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

- **Citation:** [1992] Supp. 2 S.C.R. 182
- **Court:** Supreme Court of India
- **Decided:** 1992
- **Bench:** S. Ranganathan, V. Ramaswami, B.P. Jeevan Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hotel-balaji-and-others-etc-etc-v-state-of-andhra-pradesh-and-ors-etc-etc-11596
- **Pages:** 68

## Headnote

Andhra Pradesh General Sales Tax Act, 1957:
C
Section 6-A-Levy of tax on turnover relating to purchase of certain
goods-Nature of tax-Neither use tax, consumption tax nor consignment
tax-Hence valid.
Gujarat Sales Tax Act, 1969:
D
Section !SB r/w Rule 42-E-Levy of purchase tax-Nanire of tax on
purchase price of raw materials and not on manufactured products-Not a
tax on consignment-Legislature competent to levy such tax as long as the
levy retains the character of tax on sale-Validity of the provision upheld.
E
F
Uttar Pradesh Sales Tax Act, 1948:
Section 3-AAAA--Purchase lax-Levy of-Nature of levy-Legislature-Whether competent to levy such a tax.
Constitution of India, 1950 :
Seventh Schedule-List II-Entry 54-Sales Tax Acts of Gujarat,
Andhra Pradesh and Uttar Pradesh-Sections: 6-A, 15-B and 3-AAAA
respectively-Legislative competence of and validity of the provisions.
Interpretation of Statutes :
G
Liberal Construction-To be avoided if it defeats the manifest object
and purpose of the statute-Reasonable construction to be followed-Where
two constructions possible, the one which sustains constitutionality to be
prefemd.
The constitutional validity of S.158 of Gujarat Sales Tax Act, S.3H AAAA of Uttar Pradesh Sales Tax Act and S.6A of the Andhra Pradesh
182
'
HOTEL BALAJI v. STATE OF AP.
183
General Sales Tax Act was challenged in the present Appeals, Writ Peti· A
tions SLPs and Transferred case.
S.15-B of the Gujarat Sales Tax Act, 1969 was introduced by Amend·
ment Act, 1986. It provided for levy of additional purchase tax on raw
materials 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 outside the State but
within India. By the Amendment Act, 1987, the section was substituted.
Writ Petitions were filed before the High Court challenging the
validity of unamended S.15-B on the ground that it levied a consignment
tax and hence was outside the competence of State Legislature. During the
pendency of the writ petitions, S.15-B was subsitituted by an Ordinance.
Subsequently the Gujarat Sales Tax Amendment Act 6 of 1990 was enacted
in terms of and replacing the Ordinance. S.15-B was given retrospective
effect from 1.4.1986, the date on which it first came into force. In view of
B
c
the said Amendment Act, the Writ Petitions came to be dismissed as D
infructuous. A fresh batch of Writ Petitions were filed challenging the
validity of substituted S. 15-B on the ground that it continued to be a
consignment tax. The High Court having dismissed the Writ Petitions,
the matter has come up before this Court.
Section 3-AAAA of the U.P. Sales Tax subjected the purchase of
E
"goods liable to tax at the point of sale to the consumer" to purchase tax
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 rate as the sales tax. If, however, the purchasing dealer resold
such goods within the State or in the course of inter-State trade or
F
commerce, he was not liable to pay the purchase tax. While the Civil
Appeals were pending in this Court as regards the validity of S.3-AAAA,
the High Court, while deciding some Writ Petitions, applied the ratio in
Good Year and held that section was ultra vires the legislative competence
of the State Legislature. It held that under the said provision the taxable
event was not the purchase of the goods by the purchasing dealer but the G
subsequent event namely use of the said goods in the manufacture of other
goods and their despatch without effecting a sale within the State of U.P.
to a place outside U.P. To overcome this decision an Ordinance was issued
which was later replaced by the U.P. Sales Tax (Amendment) Act, 1992, the
constitutional validity of which has been challenged before this Court.
H
184
SUPREME COURT REPORTS [1992J SUPP. 2 S.C.R.
