Full Judgment Text
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PETITIONER:
MURLI MANOHAR AND CO. AND ANR.
Vs.
RESPONDENT:
STATE OF HARYANA AND ANR. ETC. ETC.
DATE OF JUDGMENT25/10/1990
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
SAIKIA, K.N. (J)
REDDY, K. JAYACHANDRA (J)
CITATION:
1990 SCR Supl. (2) 343 1991 SCC (1) 377
JT 1990 (4) 189 1990 SCALE (2)821
ACT:
Haryana Sales Tax Act, 1973: Sections 9(1) and
24--Assessee-Purchasing raw materials in state without
paying tax--Manufacturing goods--Selling them to dealer who
exported goods out of India-Assessability to tax--Whether
arises.
Central Sales Tax Act, 1956: Sections 5(1) &
5(3)--Distinction between.
HEADNOTE:
Each of the appellants/petitioners is a registered
dealer in the State of Haryana. He purchased certain raw
materials in the State without paying purchase tax thereon,
in view of the provision contained in section 24 of the
Haryana Sales Tax Act, 1973. He manufactured certain goods
in the State with the aid of the said raw materials. He then
sold the manufactured goods to dealers who, in turn, export-
ed those goods out of India. On these facts the assessee
claimed that he was not liable to pay the purchase tax on
the raw materials, imposed under section 9(1) of the Sales
Tax Act. The Department denied the relief on the short
ground that the sales effected by the appellants were not
sales in the course of export outside India within the
meaning of section 5(1) of the Central Sales Tax Act. Ac-
cording to the Department, they were only "penultimate"
sales, which may be deemed to be ’export sales’ because of
the fiction created under section 5(3) of the C.S. Act 1956,
but that was not enough to escape from the clutches of the
charge in section 9(1). Accordingly, the claim of the asses-
see was rejected by the taxing authorities. The High Court
also rejected the assessee’s petition..
Before this Court, it was contended on behalf of the
assessees that the effect of section 5(3) of the C.S.T. Act
was to expand the scope of section 5(1) and include within
the concept of sales in the course of export outside India
also the ’penultimate’ sales; that a reference to, and the
meaning of, section 5(1) could not be understood without a
reference to section 5(3); and that as a result of section
5(3), such penultimate sales became export sales falling
beyond the purview and competence of State legislature. It
was further submitted that purchases of
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raw material used in the manufacture of goods inside the
State attracted the tax under section 9(1) unless those
manufactured goods were dealt with in one of three ways; (1)
disposed of by way of sale inside the State;
(2) despatched to a place outside the State but by way
of a sale in the course of inter-State trade or commerce; or
(3) despatched to a place outside the State but by way of
sale in the course of export outside the territory of India.
In the alternative, it was contended that as the asses-
see had sold goods to other parties in India, those sales
must be either local sales or inter-state sales; and that in
any view of the matter, it would be a sale covered by the
exceptions in section 9(1), and the assessee’s purchases of
raw material would not attract tax under section 9(1).
On the other hand, on behalf of the State it was, inter
alia contended that there were no facts on record to sub-
stantiate the claim on behalf of the assessee that the sales
in question fulfilled the conditions set out in section 5(3)
of the C.S.T. Act. It was submitted that the assessees would
be entitled to an exemption from the impugned purchase tax
only if their sales were export Sales within the meaning of
section 5(1) of the C.S.T. Act, which they admittedly were
not.
Alternatively, it was submitted that section 9(1)(b) had
been declared unconstitutional by this Court in the Goodyear
case (1990 2 SCC 71) and the assessee could seek no implied
exemption from its language. Therefore, if section 9 was
left out, the language of section 6 ( as amended) which
brought to charge all purchases and sales in the State would
be attracted and so the impugned taxation of purchases would
be in order.
Allowing the appeals and the petitions, this Court,
HELD: (1) The language of section 9(1)(a)(ii)---later
section 9(1) (b)--using the words "within the meaning of
sub-section (1) of section 5 of the Central Sales Tax Act,
1956" have to be given full meaning; in other words, the
exemption under section 9(1) has to be restricted only to
export sales failing within the scope of section 5(1).
[360F-G]
Mohammed Sirajuddin v. State, [1975] Supp. 1 SCR 169, re-
ferred to.
(2) The language of the two provisions simultaneously
introduced in section 24(1)(a) and (b) makes interesting
reading. The proviso to
345
clause (a) refers only to "sale by him in the course of
export outside the territory of India within the meaning of
section 5 of the Central Sales Tax Act, 1956" whereas the
proviso to clause (b) refers to "sale by him in the course
of export outside the territory of India within the meaning
of sub-section (3) of section 5 of the Central Sales Tax
Act, 1956". Thus, the statute, within the same provision,
has made a distinction between a sale in the course of
export within the meaning of section 5 and such a sale
within the meaning of section 5(3). [361C-D]
(3) The High Court was right in concluding that the
assessee was not entitled to the exemption under section 9
because the sales made by him were not sales in the course
of export outside the territory of India within the meaning
of section 5(1) of the Central Sales Tax Act. [362A]
(4) What was declared unconstitutional by this Court
when it declared section 9(1)(b) of the Act unconstitutional
in Goodyear case was only the levy of a tax where raw mate-
rials were purchased and used inside the State for the
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manufacture of finished goods which were then simply--and
without any sale--despatched--rather, consigned--outside the
State. There is, however, nothing unconstitutional about the
two other consequences that flow on the language of the
clause: one express and the other implied; one in favour of
the Revenue and the other in favour of the assessee, viz.
