section 13-AA (As inserted by
Maharashtra Act XXV/11 of 1982)-Scope, effect and validity of.
Purchase tax-Raw material purchased by paying tax used in the
manufacture of goods-Manufactured goods despatched to Agents in
other States-Levy of AdditiorfaJ-Tax-Whether tax on the consignment
H of manufactured goods outside the State-Whether beyond the legislat519
GOODYEAR (I) LTD. v. STATE OF HARYANA
511
tive competence of State Legislature-Whether violative of Articles 14
A
and 30 Iof the Constitution of India.
Constitution of India, 1950: Article 14-Section 13-AA of the
Bombay Sales Tax Act, 1959 (As inserted by Maharashtra Act XXVIII
of 1982)-Vires of
B
Articles 245 and 246-Doctrine of Pith and Substance-What isTest for determination-Legislative competence-Relevancy of pith and
substance rule.
Article 269( l)(h)-Constitution (Forty-Sixth) Amendment Act,
1982-0bject and1effect of
Article 301-Freedom of Trade Commerce and Intercourse
Bombay Sales Tax Act, 1959-Section 13-AA (As inserted ·by
Maharashtra Act XXVIII of 1982)-Vires.of-lmposlfion of Additional
purchase tax--Permissibility of
Schedule Vll-Entr:es in the Legislative Li.sts~Only demarcate
•
legislative field-Do not confer legislative powers.
Statutory Interpretation: Rules of interpretation of statutesapplicabiiity of to interpretation of Consiitution-Constitution-Not to
be interpreted in a narrow pedantic sense.
Fiscal statutes-Tax liability-Whether can be .determined by
reference to interpretation of a statute other than the statute creating
liability-Should be construed strictly-Assumptions and presumption
in interpretation of fiscal law--Jfhether permissible.
Determination of nature of a tax-Standard or measure on which
the tax is levied-Whether relevant and conclusive-Courts whether to
look into Pith and Substance Rule.
c
D
E
F
Taxable event-Charging event-What is-Test for determinaG
lion-What is-Stages of taxation explained.
Excise duty-Sales Tax-Distinction between-Tax on sale of
goods-Tax on use or consumption of goods-Distinction betweenReasonable construction should be followed and literal construction to
be avoided if that defeats the manifest object and purpose of the Act.
H
A
B
c
512
SUPREME COURT REPORTS
[1989} Supp. 1 S.C.R.
Mischief Rule: Provisions of Constitutional changes-To be conscrCTed in the context of Mischief Rule.
Practice and Procedure: Precedenc-What is-A decision on a
question which has not been argued-Whether can be treated as
precedent.
Words and Phrases: 'Disposal'-Meaning of.
The appellant/petitioner company-Good Year India Limited-a
registered dealer

## Text

_Characters 0–39,788 of 130,737. This is a partial read: ask again with offset=39788 for what follows._

A
GOODYEAR INDIA LTD. ETC. ETC.
v.
STATE OF HARYANA & ANR. ETC. ETC.
OCTOBER 19, 1989
B
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.]
Haryana General Sales Tax Act, 1973: Section 9 (Prior to its
amendment by Act No. 11of1979)-Purchase Tax-Provision for levy
of purchase tax on 'Disposal' of manufactured goods-Notification-
(No. S.O J19/H.A. 20/73/Ss. 9 & 15/74 dated July 19, 1974)-Levy of
C tax on mere despatch of goods to the dealers themselves outside the
State-Validity of.
Section 9(1)(b) (As amended by Haryana General Sales Tax
(Amendment and Validation Act), 1983-Purchase Tax-Taxing of
purchase of raw material if goods manufactured therefrom despatched
D outside the State otherwise than by way of sale in the course of inter State
trade-Whether taxing of consignments in the course of inter State
trade-Whether beyond the legislative competence of State Legislature-Effect of Constitution (Forty-Sixth) Amendment Act, 1982.
Section 9( l)(c)-Purchase tax on Exports-Food Corporation of
E India-Purchase of foodgrains from farmers within the State-Despatch of food grains to its Branches outside the State-Levy of Tax at the
Point of Despatch-Validity of.
Section 24(3)-Validity of:
F Haryana General Sales Tax (Amendment and Validation) Act, 1983- Law
declared ultra vires State Legislature-Validating Act-No change made
in substantive law mere direction to ignore judgment-Whether void.
G
Section 5{}-Penalty-Charging provision held ultra viresPenalty proceedings based on charging provision whether invalid.
Bombay Sales Tax Act 1959: Section 13-AA (As inserted by
Maharashtra Act XXV/11 of 1982)-Scope, effect and validity of.
Purchase tax-Raw material purchased by paying tax used in the
manufacture of goods-Manufactured goods despatched to Agents in
other States-Levy of AdditiorfaJ-Tax-Whether tax on the consignment
H of manufactured goods outside the State-Whether beyond the legislat519
GOODYEAR (I) LTD. v. STATE OF HARYANA
511
tive competence of State Legislature-Whether violative of Articles 14
A
and 30 Iof the Constitution of India.
