Purchase tax on raw materials remained within State competence and was upheld against trade and equality challenges.

Section 13AA of the Bombay Sales Tax Act was treated as a purchase tax on raw materials, with later manufacture and despatch outside the State acting only as conditions that triggered postponed liability; the taxable event remained the original purchase, so the levy fell within State legislative competence under entry 54 of List II and not entry 92-B of List I. The levy was also held not to breach article 301 because it was a non-discriminatory tax without direct or immediate restriction on trade, and the procedural requirement under article 304(b) was satisfied. The classification based on use of raw material and branch transfer was upheld as rational under article 14.

---

---

Issues: (i) Whether section 13AA of the Bombay Sales Tax Act, 1959 was beyond the legislative competence of the State Legislature and fell within entry 92-B of List I instead of entry 54 of List II; (ii) whether the levy under section 13AA violated article 301 and was not saved by article 304(b) of the Constitution of India; (iii) whether section 13AA was discriminatory and offended article 14 of the Constitution of India.

Issue (i): Whether section 13AA of the Bombay Sales Tax Act, 1959 was beyond the legislative competence of the State Legislature and fell within entry 92-B of List I instead of entry 54 of List II.

Analysis: The levy was held to be a purchase tax on goods purchased by a dealer and used as raw material, with the later manufacture and despatch outside the State operating only as activating conditions for the postponed liability. The taxable event remained the original purchase of the goods, not the despatch of manufactured goods. The provision was therefore treated as falling within entry 54 of List II and not as a consignment tax under entry 92-B of List I.

Conclusion: The challenge on legislative competence failed and section 13AA was held to be intra vires.

Issue (ii): Whether the levy under section 13AA violated article 301 and was not saved by article 304(b) of the Constitution of India.

Analysis: The tax was found to be a non-discriminatory purchase tax on goods consumed in the State in the manufacturing process, with no direct or immediate impediment to the free flow of trade, commerce or intercourse. The Court applied the settled principle that only taxes directly and immediately restricting trade attract article 301, and also noted compliance with the procedural requirement of prior sanction for the Bill under article 304(b).

Conclusion: The challenge under article 301 failed and the levy was not shown to be unconstitutional on that ground.

Issue (iii): Whether section 13AA was discriminatory and offended article 14 of the Constitution of India.

Analysis: The classification between raw material used in manufacture and other goods, and between manufacturers who retain sales within the State and those who branch-transfer goods outside the State, was held to be rational and linked to the object of the legislation. The provision also operated to place comparable manufacturers on the same tax plane and remove disparity rather than create it.

Conclusion: The challenge under article 14 failed.

Final Conclusion: The provision was upheld in its entirety, and the petitions challenging the additional purchase tax were rejected.

Ratio Decidendi: A levy that is imposed on the original purchase of taxable goods, though its liability is activated by subsequent manufacture and despatch outside the State, remains a purchase tax within State legislative competence and does not become a consignment tax.

---