Purchase tax on ginned cotton cannot rest on leftover cotton seeds; separate commodity treatment and rational classification upheld.

Under the amended Punjab General Sales Tax scheme for declared goods, purchase tax could be levied only at the stage of the last purchaser of the commodity itself. A cotton ginning dealer was not treated as the last purchaser merely because cotton seeds remained after the entire cotton stock was sold to registered dealers, since cotton seeds are a distinct commercial commodity. The assessments based on that footing were unsustainable and the challenge succeeded. The constitutional challenge to section 2(d) failed because the compared classes were not similarly situated and the classification had a rational nexus with the tax scheme; the provision was upheld.

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Issues: (i) Whether, after the insertion of section 5(3) of the Punjab General Sales Tax Act, 1948, a dealer ginning cotton can be treated as the last purchaser of cotton and made liable to purchase tax merely because cotton seeds remain with him when the entire ginned cotton is sold to registered dealers. (ii) Whether section 2(d) of the Punjab General Sales Tax Act, 1948 is discriminatory and unconstitutional.

Issue (i): Whether, after the insertion of section 5(3) of the Punjab General Sales Tax Act, 1948, a dealer ginning cotton can be treated as the last purchaser of cotton and made liable to purchase tax merely because cotton seeds remain with him when the entire ginned cotton is sold to registered dealers.

Analysis: Under the amended scheme, declared goods are taxable only at the prescribed single stage, and in the case of purchase tax that stage is the purchase by the last dealer liable to tax. Cotton, whether ginned or unginned, is treated as one commodity for this purpose. Cotton seeds are a different commercial commodity and do not determine whether the dealer is the last purchaser of cotton. If the entire cotton purchased is sold away after ginning, the dealer cannot be treated as the last purchaser merely because cotton seeds remain in his hands.

Conclusion: The impugned assessments were unsustainable to the extent they proceeded on the footing that the dealer was the last purchaser of cotton because cotton seeds remained with it; the challenge on this issue succeeded.

Issue (ii): Whether section 2(d) of the Punjab General Sales Tax Act, 1948 is discriminatory and unconstitutional.

Analysis: The two classes of dealers compared under the provision are not similarly situated. The basis of differentiation has a rational nexus with the tax scheme because goods actually delivered in the State become part of the State's general goods, while goods taken of the State do not. The provision therefore does not suffer from constitutional infirmity.

Conclusion: Section 2(d) was upheld as valid and the challenge failed.

Final Conclusion: The appeals failed, while the writ petition succeeded, with the assessments quashed and the authorities left free to make fresh assessments in accordance with law.

Ratio Decidendi: Under the amended sales tax scheme for declared goods, purchase tax can be levied only on the last purchaser of the commodity itself, and the mere retention of a distinct by-product does not make a dealer the last purchaser of the original goods.

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