Inter-State trade immunity bars sales tax on tobacco purchases, and statutory declarations cannot create tax liability.

Tobacco purchases moving from Bombay to Madhya Pradesh for bidi manufacture were treated as transactions in the course of inter-State trade or commerce, because the cross-border movement was an integral and necessary part of the dealings; the State could not tax them once the constitutional bar in Article 286(2) applied. Declarations under the sales tax rules also could not sustain purchase-tax liability under section 4(6), because a statutory declaration cannot create liability where the Constitution already immunises the transaction. The State was therefore restrained from enforcing the levy on the purchase price of the goods.

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Issues: (i) Whether the impugned purchases of tobacco, which moved from Bombay into Madhya Pradesh for use in manufacturing bidis, were transactions in the course of inter-State trade or commerce and therefore protected by Article 286(2) of the Constitution. (ii) Whether declarations given under the sales tax rules could sustain purchase-tax liability under section 4(6) of the Act when the underlying transactions themselves were constitutionally immune from tax.

Issue (i): Whether the impugned purchases of tobacco, which moved from Bombay into Madhya Pradesh for use in manufacturing bidis, were transactions in the course of inter-State trade or commerce and therefore protected by Article 286(2) of the Constitution.

Analysis: The movement of the goods from Bombay to Madhya Pradesh was an integral and necessary result of the transactions. The fact that the suppliers were registered dealers did not alter the real nature of the dealings. Liability to tax had to be determined by the substance of the transaction and not by its external form. Since the purchases involved movement of goods across the State border after 31 March 1951, the constitutional ban on State taxation applied.

Conclusion: The transactions were in the course of inter-State trade or commerce and were not taxable by the State of Madhya Pradesh.

Issue (ii): Whether declarations given under the sales tax rules could sustain purchase-tax liability under section 4(6) of the Act when the underlying transactions themselves were constitutionally immune from tax.

Analysis: The declarations could not create a liability where none existed in law. If the original sales or purchases were immune from tax under the Constitution, no consequential liability could arise merely because the declared end-use was not fulfilled. Section 4(6) could not be applied to fasten tax on transactions whose taxability had already been displaced by the constitutional prohibition.

Conclusion: Section 4(6) did not authorise purchase-tax liability on these transactions.

Final Conclusion: The State was restrained from enforcing the sales tax provisions against the petitioners in relation to the impugned transactions, and the levy of tax on the purchase price of the goods was invalid.

Ratio Decidendi: A State cannot levy tax on transactions that are in the course of inter-State trade or commerce after the constitutional prohibition has attached, and a statutory declaration cannot create tax liability where the Constitution itself bars the levy.

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