Purchase tax on capital machinery used in manufacture requires a direct business nexus; mere production use is not enough.

Purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was held not to apply to machinery bought as a capital asset for use in manufacturing goods. The purchase was not treated as a business purchase by a dealer because the machinery was neither bought for resale nor with an independent profit-making nexus in the purchase transaction itself. The fact that the machinery was used in production for sale did not, by itself, make the acquisition taxable. The earlier Tribunal view was also found inapplicable to the period before the 1 July 1965 amendment, so the machinery purchase remained outside purchase tax.

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Issues: (i) Whether purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was attracted on purchase of machinery used in the manufacture of goods. (ii) Whether the earlier view requiring reconsideration was correct.

Issue (i): Whether purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was attracted on purchase of machinery used in the manufacture of goods.

Analysis: The provision applies to purchases by a dealer liable under section 3, and the question was whether the assessee was a dealer in respect of the machinery purchase. The machinery was a capital asset purchased for use in manufacture and was neither resold nor purchased with an independent profit motive in the sense required for treating the transaction itself as business. The governing principles required a nexus between the purchase activity and a profit-making business transaction, and the use of machinery in manufacturing goods for sale did not by itself convert the purchase into a taxable business purchase. The earlier authorities on business, fixed assets, and purchase tax were read as supporting the view that capital machinery used in production does not automatically attract purchase tax merely because it is indispensable to the business.

Conclusion: Purchase tax under section 13 was not attracted on the purchase of the machinery, and the assessee was not liable in respect of that transaction.

Issue (ii): Whether the earlier view requiring reconsideration was correct.

Analysis: The question referred to the Larger Bench was reframed and answered on the basis of section 13 as it stood before the amendment with effect from 1 July 1965. The Bench held that the earlier Tribunal decision under the amended provision did not govern the present period and that the authorities relied upon did not justify departure from the view that the purchase in question was not taxable.

Conclusion: The earlier decision did not require reconsideration for the present period.

Final Conclusion: The assessee succeeded on the principal issue, and the matter was sent back for disposal of the appeal in accordance with the finding that purchase tax was not leviable on the machinery purchase.

Ratio Decidendi: For purchase tax to arise on machinery used in manufacture, the purchase must itself be a business transaction of the dealer with the requisite profit-making nexus; a capital asset purchased for use in production, without resale and without an independent profit motive in the purchase activity, is not liable to purchase tax under section 13.

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