A
In the A.P. Sales Tax

## Text

_Characters 0–39,967 of 159,945. This is a partial read: ask again with offset=39967 for what follows._

A
B
HOTEL BALAJI AND OTHERS ETC. ETC.
v.
STATE OF ANDHRA PRADESH AND ORS. ETC. ETC.
OCTOBER 22, 1922
[S. RANGANATHAN, V. RAMASWAMI AND
B.P. JEEVAN REDDY, JJ.]
Andhra Pradesh General Sales Tax Act, 1957:
C
Section 6-A-Levy of tax on turnover relating to purchase of certain
goods-Nature of tax-Neither use tax, consumption tax nor consignment
tax-Hence valid.
Gujarat Sales Tax Act, 1969:
D
Section !SB r/w Rule 42-E-Levy of purchase tax-Nanire of tax on
purchase price of raw materials and not on manufactured products-Not a
tax on consignment-Legislature competent to levy such tax as long as the
levy retains the character of tax on sale-Validity of the provision upheld.
E
F
Uttar Pradesh Sales Tax Act, 1948:
Section 3-AAAA--Purchase lax-Levy of-Nature of levy-Legislature-Whether competent to levy such a tax.
Constitution of India, 1950 :
Seventh Schedule-List II-Entry 54-Sales Tax Acts of Gujarat,
Andhra Pradesh and Uttar Pradesh-Sections: 6-A, 15-B and 3-AAAA
respectively-Legislative competence of and validity of the provisions.
Interpretation of Statutes :
G
Liberal Construction-To be avoided if it defeats the manifest object
and purpose of the statute-Reasonable construction to be followed-Where
two constructions possible, the one which sustains constitutionality to be
prefemd.
The constitutional validity of S.158 of Gujarat Sales Tax Act, S.3H AAAA of Uttar Pradesh Sales Tax Act and S.6A of the Andhra Pradesh
182
'
HOTEL BALAJI v. STATE OF AP.
183
General Sales Tax Act was challenged in the present Appeals, Writ Peti· A
tions SLPs and Transferred case.
S.15-B of the Gujarat Sales Tax Act, 1969 was introduced by Amend·
ment Act, 1986. It provided for levy of additional purchase tax on raw
materials 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 outside the State but
within India. By the Amendment Act, 1987, the section was substituted.
Writ Petitions were filed before the High Court challenging the
validity of unamended S.15-B on the ground that it levied a consignment
tax and hence was outside the competence of State Legislature. During the
pendency of the writ petitions, S.15-B was subsitituted by an Ordinance.
Subsequently the Gujarat Sales Tax Amendment Act 6 of 1990 was enacted
in terms of and replacing the Ordinance. S.15-B was given retrospective
effect from 1.4.1986, the date on which it first came into force. In view of
B
c
the said Amendment Act, the Writ Petitions came to be dismissed as D
infructuous. A fresh batch of Writ Petitions were filed challenging the
validity of substituted S. 15-B on the ground that it continued to be a
consignment tax. The High Court having dismissed the Writ Petitions,
the matter has come up before this Court.
Section 3-AAAA of the U.P. Sales Tax subjected the purchase of
E
"goods liable to tax at the point of sale to the consumer" to purchase tax
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 rate as the sales tax. If, however, the purchasing dealer resold
such goods within the State or in the course of inter-State trade or
F
commerce, he was not liable to pay the purchase tax. While the Civil
Appeals were pending in this Court as regards the validity of S.3-AAAA,
the High Court, while deciding some Writ Petitions, applied the ratio in
Good Year and held that section was ultra vires the legislative competence
of the State Legislature. It held that under the said provision the taxable
event was not the purchase of the goods by the purchasing dealer but the G
subsequent event namely use of the said goods in the manufacture of other
goods and their despatch without effecting a sale within the State of U.P.
to a place outside U.P. To overcome this decision an Ordinance was issued
which was later replaced by the U.P. Sales Tax (Amendment) Act, 1992, the
constitutional validity of which has been challenged before this Court.
H
184
SUPREME COURT REPORTS [1992J SUPP. 2 S.C.R.
