The Court held that purchase tax levied on raw materials used in the manufacture of goods and subsequently despatched outside the state is constitutionally valid. It is a tax on the last purchase of raw materials within the state, not an impermissible consignment tax.

Judgment

B. P. JEEVAN REDDY, J.:- Leave granted in the Special Leave Petition. In Goodyear India Limited v State of Haryana, (1990) 2 SCC 71, a Bench of this Court comprising Sabyasachi Mukharji and S. Ranganathan, JJ. declared Section 9(l)(b) of the Haryana General Sales Tax Act, 1973 ultra vires the powers of the State Legislature insofar as it imposed tax to the despatch of goods outside the territory of the State. It was held that "the tax and despatch of goods outside the territory of the State certainly is in the course of Inter-State trade or commerce and, in other words, amounts to imposition of consignment tax". Section 9(1)(b) levied purchase tax on goods purchased by a dealer who used them in the manufacture of other goods and disposed of such manufactured goods to a place outside the place in any manner otherwise than by way of sale in the course of inter-State trade or commerce or in the course of export outside the territory of India within the meaning of sub-section (1) of Section 5 of the Central Sales Tax Act, 1956. The said tax was also leviable in a case where the manufactured goods were disposed of within the States otherwise than by way of sale in the State. Section 13AA of the Bombay Sales Tax Act, 1959 also came up for consideration in the same decision. Section 13AA provided that where a dealer purchased goods and used such goods in the manufacture of taxable goods and despatched the goods so manufactured to his own place of business or to his agents place of business situated outside the State within the territory of India, such dealer shall pay an additional purchase tax at the rate of two paise in the Rupee on the purchase price of the goods so used in the manufacture. The Division Bench held the said provision is equally beyond the legislative competence of the Maharashtra Legislature inasmuch as it purported to levy a consignment tax.

2. Relying upon the decision in Goodyear (AIR 1990 SC 781), dealers from various States challenged the validity of similar provisions in their respective enactments, all of which were referred to a three-Judge Bench. They were posted for hearing before a Bench comprising S. Ranganathan, V, Ramaswami, JJ. and one of us (B. P. Jeevan Reddy, J.). Having regard to the constraint of time, the Bench confined its attention only to the relevant provisions in three enactments, viz., Section 15B of the Gujarat Sales Tax Act, Section 3AAAA of the U.P. Sales Tax Act and Section 6A of the Andhra Pradesh General Sales Tax Act, dealing the matters relating to other State enactments. The delinked matters were directed to be heard separately. Two opinions were delivered in the batch of cases heard by the Bench (reported in Hotel Balaji v. State of Andhra Pradesh, (1993) 88 STC 98. One opinion was delivered by one of us (B.P. Jeevan Reddy, J.) speaking for himself and V. Ramaswami, J. In his opinion, it was held that the decision in Goodyear declaring the relevant provisions in Haryana and Bombay Acts as outside the legislative competency of respective State Legislature is not correct in law. It was held that the said provisions in both the enactments were perfectly competent, valid and effective. On that reasoning, the relevant provisions in Gujarat, Uttar Pradesh and Andhra Pradesh enactments were held to be perfectly valid and effective. S. Ranganathan, J., in his separate opinion, agreed that the provisions in the said three enactments were perfectly valid. The learned Judge recalled his observations in his concurring opinion in Goodyear (AIR 1990 SC 781), and observed that the particular view-point presented in Hotel Balaji (1993 AIR SCW 3) was not presented in Goodyear and that on reconsideration, he finds the reasoning in support of the validity of the provisions more persuasive. The learned Judge said (at p. 13, para 8 of AIR):

"This larger concept, namely, that these various alternatives are not set out in the section with a view to fasten the charge of tax at the point of use,