Purchase tax exemption for export-linked manufacturing goods defeats consequential interest and penalty when the base tax demand fails.

Purchase tax was not leviable on raw materials used to manufacture goods later sold to exporters where the manufactured goods were ultimately disposed of by local sale, inter-State sale, or sale in the course of export within the meaning of the Haryana sales tax scheme read with the Central Sales Tax Act. The later decision in Monga Rice Mill was treated as inapplicable to the relevant assessment year and to the wording of section 9(1)(b) as it stood in 1982-83. Once the purchase tax demand failed, the consequential levy of interest and penalty also could not survive.

---

---

Issues: Whether purchase tax could be levied on raw materials used in the manufacture of goods ultimately sold to exporters for export, whether such sales fell within the course of export or were local or inter-State sales, and whether the levy of interest and penalty was sustainable.

Analysis: The applicable legal position was taken from the Supreme Court's exposition of the Haryana sales tax scheme and the Central Sales Tax Act. Section 9(1)(b) of the Haryana Act, as interpreted in the light of section 5 of the Central Sales Tax Act, exempted purchases where the manufactured goods were disposed of through a local sale, an inter-State sale, or a sale in the course of export. The Court noted that the later decision in Monga Rice Mill did not govern the assessment year in question and did not consider the relevant issue under section 9(1)(b) as it stood in 1982-83. On that basis, the levy of purchase tax on the entire raw material merely because the finished goods were sold to exporters was unsustainable. Since the basic tax demand failed, the consequential levy of interest and penalty also could not stand.

Conclusion: The assessee was entitled to the benefit of the exemption and the purchase tax demand was not sustainable; the levy of interest and penalty was also invalid.

Final Conclusion: The questions referred were answered against the Revenue and the assessment orders, along with the consequential interest and penalty, were held liable to be set aside.

Ratio Decidendi: Where raw materials are used to manufacture goods that are disposed of through a local sale, inter-State sale, or a sale in the course of export, purchase tax cannot be levied merely because the goods were sold to an exporter, and consequential interest and penalty cannot survive once the tax demand fails.

---