A
In the A.P. Sales Tax Act Section 6-A was inserted by the Andhra
B
Pradesh General Sales Tax (Amendment) Act of 1976 with effect from
1.9.76. The effect was that tax payable at sale point became tax payable on
purchase point in certain circumstances. Writ Petitions were filed before
the High Court challenging the validity of S.6-A. It was contended that the
notification issued under S.'I of the Act exempted from tax certain goods
which were sought to be taxed under S.6-A and that S.6-A was in fact a
consumption or consignment tax and hence void. Unable to succeed before
the High Court, the assessees challenged the vires of the said section
before this Court.
C
Apart from challenging the constitutional validity of the above-said
provisions of the three State Sales Tax Acts, the correctness of (;ood Year
India Ltd. v. State of Haryana, [1990] 2 SCC 71 which invalidated certain
purchase tax levied by the Haryana and Maharashtra Sales Tax Acts, was
also questioned by the Revtmue before this Court.
D
Dismissing the matters, this Court,
E
F
HELD: (By the Court): S.lSB of the Gujarat Sales Tax, 1969, S3AAAA of Uttar Pradesh Sales Tax Act, 1948 and S.6-A of the Andhra
Pradesh General Sales Tax Act, 1957 are intra vires the powers of the
respective State Legislatures and hence valid. [249-D]
Per B.P Jeevan Reddy, J: (for himself and V Ramaswami, J.)
1. The necessity and significance of the delegated legislation is well-accepted and needs no elaboration. They cannot travel beyond the purview of
the Act. Where the Act says that Rules on being made be deemed "as if
enacted in this Act", the position may be different. But where the Act does not
say so, the Rules do not become part of the Act. [212-B, CJ
Halsbury's Laws of England (3rd. Edn.) Vol36, referred to.
2. Entry 54 of List II of Seventh Schedule to the Constitution must
G receive a liberal construct.ion, it being a legislative entry. The Legislature
cannot be confined to onl)' one form of levy. So long as the levy retains the
basic character of a tax on sale, the Legislature can levy it in such mode
or in such manner as it thinks appropriate, the wellRestablished principles
in such matters being that reasonable construction should be followed and
H literal construction may be avoided if that defeats the manifest object and
..
..
HOTEL BALA!!
1·. STATE OF A.I'.
185
purpose of the Act. The Legislature must be presumed to know its limitaA
tions and act within those limits. Transgression must be clearly established, and is not to be lightly assumed. [214-H; 215-A, BJ
3. A person other than a registered dealer is not amenable to the
discipline of the Sales Tax Act. He cannot indeed collect any tax and,
therefore, will not make over or pay any tax. This the legislature is B
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. If a 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. [222-C, DJ
C
4. So far as registered dealers are concerned, all that the purchasing
dealer need to 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,
there is no difficulty for the purchasing dealer. From the bill given by the
selling dealer, the purchasing dealers can prove the payment. Or he can D
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.
[222-E, F]
GUJARAT SALES TAX ACT/RULES:
5.1. S.15-B of the Gujarat Sales Tax Act read ·as a whole, is ap·
plicable only to those goods which are used in the manufactm e of other
goods. The levy is upon the purchase price of raw material an J not upon
the value of the mannfactured products. [214-G, HJ
5.2. Rule 14E of Gujarat Sales Tax Rules along with 'U5B of the
Gujarat Sales Tax Act provide for set off etc., in 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
E
F
the depots or his agents outside the State of Gujarat. There is nothing G
objectionable in the State doing so. It cannot be said that by reading Rule
42-E into S.15-B, the levy becomes a consignment tax. [213-E-F]
Godrej & Boyce Mfg. Co. v. Commissioner of Sales Tax, (1992 ) 4 J.T.
(S.C.) 317 and Andhra Sugars Ltd. & Anr. v. The State of Andhra Pradesh
and Anr., 21 S.T.C. 212, relied on.
H
186
SUPREME COURT REPORTS 11992] SUPP. 2 S.C.R.
·c ;. A
Goodyear India Ltd. v. State of Haryana, [1990] 2 SCC 71, dissented
B
from.
Ramkrishna v. State of Bihar, A.I.R. 1963 S.C.1667, referred to.
