State taxing power over consignment-based levy fails when tax arises only on outward despatch of goods.

A levy under section 4-B of the Punjab General Sales Tax Act, 1948, on raw material used in manufacture and dispatched outside the State was held to be, in substance, a tax on consignment of goods, arising only on outward despatch. On that construction, the impost fell outside the State Legislature's competence and was referable to the constitutional distribution of taxing power under article 269(1) read with entry 92B of List I, not the State power under article 246(3) read with entry 54 of List II. As the underlying tax was invalid, the connected penalty and interest could not survive and were set aside.

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Issues: Whether the levy of purchase tax under section 4-B of the Punjab General Sales Tax Act, 1948, on raw material used in manufacture and despatched outside the State was within the legislative competence of the State, and whether the penalty and interest levied along with such tax could survive.

Analysis: The levy under section 4-B was held to arise not at the stage of purchase or manufacture, but only upon despatch of the manufactured goods outside the State. On that construction, the impost was in substance a tax on consignment of goods and not a mere tax on purchase of raw material. Such a levy falls outside the State's power to tax sale or purchase of goods and is referable to the constitutional allocation of taxing power under article 269(1) read with entry 92B of List I, as distinguished from the State power under article 246(3) read with entry 54 of List II. Once the underlying tax was not exigible, the connected levy of penalty and interest could not stand.

Conclusion: The levy under section 4-B was beyond legislative competence and was invalid. The penalty and interest orders were also unsustainable and liable to be set aside.

Final Conclusion: The impugned assessment and appellate orders were quashed, and the writ petition succeeded with refund of any amount recovered under them.

Ratio Decidendi: A levy that is, in substance, a tax on the consignment of goods and becomes payable only on despatch outside the State is beyond the State Legislature's competence, and any penalty or interest founded solely on such an invalid levy cannot survive.

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