Territorial limits on purchase tax barred levy on outside-State purchases under the Orissa VAT framework.

Section 12 of the Orissa Value Added Tax Act, 2004 was interpreted as applying only to purchases effected within the State and to transactions within the Act's territorial reach. Purchases of raw materials made outside Orissa could not be brought to purchase tax merely because the goods were later used in manufacture within the State. Article 245 limits State legislative power to territorial competence, and article 286 bars taxation of sales or purchases taking place outside the State. The resulting levy was therefore beyond section 12 and invalid, and the assessment based on it could not be sustained.

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Issues: Whether section 12 of the Orissa Value Added Tax Act, 2004 could be applied to levy purchase tax on raw materials admittedly purchased from outside the State of Orissa, and whether such levy was valid in view of the limits on State legislative competence and the constitutional bar against taxation of outside-State transactions.

Analysis: Section 12 of the Orissa Value Added Tax Act, 2004 operates only in respect of purchases effected within the State and in relation to persons and transactions to which the Act applies. The expressions used in the Act, read with its territorial extent, do not authorise taxation of purchases made outside the State. Article 245 confines State legislative power to the State territory, while article 286 prohibits a State from imposing tax on sales or purchases taking place outside the State. Section 4 of the Central Sales Tax Act, 1956 reinforces that a sale or purchase determined to take place inside one State is deemed to take place outside all other States. The provision relied upon by the Revenue could not be extended to raw materials purchased outside Orissa merely because they were later used in manufacture within the State. The decisions on territorial nexus and ancillary taxing power did not assist the Revenue because the present levy directly targeted outside-State purchases.

Conclusion: The tax levy on purchases made outside the State was beyond the scope of section 12 of the Orissa Value Added Tax Act, 2004 and was invalid.

Final Conclusion: The assessment founded on the impugned levy could not be sustained, and the writ petition was allowed.

Ratio Decidendi: A State purchase-tax provision cannot be construed to impose tax on purchases made outside the State, as such a levy would exceed the State's territorial legislative competence and violate the constitutional prohibition against taxation of outside-State transactions.

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