U.P. SALES TAX ACT:
6.1. All that section 3-AAAA of the U.P. Sales Tax Act prior to its
substitution in 1992 provided was; (i) where the goods liable to tax at the
point of sale to the consumer are sold to a dealer (ii) in circumstances in
which no sales tax is payable by the sellers and (iii) the purchasing dealer
C
does not re-sell the said purchased goods within the State or in the course
of inter-state trade or commerce (iv) the purchasing dealer shall be liable
to pay the tax which would have been payable by the seller. (v) If, however,
it was proved that the said goods have already suffered tax under section
3-AAAA, no purchase tax was payable under section 3-AAAA. It is obvious
D that the section did not speak of the purchased goods being used in the
manufacture of other goods nor of the manner of disposal or despatch of
such manufactured goods. The only two conditions stipulated (which
conditions are not to be found in the present Section 3-AAAA) were that
if the purchased goods are sold within the State or sold in the course of
E
F
G
inter-state trade or commerce, the tax under it is not payable. This is for
the simple reason that in both the contingencies, the State would get the
revenue (in one case under the State Sales Tax Act and in the other case,
under the Central Sales Tax Act). The policy of the legislature is not to tax
the same goods twice over. The fact that in a given case, the purchased
goods are consigned by the purchaser to his own depots or agents outside
the State makes no difference to the nature and character of the tax. By
doing so, he cannot escape even one-time tax upon the goods purchased,
which is the policy of the Legislature. The tax was directed towards
ensuring levy of tax at least on one transaction of sale of the goods and
not towards taxing the consignment of goods purchased or the products
manufactured out of them. [223-G-H; 224-A-D]
6.2. There is no vagueness in the provision viz. sub-sec.(2) of S..lAAAA of U.P. Sales Tax Act nor can it be said that it placed heavy and
uncallf'..~-- for burden upon the purchasing dealer or that it is not practicable for the purchaser to establish that the seller (other than th~
H regis.ered dealer) has paid the tax or not. [222-B]
..
HOTEL BALA!! v. STATE OF A.P.
187
6.3. The difficulty has really arisen because of the attempt to look to A
the provisions of Section 3-AAAA through the prism of Goodyear. There
is a substantial and qualitative difference between the language employed
in Section 9 of Haryana Act and Section 13-AA of Bombay Act on the one
hand and in Section 3-AAAA of U.P. Act on the other (as it stood prior to
1992 Amendment Act or for that matter as it stands now). These basic
differences cannot be ignored. [224-EJ
Constitutionality of Section 3-AAAA of the U.P. Sales Tax Act ought
to be judged on its own language and so judged, the Section, both before
and after the 1992 Amendment, represents a perfectly valid piece of
legislation. It is relatable to and fully warranted by Entry 54 of List II of
the Seventh Schedule to the Constitution. [224-F]
Goodyear India Ltd. v. State of Haryana, [1990] 2 SCC 71, dissented
from.
B
c
ANDHRA PRADESH GENERAL SALES TAX ACT/RULES:
0
7.1. The real object of clauses (i) to (iii) in Section 6-A of the A.P.
Sales Tax Act is not to levy a consumption tax, use tax or consignment tax
but only to point out that thereby the purchasing dealer converts himself
into the last purchaser in the state of such goods. The goods cease to exist
or cease to be available in the State for sale or purchase attracting tax. In
these circumstances, the purchasing dealer of such goods is taxed, if the
seller is not or cannot be taxed. The tax imposed by S.6-A cannot be
described either as use tax, consumption tax or consignment tax. It is a
purchase tax perfectly warranted by Entry 54 of List-II of the Seventh
Schedule to the Constitution. [230-G & 231-B]
E
F
7.2. While exempting the sale or purchase of any specified class of
goods the Government . is empowered to specify whether the exemption
operates at all points or any specified points in the series of sales or
purchase of successive dealers. Several notifications have been issued by
the Government from time to time exempting certain dealers or exempting G
certain goods at the point of sal~, or purchase, as the case may be. G.0.Ms.
