Taxable goods definition under sales tax law includes conditional exemptions, triggering purchase tax when declaration use is breached.

Fireclay purchased against form 19 and used to manufacture goods sold under a conditional exemption was treated as having been used contrary to the declaration that the inputs would produce taxable goods. Section 2(33) was read broadly to exclude not only goods exempt under section 5, but also goods on which no tax was payable under section 49 or a notification issued under it. On that plain reading, section 16 operated to levy purchase tax where the manufactured goods were not taxable at the point of sale, and the attempt to narrow the definition of taxable goods was rejected.

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Issues: Whether fireclay purchased against form 19, and used in manufacturing goods ultimately sold without tax under a conditional exemption notification, ceased to be used in the manufacture of taxable goods so as to attract purchase tax under section 16 of the Gujarat Sales Tax Act, 1969.

Analysis: The definition of "taxable goods" in section 2(33) excludes not only goods on which no tax is payable under section 5, but also goods on which no tax is payable under section 49 or under a notification issued thereunder. This makes the exclusion wider than a mere reference to generally exempt goods and covers conditionally exempt goods as well. Section 16 is a remedial provision meant to prevent leakage of revenue where a purchasing dealer obtains deduction on the basis of a declaration that the goods will be used in the manufacture of taxable goods for sale, but uses them contrary to that declaration. The relevant enquiry is whether, at the stage when purchase tax liability arises, the goods were in fact used in the manufacture of goods that remained taxable goods when sold. Since the manufactured goods were sold under a conditional exemption and no tax was payable on such sales, the use was contrary to the certificate. The court rejected the attempt to read limiting words into section 2(33) or to construe "or" as "and", and held that the provision must be given its plain meaning to preserve the efficacy of section 16.

Conclusion: The purchase tax was correctly levied under section 16, and the reference was answered in favour of the revenue.

Ratio Decidendi: Goods used in manufacture lose the character of "taxable goods" for the purpose of a form 19 declaration if the manufactured product is sold under a general or conditional exemption so that no tax is payable under section 5, section 49, or a notification issued thereunder; in such a case, section 16 is attracted and purchase tax becomes payable.

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