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K.B Handicrafts Emporium And Others v. State Of Haryana And Others
Factual and Procedural Background
The petitioners are handicraft manufacturers registered as sales-tax dealers in the State of Haryana. They purchased raw material within Haryana against Declaration Form ST-15, thereby avoiding purchase tax on a statutory undertaking that the finished goods would be sold (i) within the State, (ii) in the course of inter-State trade, or (iii) as export sales under Section 5(1) of the Central Sales Tax Act, 1956. After manufacture, the petitioners sold the handicrafts to Delhi dealers who issued Form H, indicating that the goods were meant for export. Neither the Haryana sellers nor the Delhi purchasers paid tax on these transactions.
Relying on the Punjab & Haryana High Court judgment in Murli Manohar & Co. (C.W.P. No. 1227 of 1980), Haryana tax authorities levied purchase tax on the raw material under Section 9 of the Haryana General Sales Tax Act, 1973. Instead of pursuing statutory appeals, the petitioners invoked Article 32 of the Constitution and filed writ petitions directly before the Supreme Court, arguing that the High Court’s view had since been reversed by this Court in Murli Manohar (1991) 1 SCC 377.
Legal Issues Presented
- Whether, in light of the Supreme Court’s judgments in Murli Manohar (1991) 1 SCC 377, Goodyear India Ltd. (1990) 2 SCC 71, and Hotel Balaji 1993 Supp (4) SCC 536, the State of Haryana can levy purchase tax under Section 9 on raw material purchased against Form ST-15 when the manufactured goods are sold to Delhi dealers who subsequently export them (a “penultimate sale” under Section 5(3) of the Central Sales Tax Act).
- Whether sales effected after removal of goods from Haryana, but before export, constitute a fourth tax category distinct from intra-State, inter-State, or direct export sales, thereby attracting purchase tax liability.
Arguments of the Parties
Petitioners’ Arguments
- The decision of the Supreme Court in Murli Manohar (1991) 1 SCC 377 squarely covers the present facts; hence the writ petitions should be allowed without further inquiry.
- All sales in question are inter-State sales and therefore exempt from purchase tax under Section 9.
Respondent-State’s Arguments
- The Solicitor General contested the petitioners’ reliance on Murli Manohar, implying that subsequent developments in the law required a different outcome.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Murli Manohar & Co. v. State of Haryana (Punjab & Haryana High Court, C.W.P. No. 1227 of 1980) | Held purchase tax payable on raw material when finished goods were sold in a penultimate export sale (Section 5(3) CST Act not exempted by Section 9). | Formed the basis of the assessing authority’s levy; later overruled by Supreme Court. |
| Murli Manohar & Co. v. State of Haryana (1991) 1 SCC 377 | Recognised only three categories of sales (intra-State, inter-State, direct export) and held purchase tax not leviable when sale falls in any of these. | Initially treated as governing precedent, but now clarified in light of Hotel Balaji. |
| Goodyear India Ltd. v. State of Haryana (1990) 2 SCC 71 | Declared levy of purchase tax on goods removed outside the State without sale as unconstitutional (treated as consignment tax). | Influenced the reasoning in Murli Manohar; later declared incorrect in Hotel Balaji. |
| Hotel Balaji v. State of A.P. 1993 Supp (4) SCC 536; JT 1992 6 SC 182 | Upheld State competence to levy purchase tax when goods are taken out of the State without sale; rejected Goodyear. | Provided the basis for introducing a “fourth category” of sales liable to purchase tax and necessitated the present clarification. |
Court's Reasoning and Analysis
The Court acknowledged that its earlier decision in Murli Manohar (1991) 1 SCC 377 appeared to cover the petitioners’ case. However, that ruling had relied on Goodyear (1990) 2 SCC 71, which was later overruled in Hotel Balaji 1993 Supp (4) SCC 536. In light of Hotel Balaji, the Court clarified that:
- In addition to intra-State, inter-State, and direct export sales, there exists a “fourth category” where goods are removed from Haryana without sale and are subsequently sold elsewhere (including penultimate export sales under Section 5(3) CST Act). Such transactions fall outside the exemptions contained in the unamended Section 9 of the Haryana Act.
- Section 9 validly authorises purchase tax on raw material used to manufacture goods that enter this fourth category; such a levy is not a prohibited consignment tax.
- The precise characterisation of any individual sale—whether intra-State, inter-State, direct export, or penultimate export—is a question of fact inappropriate for determination in an Article 32 proceeding. That task is reserved for the statutory authorities applying the principles set out in Murli Manohar, Hotel Balaji, and the present judgment.
Holding and Implications
The writ petitions were disposed of with a clarification that purchase-tax liability under Section 9 depends on whether the impugned sales fall into the newly recognised fourth category rather than the three traditional categories. The Court remitted the factual determination of the sales’ character to the competent tax authorities and awarded no costs.
Implications: The judgment harmonises Murli Manohar with Hotel Balaji, confirming State power to levy purchase tax when goods are removed from Haryana without sale and later sold (including penultimate export sales). It does not set new precedent beyond clarifying the interplay of existing Supreme Court authorities but requires dealers to establish, before assessing officers, the exact nature of their sales to claim exemption.