(1) that there will be a tax on the purchase of the raw
materials if the manufactured goods are disposed of in the
State itself otherwise than by way of sale; and (2) that
there will be no tax on the purchase of the raw materials if
the manufactured goods are despatched from the State conse-
quent on a (i) local sale; (ii) inter-State sale; or (iii) a
sale in the course of export. These two aspects of section
9(1)(b) survive even after the judgment of this Court in the
Goodyear case. [363G-H; 364A-C]
Goodyear, case [1990] 2 SCC 71, explained.
(5) Section 9(1) is both a charging and exempting sec-
tion. Even after the decision in Goodyear case the charge
under a part of clause (b) still survives and so also the
exemption provided in the latter part of clause (b). [364E;
C]
(6) Since the sales effected by the assessee fail within
one of the three exempted categories set out in section
9(1)(b), there can be no levy of purchase tax under section
9(1) of the Sales Tax Act. [363C]
(7) The purchase of raw materials by the assessees are not
346
chargeable to tax either under section 9(1)or section 6 or
section 24(3). [366G]
JUDGMENT:
CIVIL APPEELATE JURISDICTION: Civil Appeal No. 6202 (NT)
of 1983.
From the Judgment and Order dated 3.2. 1981 of the
Punjab and Haryana High Court in L.P.A. No. 128of 1981.
Raja Ram Aggarwal, Arvind Minocha, H.K. Singh, S.K.
Bagga, S.C. Patel and S.K. Gambhir for the Appellants.
Kapil Sibal, Additional Solicitor General, S.P. Goel, A.
Subba Rao, C.V.S. Rao, Mahabir Singh, Bishambher Lal and
K.C. Dua for the Respondents.
The Judgment of the Court was delivered by
RANGANATHAN, J. 1. All these appeals and writ petitions
raise a common question regarding the interpretation of s
9(1) of the Haryana Sales Tax Act, 1973 (hereinafter re-
ferred to as ’the Act’). Counsel state that the facts in all
these appeals are identical and that the only facts neces-
sary (or, atleast, on record before us), on the basis of
which the issue us is to be decided, are these: Each of the
appellants/ petitioners (hereinafter referred to compendi-
ously as ’assessees’), is a registered dealer in the State
of Haryana. He purchased certain raw materials in the State
without paying tax thereon, in view of the provision con-
tained in s. 24 of the Act. He then manufactured certain
goods in the State with the aid of said raw materials. He
then sold the manufactured goods to dealers who, in turn,
exported those goods out of India. On these facts, it is
claimed, the assessee is not liable to pay the purchase tax
on the raw materials imposed under s. 9(1) of the Act. This
claim has been rejected by the taxing authorities and the
High Court and hence these appeals. The writ petitions have
been filed directly in this Court in view of a learned
single Judge of the High Court having decided the issue
against the assessees as early as 25.11. 1980 in C.W.P.
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1227/80, which was also affirmed by a Division Bench later-
2. The Act is a much-amended one and Some of its provi-
sions have been recently amended with retrospective effect
from 27th May, 1971 a point of time when actually a prede-
cessor Act (the Punjab General Sales Tax Act, 1948) had been
in force. The provisions of the statute, relevant for our
purpose, and their relevant amendments may be noticed first:
347
1. Section 2(e)
(a) Originally s. 2(e) defined ’export’ to mean "the
taking out of goods from the State to any place outside it
otherwise than by way of sale in the course of inter-State
trade or commerce."
(b) Act 44 of 1976, added, at the end of the above
definition, the following words w.e.f. 1.4.1976:
"or in the course of export out of the territory of India."
I1. Section 2(p)
(a) S. 2(p) defined the expression ’turnover’ as includ-
ing "the aggregate of the amounts of the sales and
purchases .......... made by any dealer" in any capacity
during a given period. Explanation 2 to the second defini-
tion provided:
"(2) The proceeds of the sale of any goods on the purchase
of which tax is leviable under this Act or the purchase
value of any goods on the sales of which tax is leviable
under this Act, shall not be included in the turnover, but
the purchase value of the goods liable to tax under section
9 shall be included."
(b) Act 13 of 1989 amended the Explanation by inserting,
in it, after the words "section 9", the words "or section
24".
(c) Act 1 of 1990 has amended the above Explanation
retrospectively to say that the words "but the purchase
value of the goods liable to tax under section 9 or section
24 shall be included" shall be omitted and shall be deemed
always to have been omitted with effect from 27.5. 1971. So
we have to proceed on the basis that the underlined words
never were there in el. (p) of section 2. The 1990 Act also
inserted an Explanation 6 to the clause w.e.f. 31.3. 1983
which reads:
"(6) The purchase of barley or of goods used in the manufac-
ture of guar gum, scientific goods, utensils and metal
handicrafts shall not form part of the turnover of a dealer
for the period he is entitled to purchase the goods on the
authority of his certificate of registration without payment
of sales tax under section 24, provided these are used
exclusively for the specified purposes."
348
111. Section 6
Section 6, the charging section, read as under:
"6. Incidence of taxation--(1) Subject to other provisions
of this Act, every dealer whose gross turnover during the
year immediately preceding the commencement of this Act
exceeded the taxable quantum, Defined in s. 7, shall be
liable to pay tax under this Act on all sales and purchases
effected after the coming into force of this Act.
Provided that this section shall not apply to a
dealer who deals exclusively in goods specified in Schedule
B. Goods on which no tax is leviable: s. 6 read with s. 15.
(2) Every dealer to whom sub-section (1) does not apply
shall, subject to other provisions of this Act, be liable to
pay tax under this Act on the expiry of thirty days after
the date on which his gross turnover during any year first
exceeds the taxable quantum;
Provided that this sub-section shall not apply to a
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dealer who deals exclusively in goods specified in Schedule
B.
Provided further that .....
XXX XXX
XXX
Explanation--For the purposes of sub-section (1) and (2)
"purchased" shall mean the purchase of declared (As defined
in s. 2(c) of the Central Sales Tax Act, 1956) goods speci-
fied in Schedule C and goods falling under section 9.
