Purchase tax and by-product sales: section 5A turns on the seller's tax liability, while valuable waste sales remain taxable.

Section 5A purchase tax applies only where the seller's transaction is not liable to tax; where the seller's turnover exceeds the taxable limit, the purchase does not fall within that levy. On river sand used as raw material, the purchase tax was therefore not sustainable. By contrast, commercially valuable waste material or by-product generated in manufacturing can be sold in the course of business, and its sale value may be taxed accordingly. The sale of waste arising from concrete pipe manufacture was thus taxable. The discussion concludes that purchase tax on river sand failed, while tax on the by-product sale was upheld.

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Issues: (i) Whether tax under section 5A could be levied on the assessee's purchase turnover of river sand used as raw material, when the seller's turnover exceeded the taxable limit. (ii) Whether the sale value of waste material or by-product arising in the manufacture of concrete pipes was liable to tax as a sale in the course of business.

Issue (i): Whether tax under section 5A could be levied on the assessee's purchase turnover of river sand used as raw material, when the seller's turnover exceeded the taxable limit.

Analysis: Section 5A is intended to bring to tax purchases where the corresponding sale is not liable to tax in the hands of the seller and the goods do not re-enter the commercial stream. The decisive question is whether the seller was liable to tax, not whether tax had in fact been collected from him. As the seller's turnover exceeded the minimum taxable limit, the purchase was not one made in circumstances in which no tax was payable.

Conclusion: The levy under section 5A on the purchase of river sand was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether the sale value of waste material or by-product arising in the manufacture of concrete pipes was liable to tax as a sale in the course of business.

Analysis: A sale by a dealer is not confined to the main manufactured product; disposal of commercially valuable by-products generated in the manufacturing process may also occur in the course of business. The material described as waste had commercial value and its sale formed part of the business activity, rather than being merely incidental to it. On that basis, the amount representing its value was properly brought to tax.

Conclusion: The sale of the waste material or by-product was taxable and the assessee failed on this issue.

Final Conclusion: The revision succeeded only in respect of the river sand purchase turnover and failed in respect of the tax on the sale of the waste material or by-product.

Ratio Decidendi: Purchase tax under section 5A is attracted only where the seller's transaction is not liable to tax, and the sale of a commercially valuable by-product generated in the ordinary course of manufacturing activity is a taxable sale in the course of business.

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