Purchase tax on exempt goods remains valid where statutory conditions are met and seller exemption does not remove taxability.

Goods exempt from sales tax remain goods liable to tax as a class for the purposes of purchase tax under the Kerala and Tamil Nadu enactments. The exemption of the seller does not remove the underlying taxability of the goods, and purchase tax may be levied on the purchaser when the statutory conditions are met, including use in manufacture, disposal otherwise than by sale in the State, or despatch outside the State otherwise than in inter-State trade or commerce. The provisions were also treated as constitutionally valid purchase tax levies, not taxes on manufacture, consignment, or inter-State movement, and within State legislative competence.

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Issues: (i) Whether goods purchased from sellers who were exempted from sales tax under the Kerala or Tamil Nadu enactments were goods "liable to tax" for the purpose of purchase tax under Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act; (ii) Whether a purchaser who bought such exempt goods was liable to purchase tax under those provisions; (iii) Whether the impugned purchase tax provisions were constitutionally invalid as a manufacture tax, consignment tax, or inter-State levy beyond State legislative competence.

Issue (i): Whether goods purchased from sellers who were exempted from sales tax under the Kerala or Tamil Nadu enactments were goods "liable to tax" for the purpose of purchase tax under Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act.

Analysis: The expression "goods, the sale or purchase of which is liable to tax under the Act" was held to refer to taxable goods as a class, and not to the actual payment of tax by the seller in a particular transaction. A statutory exemption from payment of sales tax does not alter the inherent taxability of the goods. The distinction between liability to tax and payability of tax was treated as central to the scheme of the provisions.

Conclusion: Yes. Such goods remained goods liable to tax for the purpose of Section 5A of the Kerala Act and Section 7A of the Tamil Nadu Act.

Issue (ii): Whether a purchaser who bought such exempt goods was liable to purchase tax under those provisions.

Analysis: Section 5A and Section 7A were treated as independent charging provisions enacted to prevent leakage of revenue where no sales tax was collected from the seller. Purchase tax became payable when the statutory conditions were met, namely that the purchaser used the goods in manufacture, disposed of them otherwise than by sale in the State, or despatched them outside the State otherwise than in inter-State trade or commerce. The fact that the seller's transaction had attracted exemption, or would have been taxable at the first point of sale absent exemption, was held to be immaterial.

Conclusion: Yes. The purchaser was liable to purchase tax when the statutory conditions were satisfied.

Issue (iii): Whether the impugned purchase tax provisions were constitutionally invalid as a manufacture tax, consignment tax, or inter-State levy beyond State legislative competence.

Analysis: The levy was characterised as a tax on purchase and not on manufacture, consignment, or inter-State movement. The timing of collection or the subsequent use or despatch of the goods did not change the nature of the levy. The Court relied on the settled distinction between levy, assessment, and collection, and on the legislative power of the State to tax sales or purchases of goods within its domain. The challenge based on constitutional invalidity was rejected in light of the earlier decisions upholding analogous provisions.

Conclusion: No. The provisions were constitutionally valid and within State legislative competence.

Final Conclusion: The appeals failed. Purchase tax under the Kerala and Tamil Nadu enactments was held payable where sales tax had not been collected from the seller because of exemption, and the challenged provisions were upheld.

Ratio Decidendi: Exemption from payment of sales tax does not extinguish the underlying taxability of goods, and a purchase tax provision may validly fasten liability on the purchaser when the seller's sale is exempt and the statutory conditions for purchase tax are met.

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