(b) S. 6 was amended by Act I of 1990 to read as follows
with retrospective effect from 27.5. 1971:
"S. 6 Incidence of taxation--(1) Every dealer whose gross
turnover during the year immediately preceding the coming
into force of the provisions of this section exceeded the
taxable quantum shall be liable to pay tax on all sales and
purchases effected after the coming into force of the provi-
sions of this section.
349
Provided that this sub-section shall not apply to a
dealer who deals exclusively in goods specified in Schedule
B.
(2) Every dealer to whom sub-section (1) does not
apply shall be liable to pay tax on all sales and purchases
effected on the expiry of thirty days after the date on
which his gross turnover during any year first exceeds the
taxable quantum.
Provided that this sub-section shall not apply to a
dealer who deals exclusively in goods specified in Schedule
B:
Provided further that .....
XXX XXX
XXX
The earlier Explanation, however, is omitted with the
same retrospective effect.
IV. Section 9
(a) S. 9(1) has undergone several amendments: by Act 44
of 1976, Act 11 of 1979, Act 3 of 1983, Act 11 of 1984, Act
16 of 1986 and Act 1 of 1988. Act 1 of 1990 has also an
impact, as we shall indicate later.
The section originally read thus:
"S. 9 Liability to pay purchase tax--Where a dealer pur-
chases goods other than those specified in the 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 manufac-
tured 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 in the course of export out of the
territory of India;
350
(b) exports them
in the circumstances in which no tax is payable under any
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."
(b) Act 44 of 1976 made two amendments to this sub-
section. The first amendment was to insert, after the open-
ing words, "where a dealer", the words "liable to pay tax
under this Act". The second amendment, which is crucial for
the purposes of this case, is the addition at the end of
sub-clause (ii) of clause (a) above, the words:
"within the meaning of sub-section (1) of section 5 of the
Central Sales Tax Act, 1956."
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These amendments were effective from 1.4.1976.
(c) Act 11 of 1979 redrafted the above provision, ex-
cluded milk from clause (b) and added clause (c). After this
amendment, effective from 9.4.1979, the provision read thus:
"9(1) Where a dealer liable to pay tax under this Act,
(a) purchases goods, other than those specified in Schedule
B, from any source in the State and uses them in the State
in the manufacture of goods specified in Schedule B; or
(b) purchases goods, other than those specified in Schedule
B except milk, from any source in the State and uses them in
the State in the manufacture of 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 in the course of export out
of the territory of India within the meaning of sub-section
(1) of section 5 of the Central Sales Tax Act, 1956; or
(c) purchases goods, other than those specified in Schedule
B, from any source in the State and exports them,
in the circumstances in which no tax is payable under any
351
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."
(d) A doubt had arisen whether the words "disposes of"
used in clause (a)(ii)--later, clause (b)--above was compre-
hensive enough to include cases of despatches by a dealer of
the manufactured goods otherwise than by way of sale as, for
example, by way of stock transfer. The State Government had
issued a notification dated 19.7.74 (even before the 1976
amendment) clarifying the position with an answer to the
question in the affirmative but this notification as well as
the interpretation favoured by it were quashed by a decision
of the High Court reported as Goodyear India Ltd. v. State,
[1982] 53 STC 163. This led to the amendment of S. 9(1) by
Act 3 of 1983. This amendment substituted a new clause (b)
for the earlier one w.e.f. 27.5.71,inserted a new clause
(bb) w.e.f. 9.4.79 and added a proviso. Actually clauses (b)
and (bb) are identical, except that the latter excludes milk
from Its purview w.e.f. 9.4.79. However, to avoid confusion
both the clauses may be set out here:
(b) purchases goods, other than those specified in Schedule
B, from any source in the State and uses them in the State
in the manufacture of any other goods and either disposes 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 otherwise than by
way of sale in the course of inter-State trade or commerce
or in the course of export outside the territory of India
within the meaning of subsection (1) of section 5 of the
Central Sales Tax Act, 1956;or;
(bb) purchases goods, other than those specified in Schedule
B except milk, from any source in the State and uses them in
the State in the manufacture of any other goods and either
disposes of the manufactured goods in any manner otherwise
than by way of sale in the State or despatches the manufac-
tured goods to a place outside the State in any manner
otherwise than by way of sale in the course of inter-State
trade or commerce or in the course of export outside the
territory of India within the meaning of sub-section (1) of
section 5 of the Central Sales Tax Act, 1956; or".
352
The proviso added was in the following terms:
"Provided that no tax shall be leviable under this section
on scientific goods and guar gum, manufactured in the State
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and sold by him in the course of export outside the territo-
ry of India within the meaning of sub-section (3) of section
5 of the Central Sales Tax Act. 1956."
(e) Act 11 of 1984 effected no material change. The
exclusion of milk was decided to be dropped and so all that
this amendment did was to roll both clauses (b) and (bb)
into one clause, reading thus:
"4. Amendment of section 9 of Haryana Act 20 of 197.3 For
clauses (b) and (bb) of sub-section (1) of section 9 of the
principal Act, the following clause shall be substituted,
namely:
"(b) purchases goods, other than those specified in Schedule
B. from any source in the State and uses them in the State
in the manufacture of any other goods and either disposes of
the manufactured goods in any manner otherwise than by way
of sale in the State or dispatches the manufactured goods to
a place outside the State in any manner otherwise than by
way of sale in the course of inter-State trade or commerce
or in the course of export outside the territory of India
within the meaning of subsection (1) of section 5 of the
Central Sales Tax Act, 1956;or.
(f) Amendment Act 8 of 1986 substituted, in the proviso
to s. 9( 1 ), the words "scientific goods, guar gum, uten-
sils and handicrafts" in place of "scientific goods and guar
gum" w.e.f. 26.2.86.
