Purchase tax cannot mask a consignment tax when liability arises only on despatch of manufactured goods outside the State.

A levy described as purchase tax was invalid where its real incidence arose only on despatch or consignment of manufactured goods outside the State. The Court held that, in pith and substance, such a charge was a consignment tax falling within Parliament's exclusive field, so the State could not sustain it through retrospective validation or curative provisions. Applying that principle, section 9(1)(b) of the Haryana General Sales Tax Act and section 13AA of the Bombay Sales Tax Act were invalid to the extent they taxed dispatch of manufactured goods outside the State. The related penalty consequences also fell with the charging provisions.

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Issues: (i) Whether section 9(1)(b) of the Haryana General Sales Tax Act, 1973 and the allied validation provision could validly impose purchase tax where the liability arose only upon despatch of manufactured goods outside the State otherwise than by sale; (ii) whether section 13AA of the Bombay Sales Tax Act, 1959 was within the legislative competence of the State and was valid under Articles 14 and 301 of the Constitution.

Issue (i): Whether section 9(1)(b) of the Haryana General Sales Tax Act, 1973 and the allied validation provision could validly impose purchase tax where the liability arose only upon despatch of manufactured goods outside the State otherwise than by sale.

Analysis: The charging provision, though framed as a purchase tax, made liability arise only when goods purchased in the State were used in manufacture and the manufactured goods were then despatched outside Haryana otherwise than by sale. The Court held that the real incidence was on despatch or consignment of manufactured goods, not on the purchase itself. In pith and substance, the levy was a tax on consignment in the course of inter-State trade or commerce, a field occupied by Parliament after the Forty-sixth Amendment and entry 92B of List I. The retrospective validation of the notification and the curative provision could not sustain a levy that was beyond State competence.

Conclusion: Section 9(1)(b) and the connected validating provision were not constitutionally valid to the extent they imposed tax on despatch or consignment outside the State, and the challenge succeeded.

Issue (ii): Whether section 13AA of the Bombay Sales Tax Act, 1959 was within the legislative competence of the State and was valid under Articles 14 and 301 of the Constitution.

Analysis: The additional tax under section 13AA was triggered only when raw materials purchased in the State were used in the manufacture of taxable goods and those manufactured goods were despatched to branches outside Maharashtra. The Court held that the effective taxable event was the consignment of the manufactured goods, not the original purchase of raw material, and that the levy was therefore in substance a consignment tax. Such a levy fell within the exclusive parliamentary field after the constitutional amendment. As the levy failed on competence, the objections under Articles 14 and 301 did not survive for separate consideration.

Conclusion: Section 13AA was invalid to the extent it imposed a tax on despatch or consignment outside the State, and the challenge succeeded.

Final Conclusion: The State enactments were upheld only to the extent that they genuinely operated as purchase-tax provisions, but were struck down where they sought to tax despatch or consignment of manufactured goods outside the State, and the connected penalty consequences also fell with the charging provisions.

Ratio Decidendi: A levy described as a purchase tax will be invalid if, in pith and substance, its incidence arises only on the despatch or consignment of manufactured goods outside the State, because the taxable event determines legislative competence and a State cannot transgress into the exclusive parliamentary field of consignment tax.

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