Constitution of India, 1950: Article 14-Section 13-AA of the
Bombay Sales Tax Act, 1959 (As inserted by Maharashtra Act XXVIII
of 1982)-Vires of
B
Articles 245 and 246-Doctrine of Pith and Substance-What isTest for determination-Legislative competence-Relevancy of pith and
substance rule.
Article 269( l)(h)-Constitution (Forty-Sixth) Amendment Act,
1982-0bject and1effect of
Article 301-Freedom of Trade Commerce and Intercourse
Bombay Sales Tax Act, 1959-Section 13-AA (As inserted ·by
Maharashtra Act XXVIII of 1982)-Vires.of-lmposlfion of Additional
purchase tax--Permissibility of
Schedule Vll-Entr:es in the Legislative Li.sts~Only demarcate
•
legislative field-Do not confer legislative powers.
Statutory Interpretation: Rules of interpretation of statutesapplicabiiity of to interpretation of Consiitution-Constitution-Not to
be interpreted in a narrow pedantic sense.
Fiscal statutes-Tax liability-Whether can be .determined by
reference to interpretation of a statute other than the statute creating
liability-Should be construed strictly-Assumptions and presumption
in interpretation of fiscal law--Jfhether permissible.
Determination of nature of a tax-Standard or measure on which
the tax is levied-Whether relevant and conclusive-Courts whether to
look into Pith and Substance Rule.
c
D
E
F
Taxable event-Charging event-What is-Test for determinaG
lion-What is-Stages of taxation explained.
Excise duty-Sales Tax-Distinction between-Tax on sale of
goods-Tax on use or consumption of goods-Distinction betweenReasonable construction should be followed and literal construction to
be avoided if that defeats the manifest object and purpose of the Act.
H
A
B
c
512
SUPREME COURT REPORTS
[1989} Supp. 1 S.C.R.
Mischief Rule: Provisions of Constitutional changes-To be conscrCTed in the context of Mischief Rule.
Practice and Procedure: Precedenc-What is-A decision on a
question which has not been argued-Whether can be treated as
precedent.
Words and Phrases: 'Disposal'-Meaning of.
The appellant/petitioner company-Good Year India Limited-a
registered dealer both under the Haryana General Sales Tax Act, 1973
and Central Sales Tax Act, 1956, was manufacturing automobile tyres
and tubes at Ballabgarh in the State of Haryana. For the said
manufacturing activity it was purchasing various kinds of raw materials both within the State and from outside the State of Haryana. The
Company was despatching these manufactured goods viz. tnes and
tubes to its own brancltes and sales depots outside the State of Haryana.
The assessing authority imposed upon the appellant company the
purchase tax under section 9 of the Haryana General Sales Tax Act,
1973 in view of the despatches made by it of the manufactured goods
to .its nrious depots.iutside-the-State.
E
The petitioner company filed writ petition in the Punjab and
Haryana High Court challenging the validity of the Notification levying
the tax. A Division Bench of the High Court allowed the petition holding
that disposal of goods being separate and distinct from ~espatch thereo!',
a mere despatch of goods out of the State by a dealer to his own brancb
while retaining both 'the title·and possession thereof does not come
F
within the ambit of the phrase "disposes of the manufactured goods in
any manner otherwise than by way of sale", as employed in Sectiol\
9{l)(a)(ii) of the Act. Accordingly the High Court s~t asid'e the assessn1<nt orders and quashed the impugnedJSJ>tification as.ultra vires of
s~ction 9 on tile ground that whereas Section 9 provided only for the
levy of purchase tax on the disposal of the manufactureo goods, the
G
impugned Notification makes mere despatch of goods to the dealer
'th~mselves taxable. To override the effect of the said judgment the
Haryana Legislature enacted Haryana General Sales Tax (Amendment
and Validation) Act 1983 where by Section 9 of the Act was amended
with retrospective effect to include within its sweep the despatch of
manufactured goods to a place outside the State in any manner
H ntllffWlse than by way of sale. The ~pugned Notification and the con-
GOODYEAR (I) LTD. v. STATE OF HARYANA
SB
sequential action taken thereunder were also validated.
The petitioner company filed writ petitions challenging the assessments. The High Court allowed the petitions holding section 9(l)(b) of
the Haryana General Sales Tax Act 1973 as amended by the Haryana
General Sales Tax (Amendment and Validation) Act, 1983 in so far as it
levied a purchase tax on the consignment of goods outside the State in
the course of inter-State trade or commerce was beyond the legislative
competence of the State of Haryana and was void and inoperative
because 11 intruded and trespossed into an arena exclusively meant ;'or
taxation by the Lnion of India under Entry 92-B of.List l orthe Seventh
Schedule. Accordingly the High Court set aside the amended provisions
of section 9 as also the retrospective validation of the Notification and
the consequential validation of all actions taken thereunder. Against
this decision of the High Court, State of Haryana preferred Special
Leave Petitions in this Court.
During the pendency of these Special Leave Petitions, the assessing authority issued Show-cause notices asking the petitioner company
to show-canse why in addition to the purchase tax, it should not be
liable to penalty as well. The Petitioner company again filed writ petitions in the Punjab & Haryana High Court challenging the valirlity of
these notices. In the_ meantime a Full Bench of the High Court decid~d
the guestion 01gain and overruling the decision of the earlier Division Bench
held that the taxing event was the act of purchase and not the act of
despatch of the consignment. The Full Bench of the High Court held
that section 9(l)(b) as amended was neither invalid nor ultra virllS.