The amendment to S. 9(1) by Act 16 of 1986 is not
relevant for our purposes and we pass on to the two relevant
amendments effected by Act 1 of 1988. The first was to
change the marginal heading of the section to read thus:
"9(1) Liability to pay tax on purchase value of goods". The
second was to omit the words "sub-section (1) of" at the end
of clause (b). The relevant part of clause (b), as thus
amended, will, therefore, read:
"despatches the manufactured goods to a place outside the
State in any manner otherwise than by way of sale ..... in
353
the course of export outside the territory of India within
the meaning of section 5 of the Central Sales Tax Act,
1956;"
These amendments became effective from 31.12. 1987.
V. Section 24
S. 24 is the next section relevant for our purposes.
After its amendment by Act 44 of 1976, it read thus, w.e.f.
28.11.76:
"24. Rights of registered dealer--Every dealer registered
under this Act shall be entitled to purchase, without pay-
ment of sales tax, the following goods within the State, on
the authority of his certificate of registration by giving
to the dealer, from whom the goods are purchased, a declara-
tion, duly filled and signed by him, containing such partic-
ulars, on such form, obtained from such authority, as may be
prescribed, and in case such form is not available with such
authority, in such manner as may be prescribed,--
(a) any goods, other than those leviable to tax at
first stage of sale under section 17 or section 13, for the
purpose of-
(i) resale in the State; or
(ii) sale in the course of inter-State trade or
commerce;
(b) containers and packing materials and other
goods (excluding those liable to tax at the first stage of
sale under section 17 or section 18), specified in his
certificate of registration for use by him in the manufac-
ture, in the State, of any goods other than those specified
in Schedule B, for the purpose of--
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(i) sale in the State; or
(ii) sale in the course of inter-State trade or
commerce; or
(iii) sale in the course of export out of the territory of
354
India within the meaning of sub-section (1) of section 5 of
the Central Sales Tax Act, 1956."
(b) Act 3 of 1983 renumbered the above as s. 24(1) and
added, with effect from 31.3.83, a proviso each, to clauses
(a) and (b). These provisions read thus. The proviso to
clause (a) was:
"Provided that a dealer registered under this Act, shall
also be entitled to purchase barley, without payment of
sales tax on the authority of his certificate of registra-
tion, on furnishing to the selling registered dealer, a
declaration referred to above, for sale by him in the course
of export outside the territory of India within the meaning
of section 5 of the Central Sales Tax Act, 1956."
and that to clause (b) read:
"Provided that a dealer registered under this Act, shall
also be entitled to purchase, without payment of sales tax,
on the authority of his certificate of registration, goods
mentioned in clause (b) above, on furnishing to the selling
registered dealer a declaration referred to above, for use
by him in the manufacture, in the State, of scientific goods
and guar gum for the purpose of sale by him in the course of
export outside the territory of India within the meaning of
sub-section (3) of section 5 of the Central Sales Tax Act,
1956."
It also inserted, with retrospective effect from 1.4.76, the
following sub-section.
"(2) Notwithstanding anything contained in form S.T. 15 or
the certificate of registration issued under this Act or the
Rules made thereunder, no dealer shall be entitled to claim
the right envisaged in sub-section (1) so renumbered, for
the period from the first day of April, 1976, to the third
day of September, 1979 in contravention of the provisions of
sub-section (1) so renumbered."
The Act also contained a section (s. 8) validating the
notification issued under s. 9 read with s. 15 and also
validating all levy, assessment and collection of taxes
under s. 9 notwithstanding any judgment, decree or order of
any court or other authority.
355
(c) Act 11 of 1984 changed the marginal heading of the
section as "Rights and liabilities of registered dealers".
It added a clause (c) to sub-section (1) relating to use of
the goods in the execution of works contract in the State,
with which we are not concerned. However, it added a new
sub-section (3) with retrospective effect from 27.5. 1971,
to the following effect:
"(3) Notwithstanding any other provisions of this Act or any
judgment decree or order of any court or other authority to
the contrary, if a dealer who purchases goods, without
payment of tax, under sub-section (1) and fails to use the
goods so purchased for the purposes specified therein, he
shall be liable to pay tax, on the purchase value of such
goods, at the rates notified under section 15, without
prejudice to the provisions of section 50;
Provided that the tax shall not be levied where
tax is payable on such goods under any other provision of
this Act."
(d) An amendment of 1986 expanded the proviso to S.
24(I)(b) by adding "utensils and metal handicrafts" to
"scientific goods and guar gum", as in s. 9(1) proviso.
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(e) Act 1 of 1988, affecting from 31.12.1987, omitted
the words "sub-section (1) of" in s. 24(I)(b)(ii). It also
omitted the proviso to the said clause.
VI. Section 27
Section 27, which defines "taxable turnover" is not
quite relevant for our purposes. We should only like to
mention that the provisoes to s. 27(a)(iV), s. 27(b)(iii)
and s. 27(c)(ii) inserted by Act 44 of 1976 w.e.f. 1.4.76
all make specific reference to sales "in the course of
export out of the territory of India within the meaning of
sub-section (1) of section 5 of the Central Sales Tax Act,
1956". The provisoes to s. 27(a)(iv), in particular, make a
clear contrast between sales falling under sub-section (3)
and those failing under sub-section (1) of s. 5 of the
C.S.T. Act.
VII. Validation provision
Act 1 of 1990 effected no amendments to s. 24 or 27. But s.
