Case: Hindustan Lever Limited And Another V State Of Maharashtra And Another Vs.

The appellant/petitioner, Goodyear India Ltd., was engaged at all relevant times, inter alia, in the manufacture and sale of automobile tyres and tubes. It manufactured the said tyres and tubes at its factory at Ballabhgarh in the district of Faridabad in the State of Haryana. For the said manufacturing activity, the appellant had, from time to time, to purchase various kinds of raw materials both within the State and outside the State. It is stated that about 7 to 10 per cent. of the total needs of raw materials on an all India basis were locally procured by the appellant from Haryana itself. The raw materials purchased in Haryana were : (i) pigments (partly), (ii) chemicals (partly), (iii) wires (partly), (iv) carbon black (partly), (v) rubber (partly) and (vi) fabric (partly). The rest of the requirements were imported from other States. The appellant had its depots at different places in the State of Haryana as well as in other States. After manufacturing the said tyres and tubes, about 10 to 12 per cent. of the total manufactured products used to be sold in the State of Haryana either locally or in the course ofe trade and commerce or in the course of export outside the country and also sold locally against declaration form No. S.T. 15. It was stated that, at the relevant time, the local sales including sales in the course ofe trade and commerce and in the course of export from the State of Haryana was about 30 to 35 per cent. The appellant was a registered dealer both under the Haryana Act and the Central Sales Tax Act, and had been submitting its quarterly returns and paying sales tax in accordance with law. According to the appellant, in 1979, the assessing authority, Faridabad, imposed upon the appellant the purchase tax under section 9 of the Act for the assessment year, and subsequently for the years5 and, as well on the despatches made by the appellant of the manufactured goods to its various depots outside the State. Subsequently, the relevant Revenue authorities sought to impose purchase tax under section 9(l) of the Act and imposed purchase tax on despatches of manufactured goods, namely, tyres and tubes, to its various depots in other States. "his led to the filing various writ petitions in the Punjab and Haryana High Court by the appellant/petitioner. In respect of the assessment years7 to, these questions were considered by the Punjab and Haryana High Court, and the writ petitions were decided in favour of the appellant on December 4, 1982, the said decision being the decision in Goodyear India Ltd. v. State of Haryana [1983] 53 STC 163. The Division Bench of the High Court, in the said decision, held that, both on principle and precedent, a mere despatch of goods out of the State by a dealer to his own branch while retaining both title and possession thereof, does not come within the ambit of the phrase "disposes of the manufactured goods in any manner otherwise than by way of sale", as employed in section 9(1)(a)(ii) of the Act. The High Court further held that the decision of this court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 , was no warrant for the proposition that a mere despatch of goods was within the ambit of disposing of them. The High Court also distinguished the decision of this court in Ganesh Prasad Dixit v. Commissioner of Sales Tax [1969] 24 STC 343 , and held that Notification No. S.O. 119/H.A. 20/73/Ss. 9 and 15/74 dated July 19, 1974, issued under section 9 (prior to its amendment by Act No. 11 of 1979) was ultra vires section 9 of the Act. It was held that whereas the section provided only for the levy of purchase tax on the disposal of manufactured goods, the impugned notification, by making mere despatch of goods to the dealers themselves taxable, in essence, legislates and imposes a substantive tax which it obviously could not. It was held that this was contrary to and in conflict with the provisions of section 9. The High Court referred to the relevant portion of the unamended section 9 of the Act with which it was confronted and the notification. In order to appreciate the said decision and the position, it will be appropriate to set out the said provisions, namely, the unamended provisions of section 9 as well as the notification "9. Where a dealer liable to pay tax under this Act purchases goods other than those specified in Schedule B from any source in the State and(a) uses them in the State in the manufacture of,(i) goods specified in Schedule B or (ii) any other goods and disposes of the manufactured goods in any manner otherwise than by way of sale whether within the State or in the course ofe trade or commerce or within the meaning ofn (1) of section 5 of the Central Sales Tax Act, 1956, in the course of export out of the territory of India, (b) exports them, in circumstances in which no tax is payable under any other provision of this Act, there shall be levied, subject to the provisions of section 17, a tax on the purchase of such goods at such rate as may be notified under section 15."The relevant notification was as follows: Notification No. S. O. 119/H.A. 20/73/Ss. 9 and 15/74 dated the 19th July,n exercise of the powers conferred by section 9 andn (1) of section 15 of the Haryana General Sales Tax Act, 1973, the Governor of Haryana hereby directs that the rate of tax payable by all dealers in respect of the purchases of goods other than goods specified in Schedules C and D or goods liable to tax at the first stage notified as such under section 18 of the said Act, if used by them for purposes other than those for which such goods were sold to them, shall be the rate of tax leviable on the sale of such goods : Provided that where any such dealer, instead