Against the aforesaid judgment of the Foll Bench the Petitioner Company filed appeals in this Conrt. All these questions are the subject
matters of these appeals.
A
B
c
D
E
F
In the connected.appeals, the Food Corporation of India was procuring food-grains from the farmers through commission agents in the
mandis of Haryana and despatching them to its own branches in the
deficit State of the country. The Corporation branches in the recipient
States were supplying these stocks to the State agencies/Fair Price
Shops and were also paying tax as per the provisions of the Sales Tax
G
law of the respective States. Some of the stocks were distributed within
the State of Haryana for the public distribution system for which sales
tax was charged and deposited with the sales-tax depots as per the
Haryana General Sales Tax Act, 1973. In respect of the inter-State
despatch of wheat and. other food-grains by the Food Corporation of
India to its own branches tax was attracted at the time of despatch
H
51-4
SUPREME COURT REPORTS
[-19891 S11pp. l S.C.R.
under section 9(1 )( c) of the 'Haryana Act. The Food Corporation of
A
India impugned the levy of tax.
B
In the other connected appeals the appellant companies-Hindustan Lever Ltd. and Wipro Products-were manufacturing vanaspati,
soaps, chemicals and agro chemicals. For the said manufacturing
activities, they were purchasing non-essential vegetable oil (VNE oil)
and other raw materials and were paying purchase tax @4% under
section 3 of the Bombay Sales Tax: Act, 1959. The VNE oil was subsequently used by the appellant companies in the manufacture of vanaspati and soaps. The finished products manufactured by the appellant
companies viz. vanas1>ati and soaps used to be despatched outside the
Staie of Maharashtra to their clearing and forwarding agents. The
assessing authority levied additional p_urchase tax @ 2% under section
13-AA of the Act on-the purchase of said goods-VNE oil.
The appellant companies filed writ petitions in the High Court
D
challenging the orders of the assessing authority levying the additional
tax of 2% and also the vires of section 13~AA of the Bombay Sales Tax
Act, 1959 under which the additional tax was levied, contending that
the additional tax of 2% levied on raw materials, where the finished
goods manufactured therefrom were despatched outside the State was
in the nature of consignment tax which was not within the legislative
£
competence of the State Legislature.
The High Court dismissed the petitions holding (i) the additional
purchase tax levied under section 13-AA of the Act was on the purchase
value of VNE oil used in the manufacturing of goods transferred outside
the State and uot on the value of the manufactured goods so transferF
red; (ii) the State Legislature was competent to levy the tax under Entry
54 of the State List in the Seventh Schedule to the Constitution, and (iii)
Section 13-AA was not violative of either Article 14 or Article 301 of the
Constitution ol'lndia.
~gains! the decision of the High Court appellant companies filed
G
appeal in this Court.
Disposing of the matters, this Court,
HELD: (Per Mukharji, l)
H
I. Analysing section 9 of the Haryana General Sales Tax Act,
GOODYEAR (I) LID. v.-STATE OF HARYANA
515
1!!7 3. it is clear that the two conditions specified, before the event of A
despatch outside the State as mentioned in section 9(l)(b), namely, (i)
purchase of goods in the State and (ii) using them for the manufacture
of any other goods in the State, are only descriptive of the goods liable
to tax under Section 9(l)(b) in the event of despatch outside the State. If
the goods do not answer both the descriptions cumulatively, even
though these are despatched outside the State of Haryana, the purchase
'
of those goods would not be put to tax under Sectipn 9(l)(b). The
liability to pay tax under section 9(l)(b) does not accrue-on purchasing
·the goods simpliciter, but only when these are despatched or consigned
out of the State of Haryana. The section itself does not provide for
imposition of the purchase tax on the transaction of purhcase of the
taxable goods but when further the said taxable goods ar~ used up and
turned into independent taxable goods, losing its original identity, and
thereafter when the manufactured goods are despatched . outside the
State· of Haryana and only then tax is levied and laibility to pay tax is
created. It is the cumulative effect of that event which occasions or
causes the tax to be imposed. {539F-H; 540A-B]
L l A taxable event is that which is closely related to imposition.
In the instant section viz. section 9(l)(b) there is such close relationship
only with despatch. The goods purchased are used in manufacture of
new independent commodity and thereafter the said manufactured
goods are despatched outside the State of Haryana. In this series of
transactions the original transaction is completely eclipsed or cease to
exist when the levy is imposed at the third stage or despatch of
manufac~ure. The levy has no direct connection with the transaction of
purchase of raw-materials, it has only a remote connection of lineage.
The mere consignment of goods by a manufacturer to his own branches
outside the State does not in any way amount to a sale or disposal of the
goods as such. The. consignment or despatch of goods is neither a sale
nor a pnrchase. ·rhe tax imposed under Section 9(l)(b) is a tax on
despatch. The tax on despatch of goods outside.the territory of the State
certainly is in the course of" inter-State tfade or commerce and amounts
to imposition of consignment tax, and hence the latter part of section
9(l)(b) is ultra vires and void. {540G-H; 5428; 543A; 544E; 545A]
Tata Iron & Steel Co. v. State of Bihar, {1958] SCR 1355, referred
to.
