Purchase tax applies to fuel consumed in manufacture even when it does not become part of the final product.

Groundnut shell and coconut shell used as fuel in the manufacture of paper boards were treated as goods "consumed otherwise" in manufacture, so purchase tax was attracted under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959. The controlling interpretation was that tax applies not only where purchased goods become part of the final product as raw material or component, but also where they are consumed in the manufacturing process for another purpose. Applying the analogous constitutional interpretation, the levy on fuel-based consumption was upheld because the goods were consumed in manufacture without forming part of the saleable output.

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Issues: Whether groundnut shell and coconut shell used as fuel in the manufacture of paper boards are liable to purchase tax under section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The Tribunal held that the controlling interpretation of the expression "consumes such goods in the manufacture of other goods for sale or otherwise" is that purchase tax is attracted not only when goods go into the end-product as raw material or component part, but also when they are consumed otherwise in the manufacturing process. The Constitution Bench ruling on the analogous provision was applied to hold that goods used as fuel, though not identifiable in the final product, still fall within the charging provision because they are consumed in the course of manufacture otherwise than as saleable output.

Conclusion: The use of groundnut shell and coconut shell as fuel attracts purchase tax, and the levy was upheld against the assessee.

Final Conclusion: The appeals failed because the disputed fuel-based consumption was held taxable under the purchase tax provision governing goods consumed otherwise in manufacture.

Ratio Decidendi: Goods purchased without prior tax and consumed as fuel in manufacture are taxable as goods "consumed otherwise" under section 7-A(1)(a), even if they do not form part of the final product.

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