Legislative competence limits on purchase tax validation: levy on manufacture-linked use fell outside State power and validation failed.

The Bombay High Court analysed substituted section 13AA of the Bombay Sales Tax Act, 1959 and read it as attaching the levy to use of purchased goods in manufacture rather than to the purchase itself; on that construction, the impost was treated as a tax in substance on manufacture or a levy too remote from purchase, and was held beyond the State's competence. The Court also explained that a validating enactment can cure only defects within legislative power, so the validating clause in Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990 could not revive a levy invalid for lack of competence. The impugned levy and validation were struck down, with consequential refunds and interest directed.

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Issues: (i) Whether the substituted section 13AA of the Bombay Sales Tax Act, 1959 imposed a tax on purchase within the State within the competence of the State Legislature, or in substance a tax on manufacture or despatch outside the State beyond that competence. (ii) Whether the validating provision in section 3 of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990 was valid.

Issue (i): Whether the substituted section 13AA of the Bombay Sales Tax Act, 1959 imposed a tax on purchase within the State within the competence of the State Legislature, or in substance a tax on manufacture or despatch outside the State beyond that competence.

Analysis: The charging provision was construed on its plain language and in the light of the constitutional distribution of taxing powers. The levy was attracted when Schedule C, Part I goods purchased by the dealer were used in the manufacture of taxable goods, and the obligation to pay was relieved only if the manufactured goods were sold within the State. On that construction, the tax attached to the use of the goods in manufacture and not to the original purchase transaction. In pith and substance, the levy was therefore in the nature of excise, or at the least was too remotely connected with the purchase transaction to be treated as a purchase tax. A levy of that character did not fall within Entry 54 of List II.

Conclusion: The substituted section 13AA was unconstitutional and beyond the legislative competence of the State Legislature.

Issue (ii): Whether the validating provision in section 3 of Maharashtra Ordinance No. 9 of 1989 and Maharashtra Act No. 2 of 1990 was valid.

Analysis: A validating enactment can cure only such defect as the Legislature is competent to remove. Where the earlier levy had already been held to fail for want of legislative competence, the defect could not be cured merely by deeming the invalid levy to be valid or by characterising it differently. The validating clause could not override the constitutional limitation or neutralise the effect of the prior decision without removing the fundamental want of power.

Conclusion: The validating provision was invalid and could not sustain the impugned levy.

Final Conclusion: The writ petitions succeeded, the impugned levy and validation were struck down, and consequential refunds with interest were directed.

Ratio Decidendi: The true character of a fiscal levy is determined by its charging event and pith and substance; if the levy is in substance on manufacture or a transaction too remote from purchase, it falls outside the State's power to impose a purchase tax, and a validating law cannot cure a defect arising from lack of legislative competence.

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