Purchase tax under Section 7A upheld as a valid anti-evasion levy, including cases of conditional exemption.

Section 7A(1)(c) of the Tamil Nadu General Sales Tax Act was upheld as a charging and remedial provision intended to prevent tax leakage and evasion. The court rejected the challenge to State legislative competence, holding that the levy is on purchase tax and not a consignment tax, and therefore falls within State power. It also construed the phrase "in circumstances in which no tax is payable" to cover cases of conditional exemption where the sale does not suffer tax. The levy was held not to violate Articles 14, 301, or 304(b), and the writ petitions were dismissed.

---

---

Issues: (i) Whether purchase tax under section 7A of the Tamil Nadu General Sales Tax Act, 1959 could be levied where the immediate sale enjoyed exemption under section 17 of the Act. (ii) Whether section 7A(1)(c) was unconstitutional or beyond legislative competence as being violative of articles 14, 301 and 304(b) of the Constitution of India.

Issue (i): Whether purchase tax under section 7A of the Tamil Nadu General Sales Tax Act, 1959 could be levied where the immediate sale enjoyed exemption under section 17 of the Act.

Analysis: Section 7A is a charging as well as remedial provision intended to ensure that goods liable to tax do not escape taxation where the first taxable sale has not suffered tax and the goods are subsequently consumed, disposed of otherwise than by sale, or despatched outside the State. The expression "in circumstances in which no tax is payable" was held to refer to situations where tax was not suffered at the relevant sale point, and not to exclude conditional exemptions. The Court held that exemption under section 17 does not alter the taxing scheme or shift the point of taxation. Where the exemption is conditional and the goods are later dealt with in the manner specified in section 7A, purchase tax is attracted.

Conclusion: Conditional exemption under section 17 did not bar levy of purchase tax under section 7A, and the levy was valid.

Issue (ii): Whether section 7A(1)(c) was unconstitutional or beyond legislative competence as being violative of articles 14, 301 and 304(b) of the Constitution of India.

Analysis: The Court held that the levy is on purchase and not on consignment, and that the fact that goods are moved outside the State does not change the nature of the tax. Applying the settled law on purchase tax, the Court held that the provision does not directly and immediately restrict trade so as to offend article 301, and therefore article 304(b) was not attracted. The challenge based on legislative competence and article 14 was rejected in view of the binding precedents upholding similar purchase tax provisions and their constitutional validity.

Conclusion: Section 7A(1)(c) was upheld as constitutionally valid and within legislative competence.

Final Conclusion: The challenge to the purchase tax levy failed, and the writ petitions assailing the reassessment and the constitutional validity of section 7A were dismissed.

Ratio Decidendi: Purchase tax under section 7A is attracted when goods liable to tax do not suffer tax at the relevant sale point and are thereafter dealt with in the manner specified by the provision, and a conditional exemption under section 17 does not exempt such purchases or render the levy unconstitutional.

---