MUKERIAN PAPERS LTD. versus STATE OF PUNJAB

Citation: [1991] 1 S.C.R. 347 · Decided: 13-02-1991 · Supreme Court of India · Bench: RANGANATH MISRA · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

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MUKERIAN PAPERS LTD. 
V. 
STATE OF PUNJAB 
FEBRUARY 13, 1991 · 
[RANGANATH MISRA CJ M.N. VENKATACHALIAH, 
A.M. AHMADI, JJ.] 
Punjab General Sales Tax Act, 1948: Sections 4B, 10(6) and 
11 D-Raw Material consumed in manufacture of goods sent outside the 
State-Purchase Tax on such raw material-Levy of_:_Wheiher valid 
interest and penalty on such levy-Imposition of. 
The appellant, a registered dealer under the Punjab General 
Sales Tax Act, 1948 despatched some part of the manufactured goods 
outside the state, without paying the tax on the taxable raw material 
consumed in the manufacture of such goods. The assessing authority 
issued a show cause notice for the assessee's failure to pay the said tax. 
Interest was also demanded on the tax amount; The assessee disputed 
its liability to pay penalty and interest on the amount of tax withheld on 
the plea that thete was no wilful default on its part; as it was under a 
bona fide belief that no tax was to be paid on the raw material used in 
the manufactured goods sent outside State. The assessee further stated 
that it had acted on legal advice that it was not liable to pay any Pur-
chase Tax and, therefore, in the absence of a clear intention to avoid the 
payment of tax, there could be no question of imposition of penalty and 
demand for interest. The assessee's submissions did not f'lnd favour 
with the Revenue, as also the Tribunal,· and the assessee sought a refe-
rence to the High Court under section 22(1) of the Act. But the Tribunal 
rejected application for reference. Thereafter the assessee preferred 
appeals to this Court, against the Tribunal's rejection of reference as 
also the Tribunal's order in appeal . 
On behalf of the appellants, it was contended that the main question 
involved in this case is concluded by several decisions of this Court, and 
it was not liable to pay the tax, as demanded by the Revenue. 
On behalf of the Revenue it was contended that the assessee was 
liable to pay the tax on the raw materials used in the manufactured 
goods sent outside the State. 
Allowing the appeals, this Court, 
347 
A' 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
348 
SUPREME COURT REPORTS 
[1991] 1 S.C.R, 
HELD: 1.1 Under Section 4B of the Punjab General Sales Tax 
Act, 1948 the tax becomes exigible not on the purchase of the raw 
material or on the use thereof in the manufacture of a new and distind 
commodity but only after the goods so manufactured are despatched to 
a place outside the State. Once the goods are sent outside the State the 
purchaser is made liable to pay the tax at the rate prescribed on the 
purchase of such goods provided no tax is payable on the purchase 
thereof under any other provision of the Act. it is obvious that the tax 
though described as purchase tax is in effect a tax on consignment since 
it becomes effective on the happening of an event which has nothing to 
do with the actual purchase. Even if the raw material is used in the 
manufacture of any taxable goods, the purchaser does not become liable 
to pay tax on the raw material until the manufactured item is sent out of 
the State. And between the manufacture of the goods out of the 
purchased raw material and their actual despat~ ~utside the State 
there may be a long time gap. The liability of- tax falls only after 
despatch of the manufactured goods outside the State and that event 
may have no relation to the actual purchase or manufacture. That being 
so, the tax though described as a purchase tax is actually a tax on the 
consignment of the manufactured goods, the levy of which is beyond the 
competence of the State Legislature as the power to impose such tax is vested 
in· Parliament by virtue of clause (h) of Article 269(1) of the Constitution 
read with Entry 92B in Schedule 7, List I. [352H; 353A-E; 354B] 
1.2. Even though the language of section 4B of the Act is not 
identical to section 9(1) of the Haryana Sales Tax Act, it is in substance 
similar in certain respects, particularly in respect of the point of time 
when the liability to pay tax arises. Under that provision also the liabi-
lity to pay purchase tax on the raw material purchased in the State 
which was consumed in the manufacture of any other taxable goods 
arose only on the despatch of the goods outside the State. [353D-E] 
Mis. Goodyear India Ltd. v. State of Haryana, AIR 1990 SC 781; 
applied. 
State of Tamil Nadu v. M.K. Kandaswami etc., [1976] 1SCR38;

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