Statutory declaration misuse under sales tax law can validly bring purchase value into taxable turnover and withstand article 301 challenge.

The Delhi High Court considered whether the third proviso to section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 validly includes the price of goods bought on statutory declarations when the declared manufacturing and resale use is not followed. It held that the provision does not impose an impermissible purchase tax; instead, it deems the price part of the purchaser's taxable turnover to prevent misuse of concession forms and recover tax from the dealer who breached the declared purpose. The Court also held that the levy is not invalid for lack of legislative competence and does not, by itself, violate article 301 merely because the manufactured goods were later sent outside Delhi on consignment.

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Issues: (i) whether the third proviso to section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975, by including the price of goods purchased on the strength of registration forms when they are not utilised as declared, imposes an impermissible purchase tax or is otherwise ultra vires; (ii) whether the impugned levy lacks legislative competence or violates article 301 of the Constitution of India because the goods manufactured from the raw material were transferred outside Delhi on consignment basis.

Issue (i): whether the third proviso to section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975, by including the price of goods purchased on the strength of registration forms when they are not utilised as declared, imposes an impermissible purchase tax or is otherwise ultra vires.

Analysis: The statutory scheme permits tax-free purchase only where the registered dealer uses the goods as declared in the registration certificate, namely for manufacture in Delhi and sale from Delhi in the specified modes. The third proviso is attracted when the purchasing dealer does not so utilise the goods or misuses the declaration forms. In that situation, the legislature does not tax the purchase as such, but fastens tax on the earlier sale in the hands of the purchasing dealer by deeming the price to form part of his taxable turnover. The provision is therefore a mechanism to prevent misuse of concession forms and to recover revenue from the dealer who breached the declared purpose.

Conclusion: The provision is valid and does not amount to an impermissible purchase tax; the challenge fails.

Issue (ii): whether the impugned levy lacks legislative competence or violates article 301 of the Constitution of India because the goods manufactured from the raw material were transferred outside Delhi on consignment basis.

Analysis: The taxable event is not the consignment transfer itself but the misutilisation of the statutory declaration forms and breach of the conditions attached to the concessional purchase. The levy is therefore referable to tax on a sale transaction deemed to arise upon such misutilisation, and the competent legislature could enact it under entry 97 of List I. A tax of this nature does not, by itself, directly or immediately impede the free flow of trade so as to offend article 301.

Conclusion: The challenge on legislative competence and article 301 is rejected.

Final Conclusion: The writ petition was not sustainable, as the impugned proviso was upheld and the levy on the purchasing dealer's taxable turnover was found legally permissible.

Ratio Decidendi: Where goods are purchased against statutory declarations for a specified manufacturing and resale use, but are not utilised in accordance with that declaration, the legislature may validly include the price of those goods in the purchasing dealer's taxable turnover and recover tax from him without treating the levy as a tax on consignment transfer.

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