1091 is one of them. The exemption is couched in qualified form. Thus, it
is not a general exemption but a qualified one. In the light of the specific
scheme of Section 9 of the A.P. Sales Tax Act and the language of G. 0.
Ms. No. 1091, the exemption at the point of sale by a particular category H
188
SUPREME COURT REPORTS fl992J SUPP. 2 S.C.R.
A
of persons cannot be construed as operating to exempt the purchase tax
under Section 6-A of the Act, as well, much less in all cases. [233-B, CJ
73. •"resit milk was taxable as general goods under Section 5(1) of
the Andhra Pradesh Sales Tax Act before it was amended by Amendment
Act 4 of 1989. After the coming into force of the said Amendment Act, it
B falls under Schedule VII, (which was introduced simultaneously with the
said Amendment Act) and which takes in all goods other than those
specified in first to sixth Schedules. Milk was subject to multi-point tax
prior to the said Amendment Act whereas after the said amendme.nt it has
become taxable only at single p·oint namely, point of first sale in the State.
C If fresh milk was not at all taxable under the Act, there was no necessity
to issue notifications exempting its sale in certain situations. [227-C-D]
Goodyear Tndia Ltd. v. State of ffaryana [1990] 2 SCC 71, dissented
from.
D
RATIO OF GOODYEAR· RECONSIDERATION OF:
8.1. The ingredients of S1•ction 9 of Haryana Sales Tax Act are : (i)
a dealer lialile to pay tax under the Act purchases goods (other than those
specified in Schedule B) from any source in the State and (ii) uses them
in the State in the manufacture of any other goods and (iii) either disposes
E of the manufactured goods in any manner otherwise than by way of sale
in the State or despatches the manufactured goods to a place outside the
State in any manner otherwiS<. than by way of sale in the course of an
inter-state trade or commerce or in the course of export outside the
territory of India within the meaning of sub-section (1) of Section S of the
F
Central Sales Tax Act, 1956. If all the above three ingredients are satisfied
the dealr.r becomes liable to pay tax on the purchase of such goods at such
rate, as may be notified under Section 15. It applies only in those cases
where (a) the goods are purchased (referred to as material) by a dealer
liable to pay tax under the Act in the State, (b) the goods so purchased
cease to exist as such goods for the reason they are consumed in the
G manufacture of different commodities and (c) such manufactured com·
modities are either disposed of within the State otherwise than b)' way of
sale or despatched to a place outside the State otherwise than ~ t way of
sale or despawhed to a place outside the State otherwise than 1y way of
an inter-State sale or export sane. It is evident that if such ma1 11factured
H goods are not solo within the State of Haryana, but yet dispos· d of within
HOTEL BALAJI v. STATE OF AP.
189
the State, no tax is payable on such disposition; similarly, where manufacA
tured goods are despatched out of State as a result of an inter-State sale
or export sale, no tax is payable on such sale. Similarly against where such
manufactured goods are taken out of State to manufacturers' own depots
or to the depots of his agents, no tax is payable on such removal. Goodyear
takes only the last eventuality and holils that the· taxable event is the
removal of' goods from the State and since such removal is to dealers' own
depots/agents outside the State, it is consignment, which cannot be taxed
by the State Legislature. This is not correct. The levy created by the said
provision is a levy on the purchase of raw material purchased within the
State which is consumed in the manufacture of other goods within the
State. If, however, the manufactured ·goods are sold within the State, no
purchase tax is collected on the raw material, evidently because the State
gets larger revenue by taxing the sale of such goods. (The value of
manufactured goods is bound to be higher than the value of the raw
material). The State Legislature does not wish to - in the interest of trade
B
c
and general public - tax both the raw material and the finished (manufac- D
lured) product. This is a well-known policy in the field of taxation. But
where the manufactured goods are not sold within the State but are yet
disposed of or where the manufactured goods are sent outside the State
(otherwise than by way of inter-State sale or export sale) the tax has to be
paid on the purchase value of the raw material. The reason is simple : if
the manufactured goods are disposed of otherwise than by sale within the
State or are sent out of State (i.e. consigned to dealers' own depots or
agents), the State does not get any revenue because no sale of 1nanufactured goods has taken place within Haryana. In such a situation, the State
would retain the levy and collect it since there is no reason l'or waiving the
E
purchase tax in these two situations. [239-B-D; 240-A-D]
F
8.2. In the case of inter-State sale, the State of Haryana does get the
tax-revenue - may not be to the full extent. Though the Central Sales Tax
is levied and collected by the Government of India, Article 269 of the
Constitution provides for making over the tax collected to the State in G
accordance with certain principles. Where, of course, the sale is an export
sale within the meaning of Section 5 (1) of the Central Sales Tax Act
(export sales) the Stele may not get any revenue but larger national
interest is served thereby. It is for these reasons that tax on the purchase
of raw material is waived in these two situations. Thus, there is a very
sound and consistent policy underlying the provision. The object is to tax H
190
SUPREME COURT REPORTS 11992) SUPP. 2 S.C.R.