Good Year India Ltd. v. State of Haryana, 53 STC 163 and Bata
India Ltd. v. State of Haryana & Anr., 54 STC 226, approved.
B
c
D
E
F
G
H
516
SUPREME COURT REPORTS
[ 1989} Supp. 1 S.C.R.
A
Des Raj Pushap Kumar Gulati v. The State of Punjab, 58 STC
393, overruled.
Yusuf Shabeer & Ors. v. State of Kera/a & Ors., 32 STC 359;
Coffee Board v. Commissioner of Commercial Taxes & Ors., 60 STC
142 and Coffee Board, Karnataka v. Commissioner of Commercial
B
Taxes, Karnataka, 70 STC 162, distinguished.
c
D
E
F
G
State of Tamil Nadu v. M.K. Kandaswami, 36 STC 191; Ganesh
Prasad Dixit v. Commissioner of Sales Tax, M.P., [1969] 24 STC 343
and Malabar Fruit & Company v. Sales Tax Officer, Pallai, 30 STC
537, distinguished.
1.2 The effect of the 'constitution (Forty-sixth Amendment) Act,
1982 is that the field of taxation on the consignment/despatch of goods
in the course of inter-State trade or commerce expressly comes within
the purview of the legislative competence of the Parliament. [543H]
2. If section 9(l)(h) is ultra vires, the penalty proceedings would
automatically go as they are in substance, based on the violation of
section 9( l)(b) of the Act and the consequent proceedings flowing
therefrom. [545B I
3. Section 24(3) of the Haryana General Sales Tax Act, 1973
without making any change in the substantive provision purports to
give a direction to ignore the judgments in Goodyear and Bala India
Ltd. cases. This provision is void. l546B J
Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality,
[1969] 2 SCC 283 and Dy. Commissioner of Sales Tax (Law) Board of
Revenue (Taxes) v. M/s Thomas Stephen & Co. Ltd. Qui/on, [1988] 2
sec 264, followed.
4. In respect of inter-State despatch of wheat and other food
grains by Food Corporation of India to its own branches, tax is
attracted at the time of despatch under Section 9( l )( c) of the Haryana
Act. Section 9 is the charging section for taxation in case where the
goods are purchased for export. There is no other .Provision for levy of
purchase or sales tax in such cases of export. [547B]
4.1 No tax is payable under the Haryana Act when exports outside the State take place either in the course of inter-State sale or export
H
out of the territory of India. But the tax is payable for sale in the course
GOODYEAR (I) LTD. v. STATE OF HARYANA
517
of inter-State trade and commerce i.e. nuder the Central Sales Tax Act.
It is only when the goods are despatched/consigned to the depots of the
FCI in other States that tax is levied under section 9 of the Haryana Act.
This is in addition to the sales tax paid by the FCI on the sale of grains
in the recipient States. In view of sections 14 & 15 of the Central Sales
Tax Act, it becomes clear that wheat is one of the commodities specified
A
as 'declared goods' and in respect of which the intention is clear that.the
B
tax is payable only once on the declared goods. In the case of inter-State
sale if any tax has been paid earlier on declared goods inside the State
· the same is to be refunded to the dealer who is paying tax on such
inter-State Sales. On these transactions no tax is liable in the recipient
State, while in cas_e of inter-State despatches, the tax is leviable twice.
Section 9(l)(c), wliich insofar as it purports to tax, exports, is beyond C
the legislative competence of the State of Haryana. [547E-G]
5. The incidence of the levy of additional tax of two paise in the
rupee under Section 13-AA of the Bombay Sales Tax Act, 1959 is not on
the purchase of goods, but such a levy is attracted ouly when-(a) the
goods which so purchased on payment of purchase tax are used in the D
manufacture of taxable 2oods; and (b) the 2oods so manufactured are
despatched to his own place of business or to his agent's place of business outside the State. Therefore, the incidence of tax is attracted not
merely on the purchase but only when the goods so purchased are used
in the manufacture of taxable goods and are despatched outside the
State. The incidence of additional tax has no nexus with the purchase of E
the raw-materials. [553A-B; D l
5.1 Purchase tax under section 3 of the Act is attracted when the
taxable event i.e.Jhe purchase of goods occurs but the taxable event for
the imposition of additional tax of two paise in the rupee occurs only
when the goocIS, so purchased are used in the manufacture of taxable F
goods and such taxable goods are .·«1espatched outside. -the State by a
dealer manufacturer. The goods-whieh are despatched are different
products from the goods Ori the purchase of which purchase tax was
paid. It is therefore not possible to accept the argument that the chargeable event was lying dormant and is activated only on the occurrence of
the event of despatch. [553E; 556F; 557C]
G
5.2 The charging event is the event the occurrence of which
immediately attracts the charge. Taxable event cannot be postponed to
the occurrence of the subsequent condition. In that event, it would
be the subsequent condition the occurrence of which would attract
the charge which will be taxable event. Therefore the charge under H
518
SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
A section 13-AA is a duty on despatch. Accordingly this charge cannot be
sustained. [557D]
B
c
D
E
F
G
H
The Bill to amends. 20ofthe Sea Customs Act, 1878 and S. 3 of the
Central Excises & Salt Act, [1944], (1964) 3 SCR 787; Mis Guruswamy
& Co. v. State of Mysore, [1967] 1 SCR 548; Mukunda Murari
Chakravarti & Ors. v. Pabitramoy Ghosh & Ors., AIR 1945 FC l;
Kedar Nath Jute Mfg. Co. Ltd. v. C.I. T., 82 ITR SC 363; State of M.P.
v. Shyam Charan Shukla, 29 STC SC 2f5; R.C. Jail v. Union of India,.