of using such goods for the purpose for which they were sold to him, despatches such goods or goods manufactured therefrom at any time for consumption or sale outside the State of Haryana to his branch or commission agent or any other person on his behalf in any other State and such branch, commission agent or other person is a registered dealer in that State and produces a certificate from the assessing authority of that State or produces his own affidavit and the affidavit of the consignee of such goods duly attested by a Magistrate or Oath Commissioner or Notary Public in the form appended to this notification to the effect that the goods in question have been so despatched and received and entered in the account books of the consignee, the rate of tax on such goods shall be three paise in a rupee on the purchase value of the goods so despatched." The High Court, as stated before, referred to section 9 and held that the expression "disposes of" was not basically a term of legal art and, therefore, it was proper and necessary to turn first to its ordinary meaning in order to determine whether a mere despatch of goods by a dealer to himself would connote "disposal of" such goods by him. The High Court referred to the dictionary meaning of "disposes of" in Websters Third New International Dictionary. Reference was also made to 27 Corpus Juri Secundum, page 345, and, ultimately, it came to the conclusion that the phrase "disposes of" or "disposal" cannot be possibly equated with the mere despatch of goods by a dealer to himself. After referring to the relevant provisions with which this court was concerned in Kandaswamis case [1975] 36 STC 191 , the High Court held that that case was no warrant for construing the expression "despatch" as synonymous to "disposal". On the other hand, the court held that the decision of this court emphasises that the expression "disposal" of goods is separate and distinct from despatch thereof. According to the High Court, the same position was applicable to Ganesh Prasad Dixits case [1969] 24 STC 343 (SC) and, in those circumstances, held that the term "disposes of" cannot be synonymous with "despatch", and once that is held, then the notification mentioned above travelled far beyond what is provided in section 9 of the Act while the said provision provided only for levy of purchase tax on disposal of manufactured goods. The High Court observed as follows (at p. 169 of 53 STC): "Once it is held as above, the impugned Notification No. S. O. 119/H. A. 20/73/Ss. 9 and 15/74 dated 19th July, 1974 (annexure, plainly travels far beyond the parent section 9 of the Act. Whereas the said provision provided only for the levy of a purchase tax on the disposal of manufactured goods, the notification by making a mere despatch of goods to the dealers themselves taxable in essence, legislates and imposes a substantive tax which it obviously cannot. Indeed, its terms run contrary to and are in direct conflict with the provisions of section 9 itself. There is thus no option but to hold that the notification, which is a composite one, is ultra vires section 9 of the Act and is hereby struck down."The High Court also noted that though the challenged assessment orders were appealable, as the challenge was to the very validity of the notification which was obviously beyond the scope of the appellate authority, the writ petitions were entertainable as the assessment was based on the notification which was frontally challenged. As a result, the High Court quashed the notification and set aside the assessment orders. The said decision is under challenge in appeal to this courtIt may be mentioned thatn (1) of section 9 of the Act had been introduced by the Haryana Act, 55 of 1976 in the Act. After the aforesaid decision of the High Court, the Haryana Legislature intervened and enacted the Haryana General Sales Tax (Amendment and Validation) Act, 1983, by which section 9 of the principal Act was amended as follows : Amendment of section 9 of Haryana Act 20 ofn section 9 of the principal Act,(a) inn (1),(i) for clause (b), the following clause shall be substituted and shall be deemed to have been substituted for the period commencing from the 27th day of May, 1971, and ending with the 8th day of April 1979, namely:(b) purchases goods, other than those specified in Schedule B, from any source in the State and uses them in the State in the manufacture of any other goods and either disposes of the manufactured goods in any manner otherwise than by way of sale in the State or despatches the manufactured goods to a place outside the State in any manner otherwise than by way of sale in the course ofe trade or commerce or in the course of export outside the territory of India within the meaning ofn (1) of section 5 of the Central Sales Tax Act, 1956 ; or ; (ii) after clause (b), the following clause shall be inserted and shall be deemed to have been inserted with effect from the 9th day of April, 1979, namely:(bb) purchases goods, other than those specified in Schedule B except milk, from any source in the State and uses them in the State in the manufacture of any other goods and either disposes of the manufactured goods in any manner otherwise than by way of sale in the State or despatches the manufactured goods to a place outside the State in any manner otherwise than by way of sale in the course ofe trade or commerce or in the course of export outside the territory of India within the meaning ofn (1) of section 5 of the Central Sales Tax Act, 1956 ; or(iii) the following proviso shall be added, namely:"Provided that no tax shall be leviable under this section on scientific goods and guar gum, manufactured in the State and sold by him in the course of export outside the territory of India within the