A
the purchase of goods by a manufacturer whose existence as such goods
is put and end to by him by using them in the manufacture of different
goods in certain circumstances. 1Lhe tax is levied upon the purchase price
of raw material, not upon the sale price· · or consignment value · of
manufa~tured goods. Levy materialises only when the purchased goods
B
c
(raw material) is consumed in thf manufacture of different goods and
those goods are disposed of within the State otherwise than by way of sale
or are consigned to the manufacturing-dealers' depots/agents outside the
State of Haryana. Such postponement does not convert what is avowedly
a purchase tax on raw material (levied on the purchase price of such raw
material) to a consignment tax on the manufactured goods. Saying otherwise would defeat the very object and purpose of Section 9 and amount to
its nullification in effect. The most that can perhaps ·be said is that it is
plausible to characterise the said tax both as purchase tax as well as
consignment tax. But where two interpretations are possible, one which
sustains the consititutionality and/or effectuates its purpose and intendment and the other which effectively nullifies the provisions, the former
D must be preferred, according to all known canons of interpretation.
E
F
[240-E-H; 241-A-C]
8.3. Jn several enactments tax is levied at the last sale point or last
purchase point, as the case may be. The last purchase point in the State can
be determined only when one knows that no purchase took place within the
State thereafter. !Int that can only be known later. If there is a subsequent
purchase within the State, the pmcchase in question ceases to be the last
purchase. Applying the logic of the dealers, it would not be possible to tax any
goods at the last purchase point in the State, inasmuch as the last purchase
point in regard to any goods could be determined only when the goods are
sold later and not when the goods a<e purchased. [241-F-G]
8.4. The scheme of Section 9 of Haryana Sales Tax Act is to levy the
tax on purchase of raw material and not to forego it where the goods
manufactured out of them are disposed of (or despatched, as the case may
G be) in a manner not yielding any revenue to the State nor serving the
interests of the nation and its economy. The purchased goods are put an
end to by their consumption in manufacture of other goods and yet the
manufactured goods are dealt with in a manner as to deprive the State of
any revenue; in such cases, there is no reason why the State should forego
its tax revenue on purchase of raw material. It would not be right to say
H
that the tax is not upon the purchase of raw material but on the consign-
HOTEL BALAJI t'. STATE OF A.P.
191
men! of the manufactured goods. It is well settled that taxing power can A
be utilised to encourage commerce and industry. It can also be used to
serve the interests of economy and promote social and economic planning.
It is also not right to concentrate only on one situation viz., consignment
of goods to manufacturer's own depots (or to the depots of his agents)
outside the State. Disposal of goods within the State without effecting a
sale also stands on the same footing, an instance of \\'hich may be captive
consumption of manufac~ured products in the manufacture of yet other
products. Once the scheme and policy of the provision is appreciated,
there is no room for saying that the tax is. on the consignment of manufactured goods. (243-G-H; 244-A-F]
8.5. When the tax is levied on the purchase of raw material, on the
purchase price - and not on the manufacture of goods or on the consignment
value (such a concept is unknown to Haryana Act) or sale price of the
manufactured goods - the construction placed in Goodyear runs against the
very grain of the provision and has the effect of nullifying the very provision.