[1962] Suppl. 3 SCR 436; Union of India v. Bombay Tyre International
Ltd., [1984] 1 SCR 347 and State of Karna/aka v. Shri Ranganatha
Reddy, [1978] l SCR 641, referred to.
Wipro Products v. State of Maharashtra, [1989] 72 STC 69 Born.,
Reversed.
5.3 Imposition of a duty or tax in every case would not tantamount per se to any infringement of Article 301 of the Constitution.
Only such restrictions or impediments which directly or immediately
impede free flow of trade, commerce and intercourse fall within the
prohibition imposed by Article 301. A tax in certain cases may directly
and immediately restrict or hamper the flow of trade, but every imposition of tax does not rlo so. Every case must be judged on its own
facts and its own setting of time and circumstances. Unless the court
first comes to the finding on the available material whether or not
there is an infringement of the guarantee under Article 301 the further
question as to whether the Statute is saved under Article 304(b) does
not arise. [558B-CJ
5.4 In the instant case. the goods taxed do not leave the State in
the shape of raw material, which change their form in the State itself
and there is no question of any direct, immediate or substantial hindrance to a free flow of trade. Therefore Section 13-AA of the Bombay
Sales Tax Act 1959 is not vfolative of Article 301. [558D-E]
Atiabari Tea Co. Ltd. v. The State of Assam & Ors., [1961) 1
SCR 809; The Automobile Transport (Rajasthan) Ltd. v. The State· of
Rajasthan, [1963] 1 SCR 491; Andhra Sugars Ltd. v. State of Andhra
Pradesh, [1968] l SCR 705; State of Madras v. N.K. Nataraja Mudaliar, [1968] 3 SCR 829 and State of Kera/a v. A.B. Abdul Khadir &
Ors., [1970] I SCR 700, referred to.
•
Kalyani Stores v. The State ofOrissa & Ors., [1966) 1 S.C.R. 865,
relied on.
I
GOODYEAR (I) LTD. v. STATE OF HARYANA
519
6. The provisions of constitutional changes have to be construed A
not in a nau·ow isolationism but on a much wider spectrum and the
principles laid down in Heydon's case are instructive. l529H; 530A)
Black Clawson International Ltd. v. Papierwerke Waldhof-Aschaffenburg, [1975] 1 All E.R. 810, referred.
Heydon's case, (1584)3 Co. Rep. 7a, relied on.
B
7. Iri construing the expressions of the Constitution to judge
whether the provisions of a statute are within the competence of the
State Legislature, one must hear in mind that the Constitution is to be
construed not in a narrow or pedantic sense. The Constitution is not to
C
be construed as mere law but as the machinery by which laws are to be
made. [533F)
James v. Commonwealth of Australia, [1936] A.C. 578; The
Attorney General for the State of New South Wales v. The Brewery
. Employees Union etc., [1908] 6 C.L.R. i69; Re. Central Provinces &
D
Berar Sales of Motor Spirit and Lubricants Taxation Act I938, A.I.R.
1939 F.C. I.and The Province of Madras v. Mis Boddu Paidanna &
Sons, A.I.R. 1942 F.C. 33, referred to.
8. The nomenclature of the Act is not conclusive and for
determining the true character and nature of a particular tax, with
E
reference to the legislative competence of a particular Legislature, !he
Court will look into its pith and substance. [543H; 544A]
Governor General in Council v. Province of Madras, [1945] 72
I.A. 91 and Ra/la Ram v. The Province of East Punjab, A.I.R. 1949
F .C. 81, referred to.
F
9. The doctrine of pith and substance means that if an enactment
substantially falls within the power expressly conferred by the Constitution upon the Legislature which enacted it, it cannot he held to be
invalid merely because it incidentally encroaches upon matters assigned
to another legislature. [555H; 556Af
G
Kera/a State Electricity Board v. Indian Aluminium Co., [1976] l
S.C.R. 552 and Prafulla Kumar Mukherjee & Ors. v. Bank of Commerce, A.I.R. 1947 PC 60, referred to.