meaning ofn (3) of section 5 of the Central Sales Tax Act, 1956. ; and (b) inn (3), the words other than railway premises shall be omitted."After the aforesaid amendment, writ petitions were filed in the High Court by Bata India Ltd. In the meantime, they also filed writ petitions for the assessment years4 to6 and, in the High Court challenging the assessments. The High Court decided these matters on August 2, 1983. The said decision, Bata India Ltd. v. State of Haryana, has been reported in [1983] 54 STC 226 (P & H). The High Court held that "mere despatch of goods to a place outside the State in any manner otherwise than by way of sale in the course ofe trade or commerce" is synonymous with or is in any case included within the ambit of the "consignment of goods either to the person making it or to any other person in the course ofe trade or commerce" as specified in article 269(1)(h) and entry No.92B of List Iof the Seventh Schedule to the Constitution. Hence, the levy of sales or purchase tax on such a despatch or consignment of goods and matters ancillary or subsidiary thereto, will be within the exclusive legislative competence of Parliament to the total exclusion of the State Legislatures. Therefore, section 9(1)(b) of the Haryana General Sales Tax Act, 1973, as amended by the Haryana General Sales Tax (Amendment and Validation) Act, 1983, in so far as it levies a purchase tax on the consignment of goods outside the State in the course ofe trade or commerce is beyond the legislative competence of the State of Haryana and is void and inoperative. It was held that the retrospective validation of the Notification dated July 19, 1974, referred to hereinbefore, and the consequential validation of all actions taken thereunder were liable to be quashed. The High Court further held that mere manufacture and consignment of goods outside the State to himself by a manufacturer is riot sale or disposal thereof with the result that it will not be within the ambit of entry No. 54 of List 11 of the Seventh Schedule to the Constitution. Consequently, it was held that, irrespective of theh Amendment, an attempt to tax the mere consignment or despatch of manufactured goods outside the State in the course ofe trade or commerce will not come within the ambit of entry No. 54 of List II of the Seventh Schedule and consequently of the competence of the respective State Legislatures. Even before theh Amendment, the mere consignment of goods in the course ofe trade or commerce was beyond the scope of the said entry and thus not within the legislative competence of the States and was entirely within the parliamentary field of legislation by virtue of article 248 and the residuary entry No. 97 of list IThe High Court was of the view that neither the original purchase of goods nor the manufacture thereof into thet by itself attracts purchase tax and consequently are not even remotely the taxable events. What directly and pristinely attracts the tax and can be truly labelled as the taxing event under section 9(1)(b) of the Act is thed exigency of : (i) disposal of the manufactured goods in any manner otherwise than by way of sale in the State ; or (ii) despatch of the manufactured goods to a place outside the State in any manner otherwise than by way of sale in the course ofe trade or commerce ; or (iii) disposal or despatch of the manufactured goods in the course of export outside the territory of India. It was these three exigencies only which were the taxable events in the amended section 9(l)(b) of the Act. Consequently, in a statute where the taxable event is the despatch or consignment of goods outside the State, the same would come squarely within the wide sweep of entry No. 92B of list I of the Constitution, and thus excludes taxation by the States

Court's reasoning:
Depending upon the answer to the question, the validity of the section can be judged. Mr. Dholakia submitted that the Act is, in pith and substance, an Act levying tax on purchase and not one levying tax on consignment, and referred to the observations of this court in State of Karnataka v. Ranganatha Reddy [1978] 1 SCR 641. According to him, the consignment contemplated in section 13AA is only of manufactured goods and no tax is levied under section 13AA in respect of such manufactured goods. He emphasised as aforesaid. It isd that, while determining the nature of a tax, though the standard or the measure on which the tax is levied may be a relevant consideration, it is not the conclusive consideration. One must have regard to such other matters as decided by the Privy Council inl in Council v. Province of Madras [1945] 1 STC 135, not by the name of tax but to its real nature, its pith and substance which must determine into what category it falls. See the observations in R. R. Engineering Co. v. Zila Parishad, Bareilly [1980] 3 SCR 1 , In re : A reference under the Govt. of Ireland Act, 1920 [1936] AC 352 (PC) at 358, and Navnit Lal C. Jhaveri v. K. K. Sen, AA C of I.T. [1965] 56 ITR 198 (SC) [1965] 1 SCR 909  at 915On an analysis, we find that the goods which are despatched are different products from the goods on the purchase of which purchase tax was paid. The Maharashtra legislation has to be viewed in the context of theh Amendment to the Constitution. Theh Amendment introduced article 269(1)(h) which lays down that the proceeds of the tax on consignment of goods (whether the consignment is to the person making it or to any other person) where such consignment takes place in the course ofe trade or commerce, will be assigned to the States. The said amendment also introduced entry No. 92B in List I of the Seventh Schedule. The said amendment was made on the consideration of the 61st Report of the Law Commission. Entry 92B in List I of the Seventh