Exempt sale of finished goods can defeat a Form No. 19 undertaking and trigger purchase tax liability.

Goods manufactured from raw materials bought against Form No. 19 did not remain "taxable goods" when the finished goods were sold under an exemption notification issued under section 49(2) of the Gujarat Sales Tax Act, 1969. The statutory definition of taxable goods excluded goods whose sale was exempt under section 49 or a notification made under it, so the actual exempt sale controlled the classification. Because Form No. 19 required the raw materials to be used in manufacturing taxable goods for sale, selling the finished goods in exempt transactions breached that undertaking. Purchase tax under section 16 therefore became payable on the contravention.

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Issues: Whether goods manufactured out of raw materials purchased against Form No. 19 ceased to be "taxable goods" because the finished goods were sold to an electrical undertaking under an exemption notification issued under section 49(2) of the Gujarat Sales Tax Act, 1969, and whether such sale amounted to a breach of the declaration in Form No. 19 so as to attract purchase tax under section 16 of the Act.

Analysis: The definition of "taxable goods" in section 2(33) is goods other than those on the sale or purchase of which no tax is payable under section 5 or section 49 or a notification issued thereunder. The scheme of the Act shows that the relevant inquiry is not merely whether the goods were capable of being taxed in some abstract sense, but whether, on the actual sale, they fell within the statutory exemption under section 49 and the notification issued thereunder. Goods sold under a transaction exempted under section 49 therefore do not remain "taxable goods" within the meaning of section 2(33). The undertaking in Form No. 19 required the raw materials to be used in the manufacture of taxable goods for sale by the dealer, and that condition was not satisfied when the manufactured goods were sold in exempt transactions of the kind covered by section 49(2). Section 16 accordingly fastened purchase tax liability upon the dealer for use of the goods contrary to the certificate.

Conclusion: The sale of the manufactured goods to the electrical undertaking under the exemption notification rendered them non-taxable goods for the purpose of section 2(33), constituted a breach of Form No. 19, and attracted liability to purchase tax under section 16.

Final Conclusion: The appeals failed because the statutory definition of taxable goods excluded goods sold in exempt transactions under section 49 and the resulting breach of the certificate justified the levy of purchase tax.

Ratio Decidendi: Where the governing statute defines "taxable goods" to exclude goods whose sale is exempt under a statutory exemption provision or notification, a dealer who purchases raw materials on a certificate undertaking manufacture of taxable goods for sale commits a breach if the finished goods are sold in such exempt transactions, and purchase tax becomes payable under the contravention provision.

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