The second proviso to section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948, is a valid provision aimed at preventing evasion of sales tax at the stage of sale. It applies to cases where certain goods liable to sales tax were not made so liable because of a declaration furnished under the registration certificate of a purchasing dealer, and those goods were not used for the purposes specified in the declaration.

This is a petition under article 226 of the Constitution of India calling in question the order of the assessing authority passed under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 (Act 46 of 1948) (hereinafter referred to as the Act).

The petitioner, Messrs Fancy Nets and Fabrics, Batala Road, Amritsar, is a partnership concern carrying on the business of manufacture of cloth. The firm is a registered dealer under the Act. The registration certificate is No. AMR-III-15152 and is annexure 'A' to the petition. The petitioner purchased yarn, dyes and chemicals, accessories, packing material, etc., during the year 1969-70. With regard to its turnover, the petitioner filed returns with the Assessing Authority wherein it was indicated that part of the goods purchased during the year 1969-70 were resold whereas the other part was used for the manufacture of cloth which is a tax-free item. The Assessing Authority brought to tax the goods which had been used by the petitioner for the manufacture of cloth under section 5(2)(a)(ii) of the Act. The petitioner has objected in the present petition to this assessment. The State has filed the return and has controverted the stand taken by the petitioner. While dealing with the various contentions advanced at the Bar, the respective stands of the parties would be apparent.

The contentions advanced by the learned counsel for the petitioner may now be enumerated. They are as follows :

1. That under the registration certificate, the petitioner being a manufacturer of cloth could buy the goods that have been brought to tax under section 5(2)(a)(ii) for manufacturing tax-free goods, i.e., cloth, and therefore, the use of these goods for the manufacture of cloth is not liable to tax under the aforesaid provision.

2. That the return was filed in form S.T. VIII which has nothing to do with the use of goods for the manufacturing business of the petitioner and, therefore, there was no return regarding the purchase of goods on which purchase tax could be levied. The, contention, in short, is that what is sought to be levied from the petitioner is purchase tax which cannot be levied as items which he purchased are not items covered by Schedule C as per the definition of "purchase" in section 2(ff) of the Act.

3. That there is no machinery provided in the Act or the Rules for the collection of tax under section 5(2)(a)(ii) and, therefore, the tax cannot be levied from the petitioner.

We propose to deal with these contentions in the order in which they have been mentioned.

In order to appreciate the first contention, it will be proper to examine the scheme of than Act and the purpose of section 5(2)(a)(ii). Under the Act, every dealer who carries on the business of buying and selling goods has to get himself registered under section 7 of the Act, provided his turnover is (a) in relation to a dealer who himself manufactures or produces any goods for sale Rs. 10,000, (b) in relation to any dealer who runs a tendoor, loh, dhaba, hotel, etc. Rs. 25,000, (c) in relation to any particular classes of dealers not falling within the above two categories, such sum as may be prescribed, and (d) in relation to any other dealer Rs. 40,000.

Section 6 of the Act exempts certain goods mentioned in Schedule B from the operation of the Act, both in the matter of sale and purchase. Regarding certain goods mentioned in Schedule C no sales tax can be levied; only purchase tax can be levied.

This brings us to section 5, on which the entire controversy has been raised before us. This section provides the rate of tax and also defines taxable turnover as follows :

"(2) In this Act the expression 'taxable turnover' means that part of a dealer's gross turnover during any period which remains after deducting therefrom -

(a) his turnover during that period on -

(i) the sale of goods declared tax-free under section 6;

(ii) sales to a registered dealer of goods other than sales of goods liable to tax at the fir