Strict statutory exemption conditions and pro tanto state tax restrictions on declared goods were upheld in sales tax analysis.

A statutory deduction for cotton purchases under section 5(2)(a)(ii) was available only where a registered dealer purchased goods for manufacture in Punjab of goods for sale; the statutory scheme had to be read with the registration rules and declaration form, and the old registration certificate was treated as impliedly modified, but the condition of manufacture for sale in Punjab was not met because the goods were sent out for further manufacture, so the deduction was not allowable. Article 286(3) and section 15 of the Central Sales Tax Act restricted the State levy on declared goods pro tanto, but they did not invalidate section 5(1) of the Punjab Act, which remained operative subject to those parliamentary restrictions.

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Issues: (i) Whether the assessee was entitled to deduct the turnover of cotton purchases under section 5(2)(a)(ii) despite the form of registration then held and the fact that the cotton was used for manufacture outside Punjab; (ii) Whether section 5(1) of the Punjab General Sales Tax Act, 1948 failed because its rate of tax was inconsistent with the restrictions under the Central Sales Tax Act, 1956 and Article 286(3) of the Constitution of India.

Issue (i): Whether the assessee was entitled to deduct the turnover of cotton purchases under section 5(2)(a)(ii) despite the form of registration then held and the fact that the cotton was used for manufacture outside Punjab.

Analysis: The deduction under section 5(2)(a)(ii) was available only where the goods were purchased by a registered dealer for use in manufacture in Punjab of goods for sale. The statutory scheme required section 5, section 7, the relevant rule, and the prescribed declaration form to be read together. The omission to amend the old registration certificate did not defeat the Act and the Rules, because the certificate stood impliedly modified by the statutory provisions. On the facts, however, the manufactured goods were ginned cotton bales which were not for sale in Punjab but were sent to Uttar Pradesh for further manufacture. The condition that the manufacture in Punjab must result in goods for sale was not satisfied.

Conclusion: The assessee was not entitled to the exemption and the deduction was rightly disallowed.

Issue (ii): Whether section 5(1) of the Punjab General Sales Tax Act, 1948 failed because its rate of tax was inconsistent with the restrictions under the Central Sales Tax Act, 1956 and Article 286(3) of the Constitution of India.

Analysis: Article 286(3) subjects a State law taxing declared goods to the restrictions and conditions imposed by Parliament. The effect is not to invalidate the State charging provision but to modify its operation to the extent of the parliamentary restrictions. Section 15 of the Central Sales Tax Act, 1956 therefore controlled the State levy pro tanto. The later proviso to section 5(1) was enacted only by way of abundant caution and did not determine the validity of the levy.

Conclusion: Section 5(1) did not fail and remained operative subject to the parliamentary restrictions.

Final Conclusion: The statutory deductions claimed by the assessee were not allowable and the State levy was not invalidated by the central law. The appeal failed.

Ratio Decidendi: A statutory exemption must be strictly satisfied on all its conditions, and a State sales tax charging provision is not void merely because it is subject to parliamentary restrictions on declared goods; it operates pro tanto in conformity with those restrictions.

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