Purchase tax on declared-use goods cannot arise when the buyer uses them for the authorised manufacturing purpose.

A registered dealer purchasing gur for manufacture of khandsari was not liable to purchase tax under the second proviso to section 5(2)(a)(ii) of the Punjab General Sales Tax Act where the goods were used only for the declared purpose. The proviso applies when goods bought for one stated purpose are diverted to another use; it does not apply where the purchaser uses them exactly as authorised. Liability could not be imposed on the purchaser merely because the registration certificate had been issued in an incorrect form or contrary to the amended statutory restriction. The department's remedy lay elsewhere, and the tax demand against the purchaser failed.

---

---

Issues: Whether a registered dealer purchasing gur on the strength of a registration certificate for manufacture of khandsari, which was treated as tax-free goods, could be subjected to purchase tax under the second proviso to section 5(2)(a)(ii) of the Punjab General Sales Tax Act, and whether liability could be fastened merely because the certificate of registration was issued contrary to the statute.

Analysis: The certificate of registration authorised purchase of gur for manufacture, and the dealer used the gur only for the stated purpose. The second proviso to section 5(2)(a)(ii) applies only where goods sold for one declared purpose are used for some other purpose, and not where they are used exactly for the purpose for which they were purchased. The statutory scheme placed the burden on the selling dealer to comply with the amended restriction in section 5(2)(a)(ii), and the department could not recover purchase tax from the purchaser merely because the certificate had been issued in an incorrect form or contrary to the amended provision.

Conclusion: The dealer was not liable to purchase tax on the gur used for manufacture of khandsari; the reference was answered in favour of the assessee and against the department.

Ratio Decidendi: The second proviso to section 5(2)(a)(ii) is attracted only when goods purchased for a declared statutory purpose are diverted to another use, and a purchaser cannot be fastened with purchase tax merely because the registration certificate was erroneously issued if the goods were used for the very purpose for which they were bought.

---