Differential sales tax cannot be levied where declared raw materials were actually used in manufacture despite SSI exemption.

Differential tax under section 5(3)(ii) of the Kerala General Sales Tax Act, 1963 applies only where goods purchased against declaration forms are not used for the declared purpose. On the facts stated, the raw materials were actually used in manufacturing the finished goods, so the statutory condition for levy was not met. The assessee's SSI exemption did not change that result, because the decisive issue was the actual use of the materials, not exemption status. The levy of differential tax was therefore not sustainable.

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Issues: Whether differential tax under section 5(3)(ii) of the Kerala General Sales Tax Act, 1963 could be levied on raw materials purchased against declaration forms when the materials were in fact used for manufacture, notwithstanding the assessee's SSI exemption.

Analysis: The statutory liability under section 5(3)(ii) arises only when goods purchased on the strength of a declaration are not used for the purpose for which the declaration was furnished. On the facts found, the raw materials were admittedly used in the manufacture of the finished goods. The existence of an SSI exemption did not alter the statutory condition for invoking the differential tax provision, because the decisive question was use of the materials for the declared purpose, not the assessee's exemption status.

Conclusion: The levy of differential tax was not sustainable and the assessee succeeded on this issue.

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