B
c
By placing the said interpretation, Section 9 has been rendered nugatory. D
The tax purports to be and is in truth a purchase tax levied on the purchase
price ofraw material purchased by a manufacturer. [247-A-C]
8.6. S. 13AA of the Bombay Sales Tax Act is substantially similar to
Section 9 of Haryana Sales Tax Act. Whatever is said with respect to the
Haryana provision applies equally to this provision. [249-D]
E
Andhra Sugars Ltd. & Anr. v. T71e State of Andhra Pradesh & Anr., 21
S.T.C. 212 and State of Tamil Nad11 v. Kandaswami, 36 S.T.C. 191, .relied
on.
Goodyear India Ltd. v. State of Haryana, (1990] 2 SCC 71, dissented
from.
Mukerian Papers Ltd. v. State of Punjab, (1991] 2 S.C.C. 580, Explained.
M11rli Manohar and Company v. State of Haryana f 1991] I S.C.C. 377,
distinguished.
Malabar Fntit Prod11cts Co. v. S.T.0., 30 S.T.C. 537, approved.
F
G
Hind11sta11 Lever Ltd. v. State of Maharashtra, 79 S.T.C. 255; J.K. Steel H
A
B
c
192
SUPREME COURT REPORTS IJ992] SUPP. 2 S.C.R.
Ltd. v. L'nion of India, A.LR. 1970 S.C. 1173; Bata India Ltd. v. State of
Haryana, 54 S.T.C. 226; Desraj Pushp Kumar Gulati v. State of Punjab, 58
S.T.C. 393; Commissioner of Wealth Tax, Bihar and Orissa v. Kirpa Shankar
Daya Shankar Vorah, (1971) 81 ITR 763; Yusuf Shabeer and Ors. v. State of
Kera/a and Ors., (1973) 32 S.T.C. 359 and Income Tax Commissioners for
City of London v. Gibbs, (1942) 10 ITR Suppl. 121 (H.L.), referred to.
Per Ranganathan, J. (Concurring):
I. The provisions of the IJ.P. and Gujarat Sales Tax Acts are clearly
beyond challenge. The section in the IJ.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
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
D to tax the last sale in the State of certain goods. The tax is nothing but a
tax on purchase, pure and simple, well within the scope of the State's
Legislative power. It is true that one has to look at not merely the form
but the substance of the statute and examine what exactly is the purport
behind the levy, but should not permit one's imagination to read a purE
pose or words into the statute which are not there. [198-C-G]
2. The Gujarat provision is more careful but makes a mention of the
purchased goods being used for manufacture. But, these are only words
descriptive of a class of goods the purchase of which is sought to be
brought to tax. Here again, lhe intention of the legislature is to tax, at
F
purchase point, a class of goods viz. goods purchased by a manufacturer.
It has no concern, with what the manufacturer 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
G industries therein and so can afford to pay tax on the purchased raw
materials. The concession provided by rule 42E of the Gujarat Sales Tax
Rules 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. [198-H; 199-A, BJ
H
3. The marginal title to the provisions under challenge indicates that
HOTEL BJ\LAJI v. STATE OF AP.
193
their direct purpose is to levy a tax on purchases effected in the State in A
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 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 langnage of these two
provisions is wholly different from that used in the Haryana and Bombay
Acts. Even in the context of those Acts, it may be equally plausible to
consider the provisions either as a purchase tax or a tax on consignment.
