Purchase tax on raw material used in manufacture remains payable when finished goods are consigned outside the State.

Purchase tax was explained as applying where taxable raw material is bought without levy under the sales-tax provision, used in manufacture, and the manufactured goods are then dispatched outside the State otherwise than by sale in inter-State trade or export. On that reasoning, consignment transfer of oil-cake outside the State did not defeat the levy, because the purchase-tax provision operated on the raw material referable to the goods so manufactured. The argument that oil-cake was only a by-product and outside purchase tax was rejected. The stated principle is that when manufactured goods are not sold within the State but are consigned of State, purchase tax remains chargeable on the relevant purchase value of the input goods.

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Issues: Whether purchase tax was leviable on the proportionate purchase value of mustard seeds referable to the production of oil-cake, where the oil-cake was transferred outside the State on consignment basis and no sales tax was attracted on such disposal.

Analysis: The statutory scheme distinguished levy on sales under section 10 from levy on purchases under section 12. Section 12 attracted purchase tax where taxable goods were purchased in circumstances in which no tax under section 10 was leviable on the sale price, and after such purchase the goods were used in manufacture and the manufactured goods were despatched outside the State otherwise than by sale in inter-State trade or export. The disposal of oil-cake outside the State on stock transfer did not take the case out of section 12. The reasoning in Hotel Balaji and the later decision applying the same principle showed that purchase tax is on the raw material when the manufactured goods are not sold within the State and are instead consigned outside the State. The contention that oil-cake was merely a by-product and therefore no purchase tax could be levied was rejected.

Conclusion: Purchase tax was correctly levied on the purchase value of the oil-seeds referable to the oil-cake transferred outside the State, and the challenge failed.

Final Conclusion: The levy under the purchase-tax provision was upheld and the writ petitions were dismissed.

Ratio Decidendi: Where taxable raw material is used in manufacture and the resulting goods are not sold within the State but are consigned or otherwise dispatched outside the State, the purchase tax provision is attracted on the purchase value of the raw material to the extent referable to such goods.

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