9 .1 The true test to find out what is pith and substance of the
H
A
B
c
520
SUPREME COURT REPORTS
11989] Supp. 1 S.C.R.
legislation is to ascertain the true intent of the Act which will determine
the validity ofthe Act. [577B]
10. There are three sta11es in the imposition of tax. There is the
declaration of liability, that is the _part of the Statute which determines
what persons in respect of what property are liable. Next, there is_ the
assessment. Liability does not depend on assessment, that exhypothesi
has already been fixed. But assessment particularises the exact sum
which a person is liable to pay. Lastly comes the method of recovery if
the person taxed does not voluntarily pay. [539B-C]
Whitney v. Commissioner of Inland Revenue, [1926] A.C. 37 and·
Chatturam & Ors. v. C./. T., Bihar, IS I.T.R. F.C. 302, referred to.
11. While determining_ nature of a tax, though the standard or
the measure on which the tax is levied may be a relevant consideration,
it is not the conclusive consideration. [556C]
D
Governor General in Council v. Province of Madras, [1945] 72
E
I.A. 91; R.R. Engineering Co. v. Zila I'arishad Bareilly & Anr., [1980]
3 S.C.R. l; In Re A reference under the Government of Ireland Act,
I920, [1936] A.C. 352 and Navnitlal C. Javeri v. K.K. Sen, Appellate
Asstt. Commissioner of Income Tax 'D' Range Bombay, [1965] I
S.C.R. 909, referred to.
12. The liability fo tax would be determined with reference to the
interpretation of the Statute which creates it. It cannot be determined
by referring to another Statute._ l555GJ
13. In fiscal legislations normally a charge is created. The_
F
mischief Of taxation occurs on the happening of the taxable event. Different taxes have different taxable events. A taxing event is that event
the occurrence of which immediately attracts the levy or the charge of
tax. What is the taxable event or what necessitates taxation in an
appropriate Statute must be found by construing the provisions. ·The
main test for determining the taxable event is that on the happening of
G
which the charge is atiixed. l552H: 553A: 552G: 533E; 539B I
14. Fiscal laws must be strictly construed: u is not permissible to
make assumptions and presumptions in a fiscal provision: t536H; 538G J
C.S. T., U.P. v. The Modi Sugar Mills Ltd., [1961] 2 S.C.R. 189
H
and Baidyanath Ayurved Bhawan (P) Ltd., Jhansi, v. Excise Commis-
GOODYEAR (!) LTD. v. STATE OF HARYANA
521
sioner, U.P. & Ors., (1971] 2 S.C.R. 590, referred to.
15. While interpreting a Statute a reasonable construction should·
be followed and literal construction may be avoided if that defeats the
manifest object and purpose of the Act. ·[555F J
Commissioner of Wealth-tax, Bihar & Orissa v. Kripashankar
Dayashankar Worah, 81I.T.R.763 and Income Tax·Commisswnersjor
City of London v. Gibbs, 10.1.T.R. (Suppl.) 121 H.L., referred to.
16. The Entries in the Constitution only demarcate and legislative
fields o( the respective legislatures and do not confer legislative powers
as snch. [544H.; 545A]
17. A precedent is an authority only for what it actually decides
and not for what may remotely or even logically follows from it. [537E]
Quinn v. Leathern, (1901] A.C. 495 and The State of Orissa v.
A
B
c
Sudhansu Sekhar Misra & Ors., (1968]2 S.C:R. 154, followed.
D
17 .1 A decision on a question which has not been argued cannot
be treated as a precedent. ]542B]
Rajput Rud~ Maha & Ors. v. State of Gujarat, [1980] 2 S.C.R.
353, followed.
,, e
E
(Per Ranganathan, J.) (Concurring)
1. Section 9 of the Haryana General Sales Tax Act, 1973 as well
as section 13-AA of the Bombay Sales Tax Act, 1959 purport only to
levy a purchase tax. The tax, however, becomes exigible not on the
F
occasion or event of purchase but only later. It materialises only if the
purchaser (a) utlises the goods purchased in the manufacture of taxable
goods, and (b) despatches the goods so manufactured (otherwise then
by way of sale) to a place of business situated outside the State. The
legislation, however, is careful to impose the tax only on the price at
which the raw materials are purchased and not on the value ·of the
G
manufactured goods consigned outside the State. [559G-H; 560A]
2. It is one thing to levy a purchase tax where the character and
class of goods in respect of which the tax is levied is described inc·a
particnlar manner and a case like the present where the tax, though
described as pnrchase tax, actually becomes effective with reference to
H
522
SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
A
a totally different class of goods and, that too, only on the happening of
an event which is unrelated to the act of purchase. [560D-E]
-
B
2.1 The "taxable event", if one might use the expression often
used in this context, is the consignment of the manufactured goods and
not the purchase. [S60E]
2.2 The background of the Constitutional (Forty-sixth Amendment) indicates that there were efforts at sales tax avoidance by sending
goods manufactured in a State out of raw materials purchased inside to
other States by way of consignments rather than by way of sales attracting tax. This situation lends force to the view that the State, unable to
C
tax the exodus directly, attempted to do so indirectly by linking the levy
ostensibly to the "purchases" in the State. l560G-H]
Andhra Sugar Ltd. & Anr. v. State, [1968] l SCR 705, referred
to.
D
State of Tamil Nadu v. Kandaswami, [1975] 36 S.T.C. 191,
distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
1166-72 of 1985 etc. etc.
E
From the Judgment and Order dated 24.1.85 of the Punjab &
Haryana High Court in C.W.P. Nos. 698 to 703 and 733 of 1984.