14 of
356
this Act (which is a validation section on the same lines as
those contained in the earlier amendment Acts) has been
referred to in the course of the arguments before us and can
be usefully extracted. It reads:
"14. Notwithstanding any judgment, decree or order of any
court or tribunal or other authority to the contrary, any
levy, assessment, re-assessment or collection of any amount
by way of tax made or purporting to have been made and any
action taken or things done or purporting to have been taken
or done before the commencement of the Haryana General Sales
Tax (Amendment and Validation) Act, 1990, in relation to
such levy, assessment, re-assessment or collection made
under the provisions of section 9 or subsection (3) of
secton 24 of this Act shall be deemed to be as valid and
effective as if such levy, assessment, re-assessment or
collection had been made or action taken or things done
under the provisions of clause (p) of section 2, section 6,
section 15-A, section 17, section 27 and Schedule D appended
to this Act and as amended by the provisions of the Haryana
General Sales Tax (Amendment and Validation) Act, 1990 and
shall not be called in question in any court or tribunal or
other authority and accordingly--
(i) all acts, proceedings or things done or action
taken by the State Government or by any officer of the State
Government or by any authority, in connection with the levy,
assessment, re-assessment or collection of such a tax shall,
for all purposes be deemed to be, and to have always been
done or taken in accordance with law;
(ii) no suit or other proceedings shall be main-
tained or continued in any court or before any authority for
the refund of any such tax so collected; and
(iii) no court or authority shall enforce a decree
or order directing the refund of any such tax so collected.
These, then, are the relevant provisions of the Act.
Before turning to the question posed for our considera-
tion, it is necessary to refer to s. 5(1) of the Central
Sales Tax Act, 1956. Thus sub-section read as follows:
357
"5. When is a sale or purchase of goods said to take place
in the course of import or export--(1) A sale or purchase of
goods shah be deemed to take place in the course of the
export of the goods out of the territory of India only if
the sale or purchase either occasions such export or is
effected by a transfer of documents of title to the goods
after the goods have crossed the customs frontiers of
India."
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This sub-section came up for the consideration of this Court
in Mohammed Sirajuddin v. State, [1975] Supp. 1 S.C.R. 169.
In that case the appellant’s goods were exported out of
India. The course of the transaction was that the appellant
sold goods to the State Trading Corporation (S.T.C.) but, to
the knowledge of both these parties, the goods were to be
exported to fulfill contracts entered into by the S.T.C.
with foreign buyers, the terms of such contracts between the
foreign buyers and the S.T.C. being referred to in, and part
of, the appellant’s contracts with the S.T.C. The apppellant
claimed its sales to be "sales in the course of export" and
hence exempt under s. 5 of the C.S.T. Act. This Court,
Khanna, J. dissenting, held that the sales of the appellant
were not exempt u/s 5(1). The appellant had agreed to sell
his goods only to the S.T.C. and there was no provity of
contract between him and the foreign buyer. The court held
that the movement of goods outside India was occasioned by
the contract between the S.T.C. and the foreign buyer and
not by that between the appellant and the S.T.C. The deci-
sion caused several practical difficulties and called for an
amendment of the C.S.T. Act. The object and reasons of the
C.S.T. (Amendment) Act (Act 103 of 1976), may be usefully
extracted. It said:
"According to section 5(1) of the Central Sales Tax Act, a
sale or purchase of goods can qualify as a sale in the
course of export of the goods out of the territory of India
only if the sale or purchase has occasioned such export or
is by a transfer of documents of title to the goods after
gods have crossed the customs frontiers of India. The Su-
preme Court had held (vide: Mohd. Serajuddin v. State of
Orissa, 36 S.T.C. 136 that the sale by an Indian exporter
from India to a foreign importer alone qualifies ’as a sale
which has occasioned the export of the goods. According to
the Export Control Orders, exports of certain goods can be
made only by specified agencies such as the State Trading
Corporation. In other cases also, manufacturers of goods,
particularly in the small-scale and medium sectors, have to
358
depend on some experienced export house for exporting the
goods because special expertise is needed for carrying on
export trade. A sale of goods made to an export canalising
agency such as the State Trading Corporation or to an export
house to enable such agency or export house to export those
goods in compliance with an existing contract or order is
inextricably connected with the export of the goods. Fur-
ther, if such sales do not qualify as sales in the course of
export, they would be liable to State sales tax and there
would be a corresponding increase in the price of the goods.
This would make our exports incompetitive in the fiercely
competitive markets. It is, therefore, proposed to amend,
with effect from the beginning of the current financial
year, section 5 of the Central Sales Tax Act to provide that
the last sale or purchase of any goods preceding the sale or
purchase occasioning export of those goods out of the terri-
tory of India shall also be deemed to be in the course of
such export if such last sale or purchase took place after
and was for the purpose of complying with the agreement or
order for, or in relation to, such export."
S. 5(3), inserted by the above Amendment Act w.e.f.
1.4.1976, reads thus:
"(3) Notwithstanding anything contained in sub-section (1),
the last sale or purchase of any goods preceding the sale or
purchase occasioning the export of those goods out of the
territory of India shall also be deemed to be in the course
of such export, if such last sale or purchase’ took place
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after, and was for the purpose of complying with, the’
agreement or order for or in relation to such export."
Now, coming to the facts of the present case, the asses-
sees purchased raw materials inside the State of Haryana but
paid no tax thereon, as they were registered dealers and
furnished the declaration forms prescribed under s. 24.
Their sales of the manufactured goods are to persons who
have exported the goods outside India and so, they claim,
they are not liable to pay the tax sought to be imposed on
them under s. 9(1). The department, however, has denied the
relief on the short ground that the sales effected by the
appellants are not sales in the course of export outside
India within the meaning of s. 5(I) of the C.S.T. Act. They
are only "penultimate" sales; they may be deemd to be ’e-
xport sales’ because of the fiction created under S. 5(3) of
the
359
C.S.T. Act but that is not enough to escape from the Clutch-
es of the charge in s. 9(1).
