Purchase tax on raw material applies to consigned manufactured goods, but valuation must track proportionate input consumption.

Purchase tax under section 4B of the Punjab General Sales Tax Act, 1948 is attracted where cotton seed purchased within the State is used to manufacture oil and oil-cakes, and the oil-cakes are sent outside the State on consignment basis rather than sold within the State. The taxable event is the purchase of the raw material, so consignment removal of the manufactured goods does not exclude the levy. However, the tax must be computed with reference to the proportion of cotton seed attributable to the oil-cakes so disposed of, not on the consignment sale value of the oil-cakes. The levy was upheld, but the measure was confined to the relevant proportion of raw material.

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Issues: (i) Whether purchase tax under section 4B of the Punjab General Sales Tax Act, 1948 is attracted when cotton seed purchased within the State is used in manufacture of oil and oil-cakes, and part of the oil-cakes is sent outside the State on consignment basis. (ii) Whether, if section 4B applies, the tax is to be computed on the basis of the proportion of oil-cakes consigned outside the State to total sales, or on the basis of the proportionate raw material used for producing such oil-cakes.

Issue (i): Whether purchase tax under section 4B of the Punjab General Sales Tax Act, 1948 is attracted when cotton seed purchased within the State is used in manufacture of oil and oil-cakes, and part of the oil-cakes is sent outside the State on consignment basis.

Analysis: Section 4B fastens purchase tax on a dealer who purchases goods within the State, uses them in manufacture, and then disposes of the manufactured goods otherwise than by sale in the State or sends them outside the State otherwise than by inter-State sale or export. The taxable event is the purchase of the raw material, and the levy is sustained where the manufactured product is not sold within the State in the manner contemplated by the Act. The authority relied on the settled principle that the tax is on the purchase price of the raw material and not on the sale or consignment value of the manufactured goods. Consignment removal of oil-cakes outside the State does not, by itself, take the case out of section 4B.

Conclusion: Yes. Purchase tax under section 4B is attracted in relation to the cotton seed used to produce oil-cakes sent outside the State on consignment basis.

Issue (ii): Whether, if section 4B applies, the tax is to be computed on the basis of the proportion of oil-cakes consigned outside the State to total sales, or on the basis of the proportionate raw material used for producing such oil-cakes.

Analysis: Since the levy is on the purchase of raw material, the measure of tax must bear a rational nexus with the cotton seed that went into the production of the oil-cakes sent outside the State. Assessment on the value of the end product or on the consignment sale value would distort the character of the levy and would approximate a tax on manufacture. The correct method is to identify the proportion of cotton seed relatable to the oil-cakes consigned outside the State and levy purchase tax only to that extent.

Conclusion: The tax is to be levied on the proportionate purchase of cotton seed attributable to the oil-cakes sent outside the State, and not on the consignment sale value of the oil-cakes.

Final Conclusion: The reference was answered against the dealer on the applicability of purchase tax, but in the dealer's favour on the method of computation, by limiting the levy to the proportionate raw material attributable to the consigned oil-cakes.

Ratio Decidendi: Where raw material purchased within the State is consumed in manufacture and the manufactured goods are sent outside the State otherwise than by inter-State sale or export, purchase tax is attracted on the raw material, and the tax base must be confined to the proportion of raw material relatable to the goods so disposed of.

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