Tax-free purchase diversion can be added to the purchaser's taxable turnover, and the levy is not barred by Article 286.

A proviso to the Orissa Sales Tax Act was treated as a valid machinery provision requiring a purchasing dealer to include the value of goods in taxable turnover when tax-free goods obtained for resale in Orissa were diverted to another use. The exemption attached only while the declared resale condition was followed, and the phrase "his taxable turnover" referred to the purchasing dealer. The levy was also not hit by Article 286 because the taxed event was the intra-State purchase, not the later out-of-State sale. The assessment was sustained and the constitutional challenge failed.

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Issues: (i) Whether the proviso to section 5(2)(a)(ii) of the Orissa Sales Tax Act validly required inclusion of the price of goods in the purchasing dealer's taxable turnover when goods purchased free of tax for resale in Orissa were instead used otherwise. (ii) Whether the assessment offended Article 286 of the Constitution of India as a tax on an out-of-State sale or as an inter-State sale.

Issue (i): Whether the proviso to section 5(2)(a)(ii) of the Orissa Sales Tax Act validly required inclusion of the price of goods in the purchasing dealer's taxable turnover when goods purchased free of tax for resale in Orissa were instead used otherwise.

Analysis: The exemption under the registration certificate operated only so long as the purchasing dealer adhered to the declared purpose of resale in Orissa. The proviso was treated as an exception to that exemption and as a machinery provision for collecting the tax from the purchasing dealer when the declared condition was violated. The phrase 'his taxable turnover' was read as referring to the purchasing dealer, not the selling dealer. The provision was held to be within legislative competence and not inconsistent with the statutory scheme.

Conclusion: The proviso was held to be valid, and the amount was rightly included in the purchaser's taxable turnover.

Issue (ii): Whether the assessment offended Article 286 of the Constitution of India as a tax on an out-of-State sale or as an inter-State sale.

Analysis: The taxed event was the intra-State purchase from the Orissa dealer, not the later sale outside Orissa. The facts showed no finding that the first sale was itself in the course of inter-State trade or commerce, and the later change of destination could not convert the original sale into an inter-State sale. The levy was therefore not barred by Article 286.

Conclusion: The constitutional challenge failed and Article 286 did not invalidate the assessment.

Final Conclusion: The assessment was sustained as a lawful inclusion in the purchaser's turnover under the statutory proviso, and the writ petition was dismissed.

Ratio Decidendi: Where a dealer obtains goods free of tax on the declared footing of resale in the taxing State but diverts them for another use, the statute may validly require the value of those goods to be included in the dealer's taxable turnover, and such recovery is not a tax on the later out-of-State sale.

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