Sri Rajaram Agarwal, learned counsel for the assessees,
contended that the effect of s. 5(3) of the C.S.T. Act is to
expand the scope of s. 5(1) and include within the concept
of sales in the course of export outside India also the
’penultimate’ sales dealt with in Mohd. Sirafuddin’s case
(supra), A reference to, and the meaning of, section 5(1)
cannot be understood without a reference to section 5(3). As
a result of s. 5(3), such penultimate sales become export
sales falling beyond the purview and competence of State
legislatures. The provisions in s. 9(1) of the Act need to
be interpreted harmoniously and consistently with the con-
stitutional scheme. S. 9(1) is a charging section. Purchases
of raw materials in the State used in the manufacture of
goods inside the State attract the tax under s. 9(1) unless
those manufactured goods are dealt with in one of three
ways:
(1) disposed of by way of sale inside the State;
(2) despatched to a place outside the State but by way of a
sale in the course of inter-State trade or commerce; or
(3) despatched to a place outside the State but by-way of
sale in the course of export outside the territory of India.
He submitted that the transactions in the present case fail
under category (3) above. In the alternative, he submitted
that, clearly, as the assessees had sold goods to other
parties in India, those sales must be either local sales
falling under category (1) or inter-State sales failing
under category (2). In any view of the matter, therefore,
the assessee’s purchases of raw materials would not attract
tax under s. 9(1).
On the other hand, Sri Gupta, learned counsel for the
State. submitted that there were no facts on record to
substantiate the claim on behalf of the assessee that the
sales in question fulfilled the conditions set out in s.
5(3) of the C.S.T. Act, as claimed. He submitted that even
if the claim were to be accepted, the assessees would be in
no better position. He fully supported the reasoning of the
High Court and urged that full effect should be given to the
words "within the meaning of sub-section (I) of section 5"
which found a place in s. 9(1)(b) till they were dropped by
Act 1 of 1988. If due regard be given to these words, he
pointed out, the assessees would be entitled to an exemption
from the impugned purchase tax only if their sales
360
were export sales within the meaning of section 5(1) of the
C.S.T. Act which they, admittedly were not. He submitted
that the argument that, to levy the tax imposed by s. 9(1)
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in cases covered by s. 5(3) but not s. 5(1) of the C.S.T.
Act would violate Article 286 of the Constitution. was
misplaced and overlooks the vital circumstances that what s.
9(1)(b) taxes are the purchases of raw materials and not the
manufactured goods that were eventually exported. Alterna-
tively, he submits, s. 9(1)(b) has been declared unconstitu-
tional by this Court in the Goodyear case [1990] 2 SCC 71
and, therefore,, the assessees can seek no implied exemption
from its language. If s. 9 is left out, he says, the lan-
guage of s. 6 (as amended) which brings to charge all pur-
chases and sales in the State would be attracted and so the
impugned taxation of the purchases would be in order. For
these reasons, he submits that the writ petitions were
rightly rejected by the. High Court and that the appeals as
well as writ petitions before us
deserve to be dismissed.
It will be convenient first to dispose of the contention
dealt with by the High Court. For the purposes of this
argument we shall assume that the sales made by the asses-
sees were ’penultimate sales’ which would fall within the
purview of section 5(3) of the C.S.T. Act. The argument on
behalf of the Revenue, which has found favour with the High
Court is that section 9(1) exempts only sales made in the
course of export within the meaning of section 5(1) of the
C.S.T. Act but not those under section 5(3) of the said Act.
After careful consideration we think that this argument was
rightly accepted by the High Court. In the first place there
is no dispute before us that section 5(3) covers a category
of cases which would not otherwise have come within the
purview of section 5(1), as explained in Mohd. Sirajuddin’s
case. The language of section 9(1)(a)(ii)--later
9(1)(b)--using the words "within the meaning of sub-section
(1) of section 5 of the Central Sales Tax Act, 1956" have to
be given full meaning; in other words, the exemption under
section 9(1) has to be restricted only to export sales
falling within the scope of section 5(1). It seems clear,
from the circumstances referred to below, that the legisla-
ture deliberately used these words and intended to give a
restricted operation to section 9(1)(a)(ii)(b). These cir-
cumstances are:
(1) Section 9(1)(a)(ii), as originally framed, merely
uses the words "in the course of export outside the territo-
ry of India". Clause 9(1)(b) referred to cases where raw
materials were purchased and exported and the word ’export’
was defined in section 2(c) as meaning "the taking out of
the goods from the
361
State to any place outside it otherwise than by way of sale
in the course of inter-State trade or commerce." Act 44 of
1976 amended the definition of ’export’ in section 2(c) by
adding the wide words "or in the course of export out of the
territory 01’ India" w.e.f. 1.4. 1976. But the same Act
narrowed down the scope of clause (a)(ii) by adding the
restrictive words at the end of the clause.
(2) If a reference is made to section 24, one finds
that section 24(1)(iii) refers again to sub-section (1) of
section 5 of the Central Sales Tax Act only. However, the
language of the two provisoes simultaneously introduced in
section 24(1)(a) and (b) by Act 3 of 1983 makes interesting
reading. The proviso to clause (a) refers only to "sale by
him in the course of export outside the territory of India
within the meaning of section 5 of the Central Sales Tax
Act, 1956", whereas the proviso to clause (b) refers to
"sale by him in the course of export outside the territory
of India within the meaning of sub-section 3 of section 5 of
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the Central Sales Tax Act, 1956". Thus the statute, within
the same provision, has made a distinction between a sale in
the course of export within the meaning of section 5 and
such a sale within the’ meaning of section 5(3).
(3) When we turn to s. 27 next, we find two provisoes
introduced in s. 27(1)(iv)(a) by Act 44 of 1976, the same
amending Act that introduced the extra words at the end of
s. 9(1)(a)(ii). These provisoes make a marked contrast
between sates failing under sub-sections (1) and those
falling under subsection (3) of s. 5 of the C.S.T. Act.
