Deferred sales tax recovery under declaration-based purchases is not a separate purchase tax and remains enforceable.

Goods bought on a declaration for use in manufacturing a tax-free commodity were held not to fall within the second proviso to section 5(2)(a)(ii) merely because the finished product was tax-free; the proviso was triggered only on diversion from the declared purpose, so this contention failed. The levy was also characterised as recovery of deferred sales tax through a legal fiction, not as a separate purchase tax, meaning it operated within the sales tax scheme and not outside it. The Court further held that the statutory scheme and prescribed forms provided adequate machinery for collection, and any defect in forms did not defeat the charging or recovery mechanism. The assessment was left undisturbed.

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Issues: (i) whether goods purchased on the strength of the registration certificate for use in manufacturing a tax-free commodity could be subjected to tax under the second proviso to section 5(2)(a)(ii); (ii) whether the levy was in substance purchase tax and therefore outside the charging scheme; (iii) whether the Act lacked machinery for collection of tax under section 5(2)(a)(ii).

Issue (i): whether goods purchased on the strength of the registration certificate for use in manufacturing a tax-free commodity could be subjected to tax under the second proviso to section 5(2)(a)(ii).

Analysis: The proviso operated where goods were sold free of sales tax on the basis of the purchaser's declaration and were later used for a purpose other than that declared. The mere fact that the finished product was tax-free did not mean that all inputs used to manufacture it were exempt. Since the declaration did not specify purchase for manufacture of tax-free goods, and the goods were used consistently with the declaration for manufacture, the Court held that the proviso was not attracted only on the basis that the end-product was tax-free.

Conclusion: Against the assessee on the first contention.

Issue (ii): whether the levy was in substance purchase tax and therefore outside the charging scheme.

Analysis: The tax was not treated as purchase tax under Schedule C. It was characterised as recovery, by legal fiction, of the sales tax that ought to have been collected at the earlier stage but was not realised because of the purchaser's declaration. The provision was therefore directed to preventing evasion of sales tax rather than creating a separate purchase tax levy.

Conclusion: Against the assessee on the second contention.

Issue (iii): whether the Act lacked machinery for collection of tax under section 5(2)(a)(ii).

Analysis: The Court held that the statutory scheme and the prescribed forms were sufficient for recovery of the tax. Any defect or mismatch in forms did not invalidate the substantive charging and collection mechanism, which remained complete and effective.

Conclusion: Against the assessee on the third contention.

Final Conclusion: The writ petition was rejected in its entirety, and the assessment order was left undisturbed.

Ratio Decidendi: Where goods are sold to a registered dealer on a declaration for specified purposes, the second proviso to section 5(2)(a)(ii) is attracted only on a subsequent diversion from the declared purpose, and the provision functions as a mechanism to recover deferred sales tax and prevent evasion, not as an independent purchase-tax charge.

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