There is no such ambignity in the langnage used in these provisions, and
the levy is only of a purchase tax. Such a levy is clearly within the domain
of the State Legislature. [199-C-F]
4. 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
B
c
D
E
raw materials on which apriori 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 F
exported abroad to earn foreign currency. If these situations are borne in
mind, one would realise that the langnage 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 manufacture or production ·or
manufactured goods or on the despatch of the goods manufactured from G
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 and emphasis placed on consignment
being a sine qua non of the levy. This larger concept, namely, that these H
194
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
A various alternatives are not set out in the section with a view to fasten the
charge of tax at the point of use, consumption, manufacture, production
and 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 or considered. This
B
c
approach would basically alter the parameters and remove the provision
l'rom the area ol' vulnorability. [2UO-F-H; 2Ul-A-0 J
5. It is difficult to define a last purchase except with reference to the
mode of the use of the purchased goods subsequent to that purchase and
in that sense the levy of tax can crystallise only at a point of time when the
goods have been utilised in a particular way. The mere fact that the
pu~chase 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. The more appropriate test
would be to see whether the ambit of the power to levy a tax in respect of
D 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. In
this view of the matter the leYy under the A.P. Act is also within the
legislative competence of the State. [201-E, F; 202-A, B]
6. The conclusion reached as to the vires of the provisions under
E challenge is contrary to the conclusion reached in Goodyear on somewhat
analogous provisions. No final conclusion is expressed as to whether the
conclusion in Goodyear was rightly reached in the context of the
provisions of the statutes considered there, or would need a second look
and fresh consideration in the context of what has been said now. There
F
is no hesitation to accept the point of view now presented and which
appeals to be more realistic, appropriate and preferable, particularly the
view one way or the other would affect the validity of a large number of
similar legislations all over India, merely because it may not be consistent
with the view taken in Goodyear. Consistency, for the mere sake of it, is no
virtue. [202-C, DJ
G
Distributors (Baroda) P. Ltd. v. Union of India, (1985 )155 l.T.R. 120
S.C., relied on.
Goodyear India Ltd. v. State of Haryana, [1990] 2 SCC 71, referred
H to.
HOTEL BALATl v. STATE OF A.P. (RANGANATHAN, J.j
195
ORIGINAL JURISDICTION : Writ Petition (c) Nos. 655-69 of A
1983.
(Under Article 32 of the Constitution of India).
WITH
B
W.P. (C) 8131-33/82, 8125-30/82, 8349-8368/82, 8146-8166/82, 96109630/82, 3756-87/83, 3698-3755/83, 947-960/83, 250/86, C.A. Nos. 40994103/82, 10753-57/83, 10758-60/83, 10761/83, W.P. (C) No. 12834/85, C.A.
Nos. 1280-83/92, 4737/91, 4302/91, 3410/91, 3481/91, 2850/91, 3171/91,
2866/91, 3905-12/91, 4202- 05/91, 70/92, SLP(C) No. 1045/89, T.C. (C) No. C
220/88, W.P. (C) No. 175/92.
G. Ramaswamy, Attorney General, G.L. Sanghi, B.K. Mehta, Santosh Hegde., R.R. Aggarwal, Anil B. Divan, H.N. Salve, K. Parasaran, Ms.
Suman Bose, Dr. Debi Pal, A.B. Rohtagi, R.N. Sachthey, A.C. Gulati, B.B. D
Sawhney, Mrs. Janaki Ramachandran, S. Ganesh, Ravinder Narain, S.
Sukuraman, D.K. Sinha, J.R. Das, J. Gupta, Ashok K. Srivastava, H.S.
Munjral, S. Walia, G. Bansal, D.P. Mukherjee, R. Mohan, Mukul Mudgal,
A. Subba Rao, Ms. Lala Krishnamurti, M.N. Shroff, D. Dave, Ms. Deepa
Dixit, K.J. John, A.T.M. Sampath, P. Sen, G.S. ChatterJee, Ashok Mathur,
M. Haravu, V.J. Francis, V. Subramaniam, P.S. Seetharaman, Ms. Indu E
Malhotra, A.S. Bhasme, R.B. Misra Dr. B.S. Chauhan, Ajay K. Aggarwal,
Ms. Radha Rangaswamy, Anil Sachthey, Badri Nath Sharma, T.V.S.N.
Chari, B. Kanta Rao and Ms. Suruchi Aggarwal for appearing parties.
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 discussed 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
B Goodyear.
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
E 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
F
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
G 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
H
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 A
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 B
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)
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
c
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 different. Cutting out certain words not relevant in the present context, it
F
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 G
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
A
B
c
198
SUPREME COURT REPORTS [1992] SUPP. 2 S.C.R.
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
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 purchased goods.
Of these, I am of opinion that the provisions of the U.P.