State sales tax levy must link to sale transactions; capacity-based brick kiln tax was beyond legislative competence.

A State sales tax levy must retain a real nexus with the sale or purchase of goods; a charge tied to brick kiln production capacity, rather than an actual sale transaction, falls outside Entry 54 of List II. The Punjab General Sales Tax Act provision authorising lump sum tax on brick kiln owners was therefore beyond State legislative competence under Article 246 read with Entry 54 of the Seventh Schedule. The impugned levy was held ultra vires, the demand raised under it was set aside, and the levy could not be enforced against the petitioners.

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Issues: Whether Section 5(4) of the Punjab General Sales Tax Act, 1948, which enabled levy of lump sum tax on brick kiln owners on the basis of production capacity, was beyond the State's legislative competence under Article 246 read with Entry 54 of List II of the Seventh Schedule to the Constitution of India.

Analysis: Entry 54 of List II authorises State legislation only in respect of taxes on the sale or purchase of goods. The impugned provision, read with the notification issued under it, shifted the tax incidence from actual sale to the capacity of the brick kiln and thereby detached the levy from any sale or purchase transaction. Since the levy was not founded on the taxable event contemplated by Entry 54, it could not be sustained as a sales tax measure. The provision was therefore outside the competence of the State Legislature.

Conclusion: Section 5(4) was held to be ultra vires Article 246 read with Entry 54 of List II of the Seventh Schedule, and the demand raised under it was set aside.

Final Conclusion: The challenge succeeded, the impugned levy could not be enforced against the petitioners, and the proceedings were finally allowed.

Ratio Decidendi: A State sales tax levy must retain a real nexus with the sale or purchase of goods; a charge based on production capacity, unrelated to the taxable event of sale, is beyond legislative competence under Entry 54.

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