Raja Ram Aggarwal, B. Sen, Dr. Devi Paul, D.S. Tawatia, Soll
J. Sorabjee, Kapil Sibal and S.K. Dholalda, A.N. Hakasar, D.N.
Misra, Mukul Mudgal,.Ravinder Narain, P.K. Ram, S. Sukumaran,
F
S. Ganesh, Mahabir Sinl(h, H.S. Anand. R. Karanjawala, Mrs. Manik
Karanjawala, A.S. Bhasme and A.M. Khanwilkar for the Appearing
Parties.
The following Judgments of the Court were delivered:
G
SABYASACHI MUKHARJI, J. Except civil appeals Nos. 416263 of 1988, in these appeals along with the special leave petitions and
the writ petition, we are concerned with Sections 9(1) and 24(3) as well
as the penalty proceedings initiated under Section 50 of the Haryana
General Sales Tax Act, 1974 (hereinafter referred to as 'the Act'). So
far as civil appeals Nos. 4162-63 of 1988 are concerned, these involve
H the scope, effect and validity of Section 13AA of the Bomaby Sales
GOODYEAR(!) LTD. v. STATE OF HARYANA [MUKHARJI, J.] 523
Tax Act. 1959 (hereinafter referred to as 'the Bombay Act') as introduced by the Maharashtra Act No. XXVIII of 1982. It will, therefore,
be desirable first to deal with the question of the Act, and then with
the provisions of the Bombay Act as mentioned hereinbefore.
The appellant/petitioner-Goodyear India Ltd., was engaged at
all relevant times, inter alia, in the manufacture and sale of automobile
tyres and tubes. It manufactured the said tyres and tubes at its factory
at Ballabhgarh in the district of.FariDdabad in the State of Haryana.
For the said manufacturing activity the appellant had, from time to
time, to purchase various kinds of raw-materials both within the State
and outside the State. It is stated that about 7 to 10% of the total needs
A
B
of raw-materials on an all India basis were locally procured by the C
appellant from Haryana itself. The raw-materials purchased in
Haryana were: (i) pigments (partly), (ii) chemicals (partly), (iii) wires
(partly), (iv) carbon black (partly), (v) rubber (partly), and (vi) fabric
(partly). The rest of the requirements were iinported from other
States. the appellant had its depots at different places in the State of
Haryana as well as in other States. After manufacturing the said tyres D
and tubes, about 10 to 12% of the total manufactured products used to
be sold in the State of Haryana either locally or in the course of
inter-State trade & commerce or in the course of export outside the
country and also sold locally against Declaration Form No. ST-15. it
was stated that at the relevant time the local sales including sales in the
course of inte'r-State trade & commerce and in th" course of export E
from the State of Harvana was aboui 30 to 35%. The appellant was a
registered dealer both under the Haryana Act and the Central Sales
Tax Act, and had been submitting its quarterly returns and paying the
sales-tax in accordance with law, according to the appellant. In 1979,
the assessing authority, Faridabad, imposed upon the appellant the
puchase tax under Section 9 of the Act for the assessment year 1973-74 F
and subsequently for the years 1974~ 75 and 1975-76 as well on the
despatches made by the appellant on the manufactured goods to its
various depots outside the State. Subsequently, the relevant revenue
authorities sought to impose purchase tax under Section 9(1) of the
Act and imposed purchase tax on despatches of manufactured goods,
namely, tyres and tubes, to its various depots in other States. This led G
to the filing of various writ petitions in the Punjab & f,laryana High
Court by the appellant/petitioner.
In respect of the assessment years 1976-77 to 1979-80, these
•
questions were considered by the Punjab and Haryana High Court, and
the wri~ petitions were decided in favour of the .appellant on December H
A
B
c
524
SUPREME COURT REPORTS
[1989J Supp. 1 S.C.R.
4, 1982. The said decision being the decision in Goodyear India Ltd. v.
The State of Haryana & Anr. is reported in 53 STC 163. The Division
Bench of the High Court in th_e said decision held that both on principle and precedent, a mere despatch of goods out of the State by a
dealer to his own branch while retaining both title and possession
thereof, does not come within the ambit of the phrase "disposes of the
manufactured goods in any manner otherwise than by way of sale", as
employed in section 9(1)(a)(ii) of the Act. The High Court further
held that the decision of this Court in The State of Tamil Nadu v. M.K.