Schedule and article 269(1)(h) of the Constitution bring within its sweep the consignment of goods by a person either to himself or to any other person in the course ofe trade or commerce. Article 269(3) gives power to Parliament to formulate the principles for determining when a consignment of goods takes place in the course ofe trade or commerce. If entry92B of List Iis to be given the widest interpretation, as it should be, it would be clear that as a result of the constitutional changes introduced by theh a amendment in article 269 read with the entry, the tax on consignment of goods now comes within the exclusive legislative field of Parliament The true test to find out what is the pith and substance of the legislation is to ascertain the true intent of the Act which will determine the validity of the Act. If Parliament, in exercise of its plenary power under entry92B of ListI,imposes any tax on the despatch or consignment of goods, Parliament will be competent to do so. It is, therefore, not possible to accept the argument that the chargeable event was lying dormant and is activated only on the occurrence of the event of despatch. The argument on the construction of the enactment is misconceived. The charging event is the event the occurrence of which immediately attracts the charge. The taxable event cannot be postponed to the occurrence of the subsequent condition.In that event it would be the subsequent condition the occurrence of which would attract the charge which will be the taxable event. If that is so, then it is a duty on despatch. In that view of the matter, this charge cannot be sustainedAs mentioned hereinbefore, the section has been challenged as being violative of article 14 of the Constitution. This attack is based on the discrimination between the two types of taxes but, in the way we have construed the section, in our opinion, this question does not survive. It was further submitted by Dr. Pal that section 13AA of the Act is violative of article 301 of the Constitution. It makes a discrimination between the dealer/manufacturer who despatches the goods outside the State and other dealers/manufacturers. Both the dealers/manufacturers purchase the goods on payment of purchase tax and use them in the manufacture of taxable goods. The incidence of additional tax on the purchase of goods is attracted only when such manufactured goods are despatched outside the State. If a dealer/manufacturer has to despatch the goods outside the State, he has to pay a higher rate of tax and thus lie is discriminated against as compared to the other dealer/manufacturer who purchases the raw material on payment of 4 per cent. purchase tax, but despatches the raw material straightaway outside the State and uses them in the manufacture of goods outside the State. The High Court held that there was no violation of article 301 of the Constitution. Reference was made to the decision of this Court in Atiabari Tea Co. Ltd. v. State of Assam[1961] 1 SCR 809 , Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491 , Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 ; [1968] 1 SCR 705 , State of Madras v. Nataraja Mudaliar (N. K. ) [1968] 22 STC 376 ; [1968] 3 SCR 829 and State of Kerala v. A. B. Abdul Kadir [1970] 1 SCR 700 One has to determine : does the impugned provision amount to restriction directly and immediately on the trade or commerce movement ? As was observed by this court in Kalyani Stores V. State of Orissa [1966] 1 SCR 865 , imposition of a duty or tax in every case was not tantamount perse to any infringement of article 301 of the Constitution. Only such restrictions or impediments which directly or immediately impede free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. A tax in certain cases may directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and its own setting of time and circumstances. Unless the court first comes to the finding or, the available material whether or not there is an infringement of the guarantee under article 301, the further question as to whether the statute is saved under article 304(b) does not arise. The goods taxed do not leave the State in the shape of raw material, which change their form in the State itself and there is no question of any direct, immediate or substantial hindrance to a freeflow of trade. On the evidence adduced, we are in agreement with the High Court that the challenge to the imposition in the background of article 301 cannot be sustained and, therefore, no question whether such imposition is saved under article 304(b) of the Constitution arisesIn the aforesaid view of the matter and for the reasons mentioned hereinbefore, it must be held that so far as the appeals in respect of the Haryana Act are concerned, the High Court was right in the view it took in Goodyear India Ltd.s case [1983] 53 STC 163 (P & H), as well as the views expressed by the High Court in Bata India Ltd. v. State of Haryana [1983] 54 STC 226 (P & H), are correct and are affirmed. The views of the High Court expressed in Des Raj Pushap Kumar Gulatis case [1985] 58 STC 393 (P & H) [FB] are incorrect for the reasons mentioned herein before. The last mentioned judgment and the judgments and orders following that passed by the Punjab and Haryana High Court are, therefore, set aside. In the premises, Civil Appeals Nos. 1166 to 1172 of 1985 (Goodyear India Ltd. v. State of Haryana), Civil Appeals Nos. 1173 to 1177 of 1985 (Gedore (India) P. Ltd. v. State of Haryana), Civil Appeal No. 2674 of 1985 (Kelvinator of India Ltd. v. State of Haryana), Civil Appeal No. 1633 of 1985 (Food Corporation of India v. State of Haryana) and Civil Appeal No. 3033 of 1986 (Food Corporation of India v. State of Haryana) are allowed and the judgment and order of the High Court are set aside