(4) As will be seen from the extract of the legisla-
tive amendments set out earlier the legislature has subse-
quently deleted the reference to sub-section 3 of section 5
in section 9(1)(b). However, this amendment, which has been
made both in section 9 and in section 24 by Act 1 of 1988
has not been given any retrospective effect. Considering
that the legislation is replete with instances of retrospec-
tive effect (in some cases even to as early as a date as
7.9.1955), the failure or omission to give any retrospective
effect to the amendment to section 9 in this regard is an
eloquent pointer to the intention of the legislature.
In view of the circumstances outlined above, we are of
the opinion that the High Court was right in concluding that
the assessee
362
was not entitled to the exemption under s. 9because the
sales made by him were not sates in the course of export
outside the territory of India within the meaning of section
5(1) of the Central Sales Tax Act.
Shri Rajaram Agarwal, learned counsel for the assessees
raised a new contention before us, which we have already
referred to as an alternative contention. This contention
which really seems to be unanswerable appears to have been
missed at the stage of the High Court but this contention is
purely one of law and merits consideration. The point made
by him was this. There is no dispute that the assessees have
transferred the manufactured goods by way of sale and that
these goods have been despatched to various ports of India.
The exact terms of despatch are not clear and there are no
facts on record which will help us to understand the course
of transactions in the several cases before us. But Shri
Agarwal submitted that the sales made by the assessees can
only fall within one of three categories. They are either
local sales or inter-State sales or export sales. Each of
the assessee have sold its goods to another dealer, If that
dealer is also a resident of Haryana and has taken delivery
of the goods in Haryana and exported them thereafter, the
assessees’ sales would be local sales. If the purchaser-
dealer of the manufactured goods is in some other State and
the goods have been moved out of Haryana in pursuance of
that sale, they would be inter-State sales. The goods which
have been sold by the assessee must have been delivered to
the dealer in pursuance of the sale either within the State
or outside the State in India. In either event, it would be
a sale covered by the exceptions in section 9(1). It would
be a local sale or inter-State sale. The only third possi-
bility is that assessee sold the goods to a dealer outside
India and exported the goods in pursuance of that sale in
which event it would be a sale within the meaning of section
5(1) of the Central Sales Tax Act.
We think Shri Agarwal is right in saying that any sale
effected by the assessees in the circumstances, which have
been set out by us earlier, must fall in one of three cate-
gories. We are unable to conceive of a fourth category of
sale, which could be neither a local sale nor an inter-State
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sale nor an export sale. Shri Gupta, on behalf of the State,
contended that the goods might have been directly moved by
the assessee to a port for shipment abroad in pursuance of
an export contract entered into by the dealer who purchased
from the assessee. Even in such a case if the transport of
goods from the assessee’s place of business to the port is
in pursuance of the terms of the sale, the movement of the
goods would be occasioned by the sale made by the assessee
and would be an inter-State sale. If, on the other hand, the
goods were sent
363
to the port by the assessee subsequent to and independent of
the sale made by him, then, for the purpose of that trans-
port, the assessee. would only be an agent of the purchaser
and the movement of the goods in pursuance of the contract
of sale entered into by the purchaser and would be one in
the course of export within the meaning of s. 5(1) of the
C.S.T. Act. As pointed out by Sri Agarwal, even in Mohd.
Sirajuddin’s case (supra), although the exemption claimed
for the sales as export sales was denied, the conclusion of
the High Court that the sales to S.T.C. were inter-State
sales chargeable under s. 5(1) of the C.S.T. Act was upheld.
We are, therefore, of the opinion that this alternative
contention urged by the learned counsel for the assessee has
to be accepted and it has to be held that, since the sales
effected by the assessees fall within one of the three
exempted categories set out in section 9(1)(b), there can be
no levy of purchase tax under section 9(1) of the Act.
Faced with this situation, Shri Gupta, for the State,
contended that this argument will not avail the assessees
as, according to him, s. 9(1)(b) of the Act has been de-
clared unconstitutional by this Court and is, therefore, non
est. It is somewhat curious that such contention should come
from the department which has charged the assessees on the
basis of s. 9(1)(b). Nevertheless, we proceed to consider
this contention, as Sri Gupta says he can support the as-
sessments, alternatively, under s. 6 of the Act, without any
aid from s. 9 at all. This contention, it seems to us,
proceeds on a misconception of the issue before, and the
ratio of the decision of this Court in the Goodyear case
[1990] 2 SCC 71. That was a case in which certain dealers,
having purchased raw materials and manufactured goods inside
the State despatched those goods outside the State otherwise
than by way of sale. The State levied a purchase tax on the
raw materials u/s 9(1). Thereupon the assessee contended
that the levy of tax in the circumstances was in truth and
substance the levy of a tax on the manufactured goods on the
event of their consignment outside the State otherwise then
by way of sale and that the State legislature was not compe-
tent to levy such a tax. This contention was accepted by
this Court. What was declared unconstitutional by this Court
was, therefore, only the levy of a tax where raw materials
are purchased and used inside the State for the manufacture
of finished goods which are then simply--and without any
sale--despatched--rather, consigned-outside the State. There
is, however, nothing unconstitutional about the two other
consequences that flow on the language of the clause: one
express and the other implied; one in favour of the Revenue
and the other in favour of the assessee viz.
364
(1) that there will be a tax on the purchase of the raw
materials if the manufactured goods are disposed of in the
State itself otherwise than by way of sale; and
(2) that there will be no tax on the purchase of the raw
materials if the manufactured goods are despatched from the
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State consequent on a
(i) local sale;
(ii) inter-State sale; or
(iii) a sale in the course of export.