Kandaswami, (1975] 36 STC 191 was no warrant for the proposition
that a mere despatch of goods was within the ambit of disposing them
of. The High Court also distinguished the decision of this Court in
Ganesh Prasad Dix it v. Commissioner of Sales Tax, M. P., I 1969 I 24
STC 343, and held that Notification No. S.O. 119/H.A. 20/73/Ss. 9 &
15/74 dated July 19, 1974 issued under Section 9 (prior to its amendment by Act No. 11 of 1979) was ultra vires of Section 9 of the Act. It
was held that whereas the section provided only for the levy of purchase tax on the disposal of manufactured goods, the impugned notifiD cation by making a mere despatch of goods to the dealers themselves
taxable, in essence, legislates and imposes a substantive tax which it
obviously could not. Ir was held that this was/contrary to and in
conflict with the provisions of section 9. The High Court referred to
the relevant portion of unamended Section 9 of the Act with which it
was confronted and the notification. In order to appreciate the said
E
F
G
H
decision and the position, it will be appropriate to set out the said
provisions, namely, the unamended provisions of Section 9 as well as
the notification:
"9. Where a dealer liable to pay tax under this Act purchases goods other than those specified in Schedule B from
any source in the State and-
(a) uses them in the State in the manufacture of,-
(i) goods specified in Schedule B or
(ii) any other goods and disposes of the manufactured
goods in any manner otherwise than by way of sale whether
within the state or in the course of inter-State trade or
commerce or within fhe meaning of sub-section (1) of Section 5 of the Central Sales Tax Act, 1956, in the course of
export out of the territory of India,
GOODYEAR (I) LTD. v. STATE OF HARYANA [MUKHARJI, J.] 525
(b) exports them,
in the circumstances in which no tax is payable under :my
other provision of this Act, there shall be levied, subject to
the provisions of section 17, a tax on the purchase of such
goods at such rate as may be notified under section 15."
The relevant notification was as follows:
"Notification No. S.O. 119/H. A. 20/73/Ss. 9 and 15/74
dated the 19th July, 1974.
A
B
In exercise of the powers conferred by section 9 and subC
section (1) of section 15 of the Haryana General Sales Tax
Act, 1973, the Governor of Haryana hereby directs that the
rate of tax payable by all dealers in respect of the purchases
of goods other than goods specified in Schedules C and D
or goods liable to tax at the first stage notified as such
under section 18 of the said Act, if used by them for
D
purposes other than those for which such goods were sold
to them shall be the rate of tax leviable on the sale of such
goods:
Provided that where any such dealer, instead of using
such goods for the purpose for which they were sold tO him,
E
despatches such goods or goods manufactured therefrom at
any time for consumption or sale outside the State of
Haryana to his branch 9r commission agent or any other
person on his behalf in any other State and such branch,
commission agent or other person is a registered dealer in
that State and produces a certificate from the assessing
F
authority of that State or produces his own affidavit and the
affidavit of the consignee of such goods duly attested by a
Magistrate or Oath Commissioner or Notary Public in the
form appended to this notification to the effect that the
goods in question have been so despatched and received
and entered in the account books of the consignee, the rate G
of tax on such goods shall be three paise in a rupee on the
purchase value of the goods so despatched."
The High Court, as stated before, referred to section 9 and held
~
that the expression 'disposes of' was not basically a term of legal art
and, therefore, it was proper and necessary to first tum to its ordinary
H
526
SUPREME COURT REPORTS
[1989] Supp. 1 S.C.R.
A meaning in order to determine whether a mere despatch of goods by a
dealer to himself would connote 'disposal of' such goods by him. The
High Court referred to the dictionary meaning of 'disposes of' in
Webster's. Third New International Dictionary. Reference was also
made to 27 Corpus Juris Secundum, P. 345, and ultimately it came to
B
c
the conclusion that the phrase 'disposes of' or 'disposal' cannot be
possibly equated with the mere despatch of goods by a dealer to himself. After referring to the relevant provisions with which this Court
was concerned in Kandaswami's case (supra), the High Court held that
that case was no warrant for construing the expression 'despatch' as
synonymous to 'disposal'. On the other hand, the court held that the
decision of this Court emphasises that the expression 'disposal' of
goods is separate and distinct from despatch thereof. According to the
High Court, the same position was applicable to Ganesh Prasad Dixit's
case (supra), and in those circumstances held that the term 'disposes
of' cannot be synonymous with 'disposal', and once that is held then
the notification mentioned above travelled far beyond what is provided
in Section 9 of the Act, while the said provision provided only for levy
D of purchase tax on disposal of manufactured goods.
E
F
The High Court observed as follows:
"Once it is held as above, the impugned Notification
No. S.O. 119/H.A. 20/73/Ss. 9 and 15/74 dated 19th July,
1974 (annexure P-2), plainly travels far beyond the parent
section 9 of the Act. Whereas the said provision provided
only for the levy of a purchase tax on the disposal of
manufactured goods, the notification by making a mere
despatch of goods to the dealers themselves taxable in
essence, legislates and imposes a substantive tax which it
obviously cannot. Indeed, its terms .run contrary to and are
in direct contlict with the provisions of section 9 itself.
There is thus no option but to hold that the notification,
which is a composite one, is ultra vires of section 9 of the
Act and is hereby st.ruck down."
G
The High Court also noted that though the challenged assessment orders were appealable, however, as the challenge was to the·
very validity of the notification which was obviously beyond the scope
of the appellate authority, the writ petitions were entertainable as the
assessment was based on the notification which was frontally challenged. As a result, the High Court quashed the notification and set
». aside the assessment orders. The said decision is under challenge in
appeal to this Court.
GOODYEAR (I) LTD. v. STATE OF HARYANA [MUKHARJI, J.] 527
It may be mentioned that sub-section ( 1) of se~tion 9 of the Act
had been introduced by the Haryana Act, 55 of 1976 in the Act.