Sales tax exclusion for timber used in local manufacture applies when registered dealers satisfy section 6(3) conditions.

Sales to a registered dealer of timber intended for use in manufacturing goods within Himachal Pradesh for sale within the State fell outside taxable turnover under section 6(3) of the Himachal Pradesh General Sales Tax Act, 1968. Although section 4 was the charging provision, its operation was controlled by section 6, and the statutory scheme treated the manufactured goods, not the raw material, as the proper point of tax where the prescribed conditions were met. The court noted that the timber was used wholly in the manufacturing process and that the finished goods were sold within the State, so the raw material was not exigible to sales tax. The agreement clause relied on was not inconsistent with the Act.

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Issues: Whether timber sold by the State Forest Department to the petitioner's registered small-scale industrial unit for use in manufacture of goods within Himachal Pradesh and sale of the manufactured goods within the State was liable to sales tax under the Himachal Pradesh General Sales Tax Act, 1968.

Analysis: Section 4 is the charging provision, but its operation is subject to section 6. Under section 6(3), sales to a registered dealer of goods specified in the certificate of registration, when meant for use in manufacturing goods in Himachal Pradesh for sale within the State, are excluded from taxable turnover. The timber supplied to the unit was used wholly in its manufacturing process, and the manufactured goods were also sold within the State. The scheme of the provision was to avoid double taxation by taxing the manufactured goods at the point of sale, rather than taxing the raw material as well. The view that tax had to be collected at the first point of sale was held to be incorrect, and clause 7 of the agreement was found not to be inconsistent with the Act.

Conclusion: The timber sold to the petitioner's unit for the stated manufacturing purpose was not exigible to tax under the Himachal Pradesh General Sales Tax Act, 1968.

Final Conclusion: The demand for sales tax and surcharge on timber supplied to the industrial unit was quashed, and the respondents were directed not to levy or collect sales or purchase tax on such supplies for use in manufacture and sale within the State.

Ratio Decidendi: Sales to a registered dealer of goods intended for use in manufacturing goods within the State for sale within the State fall outside taxable turnover under section 6(3), so the raw material is not taxable where the statutory conditions are satisfied and the manufactured goods are themselves taxable on sale.

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