Purchase tax on raw materials survives finished-goods exemption; provisional assessment fails without a bona fide basis for evasion.

Section 15B of the Gujarat Sales Tax Act was construed to apply where taxable raw materials are used in manufacturing goods, and exemption of the finished goods under section 49(2) does not negate the purchase-tax levy because exemption is only a forbearance from tax. On that interpretation, liability under section 15B remained attached to the assessee despite exemption on the final products. By contrast, provisional assessment notices under section 41B required a basis of tax evasion, and the assessee's non-payment stemmed from a bona fide view of non-liability supported by prior interpretation and departmental practice. The notices were therefore quashed for want of jurisdictional foundation.

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Issues: (i) Whether raw materials used in manufacturing goods exempted from sales tax under section 49(2) of the Gujarat Sales Tax Act, 1969 were used in the manufacture of "taxable goods" for the purpose of levy under section 15B of the Act. (ii) Whether the notices issued under section 41B for provisional assessment were sustainable when non-payment of purchase tax was based on a bona fide view of non-liability.

Issue (i): Whether raw materials used in manufacturing goods exempted from sales tax under section 49(2) of the Gujarat Sales Tax Act, 1969 were used in the manufacture of "taxable goods" for the purpose of levy under section 15B of the Act.

Analysis: The expression "taxable goods" in section 2(33) was read in the setting of section 15B to mean goods generally taxable under the Act. The charge under section 15B was held to arise when taxable raw materials are used in the manufacture of such goods, and the subsequent fact that the finished goods obtain exemption under a notification under section 49(2) does not undo the levy. Exemption was treated as a forbearance of tax and not as destruction of the levy.

Conclusion: The petitioner remained liable to purchase tax under section 15B despite the exemption available on the finished goods; this issue was decided against the assessee.

Issue (ii): Whether the notices issued under section 41B for provisional assessment were sustainable when non-payment of purchase tax was based on a bona fide view of non-liability.

Analysis: Provisional assessment under section 41B required a belief of tax evasion. The Court held that, in view of prior judicial interpretation of the expression "taxable goods" and the assessee's earlier acceptance by the department for preceding years, the assessee's stand of non-liability was a bona fide belief and not an act of evasion. On that basis, the jurisdictional foundation for the impugned notices was not established.

Conclusion: The notices under section 41B were quashed; this issue was decided in favour of the assessee.

Final Conclusion: The legal interpretation of section 15B was upheld against the assessee, but the impugned provisional-assessment notices were set aside for want of evasion, resulting in relief to the assessee to that limited extent.

Ratio Decidendi: For section 15B, "taxable goods" means goods generally taxable under the Act, and exemption granted to the finished goods under section 49(2) does not prevent the levy on taxable raw materials used in their manufacture; however, provisional assessment under section 41B cannot be invoked in the absence of a bona fide basis for alleging evasion.

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