It seems that these two aspects of s. 9(1)(b) survive even
after the judgment of this Court in the Goodyear case [1990]
2 SCC 71.
Shri Gupta, however, drew our attention to certain
sentences in the headnote as well as the body of the above
decision where certain wider expressions have been used,
such as :"s. 9(1)(b) was ultra vires" "s. 9(1) and 24(3) are
constitutionally invalid" "s. 9(1)(c) is ultra vires"
and" ..... the latter part of s. 9(1)(b) is ultra vires
and void". As pointed out above, s. 9(1) is both a charging
and exempting section. Even after the decision the charge
under a part of clause (b) still survives and so also the
exemption provided in the latter part of clause (b). But let
us examine what the position would be if we hold, as con-
tended by Shri Gupta, that the effect of the decision is
that the words "or despatches the manufactured goods to a
place outside the State in any manner otherwise than by way
of sale in the course of inter-State trade or commerce or in
the course of export outside the territory of India within
the meaning of sub-section (1) of section 5 of the Central
Sales tax Act, 1956" in s. 9(1)(b) should be deemed to have
been deleted from the statute. Shri Gupta contends that, if
s. 9(1) is left out of account for this reason, the pur-
chases of raw materials by the assessee would be liable to
tax under s. 6 of the Act. This argument will now be consid-
ered.
The contention of Shri Gupta on this aspect proceeds
thus: s. 6, which is the charging section, both originally
and after its retrospective amendment in 1990, imposes a tax
on all sales and purchases effected by a dealer. In the
original section, there was an Explanation which restricted
the meaning of purchases for the purposes of the section. It
provided that only purchases of declared goods, goods speci-
fied in
365
Schedule C and goods falling under s. 9 would be part of the
’turnover’. In other words purchases which did not fall
under s. 9 i.e. which could not be taxed under section 9,
could not be taxed then under s. 6 either. But the 1990
amendment has omitted this Explanation retrospectively. The
result is that all purchases are now taxable in the State.
This contention is an interesting one but it overlooks
the effect of s. 2(p) read with s. 15 of the Act. Though s.
6, as amended, purports to make dealers liable to pay tax on
their sales as well as purchases, the actual charge of tax,
under s. 15, is only imposed on the sales and purchases that
form part of his taxable turnover. To ascertain what this
one has to turn to s. 2(p) of the Act. This definition
includes, within the definition of ’turnover’ the purchase
value of goods liable to tax under s. 9 but, the goods
presently in question are not laible to tax under s. 9, not
only as contended for the assessees and held by us above but
also on the hypothesis as to the invalidity of s. 9(1)(b) on
which the present argument on behalf of the Revenue pro-
ceeds. The, definition also excludes from its purview "the
sale proceeds of goods on which purchase tax is leviable
under this Act" and "the purchase value of any goods on the
sales of which tax is leviable under this Act". There can be
no dispute that a tax is leviable under the Act on the goods
in question when they are sold by a dealer and, indeed, the
assessees would have had to pay tax on the sales made
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to--the purchases effected by--them but for a claim for
exemption under s. 24. The definition of ’turnover’ clearly
postulates that goods are either to be taxed at the point of
purchase or sale and the same transaction cannot be taxed as
a sale in the hands of the dealer who sells to the assessees
and as a purchase in the hands of the assessees. The only
exception was the limited class of goods covered by s. 9 but
even this exception has been left out with complete retro-
spective effect. We do not, therefore, think that Sri Gupta
is right in arguing that the purchase tax on the raw materi-
als can be upheld under s. 6 itself even if the charge under
s. 9 fails. Explanation 6, inserted in s. 2(p) read, with
the provisoes inserted in s. 24(1) w.e.f. 31.3.1983 and
their amendment in 1986 have also a bearing in the cases of
raw materials purchased for manufacture of guar gum and
utensils where the purchase is exempt even if purchased by a
registered dealer for the purpose of export within the
meaning of s. 5(3) of the C.S.T. Act, 1956--and some of the
assessees before us are such manufacturers--out we leave
these amendments out of account as they are relevant only
for purposes of later assessment years. The raw materials
purchased by the assessees are goods on the sales of which
tax is leviable under the Act though the assessees are
366
exempt from payment of such tax by reason of s. 24(1). The
value of the purchases cannot, therefore, be included Within
the definition of "turnover" and, consequently, s. 6 will
not come to the aid of the Revenue to support the levy of
the impugned sales.
We may also make a reference to sub-section (3) of s,
24, inserted with retrospective effect from 27.5.1971, which
taxes the purchase of raw materials, when the dealer who
purchases them had claimed exemption under section 24(1) but
is found not to have used the goods for the purposes speci-
fied therein i.e. for the manufacture of goods for the
purpose of
(a) local sale;
(b) inter-State sale; or
(c) sale in the course of export outside the territory of
India within the meaning of sub-section (1) of section 5 of
the C.S.T. Act.
This provision will not help the Revenue for two reasons:
(i) As held earlier, while discussing the alternative con-
tention of Shri Agarwal,sales in the course of export within
the meaning of s. 5(1) of the C.S.T. Act, 1956. It may be
pointed out that, after Act I of 1988, this provision does
not tax purchases even in cases where the manufactured goods
are disposed of only by way of ’penultimate sales falling
under s. 5(3) but not under s. 5(1) of the C.S.T. Act, 1956,
but this amendment came later and will have to be left out
of account for the purpose of these cases; (ii) This provi-
sion has been held to be ultra vires in the Goodyear case
(supra).
We have, therefore, reached the conclusion that the
purchases of raw materials by the assessees are not charge-
able to tax either u/s 9(1) or s. 6 or s. 24(3). The appeals
and petitions are, therefore, allowed. The relevant assess-
ments to tax will be computed/modified accordingly. We,
however, make no order regarding costs.
R.S.S. Appeals & Petitions
allowed.
367