B.P Jeevan Reddy, J.— A common question arises in this batch of writ petitions. We may take the facts in Writ Petition (C) No. 9835 of 1983, filed by M/s K.B Handicrafts Emporium and Others, as representative of the facts in all the cases. The petitioners are firms engaged in the manufacture and sale of handicrafts items. They are registered Sales Tax Dealers in the State of Haryana. They purchased raw material within the State against Declaration Form ST-15 prescribed under Rule 21 of the Haryana General Sales Tax Rules read with Section 24 of the Act. By issuing Form ST-15, the petitioners undertook that the goods manufactured by them out of the said raw material would be sold by them either within the State or in the course of inter-State trade and commerce or in the course of export within the meaning of Section 5(1) of the Central Sales Tax Act. A dealer issuing the said Form need not pay the purchase tax on such raw material. After manufacturing the items of handicrafts, the petitioners say, they sold them to dealers in Delhi who, in turn, exported them out of India. At the time of sale of handicrafts to Delhi dealers, the Delhi dealers issued Form H, prescribed under the Central Sales Tax Rules which means that the goods purchased were meant for export. Neither party paid tax on the said sale/purchase.
2. For the assessment years in question, the Sales Tax authorities of Haryana levied purchase tax on the purchase of raw material made by the petitioner, following the decision of the Punjab and Haryana High Court in Murli Manohar and Co., Panipat v. State of Haryana Civil Writ Petition No. 1227 of 1980 under Section 9 of the Haryana General Sales Tax Act, 1973. However, the assessing authority computed the tax with reference to the purchase value of the goods exported against Form H. The petitioners did not choose to file an appeal but directly approached the Supreme Court by way of this writ petition on the ground that in view of the decision of the Punjab and Haryana High Court in Murli Manohar Civil Writ Petition No. 1227 of 1980 there was no point in their pursuing the remedies under the Act in that State.
3. Appeals were preferred in this Court against the decision of the Punjab and Haryana High Court in Murli Manohar Civil Writ Petition No. 1227 of 1980 which have been disposed of by this Court on October 25, 1990 (1991) 1 SCC 377. This Court allowed the appeal and set aside the judgment of the High Court.
4. When these writ petitions came up for hearing, it was urged by the learned counsel for the petitioners that in view of the decision of this Court in Murli Manohar (1991) 1 SCC 377 the writ petitions must be allowed straight away. This was demurred to by the learned Solicitor General appearing for the respondent-State.
5. We are of the opinion that the decision of this Court in Murli Manohar (1991) 1 SCC 377 does cover the point raised in these appeals but it is necessary to add a clarification. Before we do that, it is necessary to state a little background. Earlier to the rendering of the decision in Murli Manohar (1991) 1 SCC 377 a Bench of this Court comprising Sabyasachi Mukharji and Ranganathan, JJ. held in Goodyear India Ltd. v. State of Haryana (1990) 2 SCC 71 that where the goods manufactured are taken out of Haryana (without effecting a sale) to the branch office or depot of the manufacturer or to the office or depot of his agent, no purchase tax can be levied under Section 9 of the Act on the raw material purchased within the State and used in the manufacture of such goods. It was held that imposing such tax would amount to levying tax on consignment, which the State Legislature was not competent to do. Section 9, as it then stood, stated expressly that no such purchase tax on raw material was leviable, if the goods manufactured out of such raw material were sold either within the State or were sold in the course of inter-State trade and commerce or were sold in the course of export within the meaning of Section 5(1) of the Central Sales Tax Act. Murli Manohar (1991) 1 SCC 377 was decided in the light of the law declared in Goodyear (1990) 2 SCC 71. Later, however, a Bench of three Judges comprising S. Ranganathan, V. Ramaswami, JJ. and one of us B.P Jeevan Reddy, J. held that Goodyear (1990) 2 SCC 71 does not lay down the correct law — vide Hotel Balaji v. State of A.P 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 It was held in Hotel Balaji 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 that having regard to the scheme of and the objective underlying Section 9 it was competent for the State Legislature to levy purchase tax on raw material purchased within the State where the goods manufactured out of such raw material are taken out of the State [without effecting a sale within the State or otherwise than by way of an inter-State sale or by way of an export sale within the meaning of Section 5(1) of the Central Sales Tax Act]. It was held that such a tax does not amount to consignment tax. It is this decision in Balaji 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 that calls for a certain clarification of the principles enunciated in Murli Manohar (1991) 1 SCC 377.
6. The facts in Murli Manohar (1991) 1 SCC 377 were substantially similar to the facts herein. The dealers within the State of Haryana purchased raw material without paying tax, manufactured goods out of the same and sold the manufactured goods to dealers who in turn exported those goods out of India. On these facts it was held by the Punjab and Haryana High Court that inasmuch as the sale to exporters was a penultimate sale falling under Section 5(3) of the Central Sales Tax Act and further inasmuch as Section 9 of the State Act exempted only export sales within the meaning of Section 5(1) of the Central Sales Tax Act but not the penultimate sale falling under Section 5(3), tax under Section 9 was leviable. On appeal, this Court affirmed that Section 9 of the Haryana Act (before it was amended by Haryana Act 1 of 1988) did not exempt a sale falling under Section 5(3) but exempted only a sale falling under Section 5(1). Even so, the appeal was allowed on the following reasoning: “the sales made by the assessees can only fall within one of the three categories. They are either local sales or inter-State sales or export sales…. We are unable to conceive of a fourth category of sale which could be neither a local sale nor an inter-State sale nor an export sale”. In other words, the decision says that there can be only three types of sales, namely, intra-State sales, inter-State sales and export sales and no other. A sale to an exporter would be either an intra-State sale or an inter-State sale; in either case, it does not attract the purchase tax (on raw material) under Section 9 of the Haryana Act, says the decision. It is on this reasoning that the appeals were allowed in spite of the clear enunciation that the sales falling under Section 5(3) of the Central Tax Act were not exempt under Section 9 of the Haryana Act, as it then stood.
7. The above holding is evidently influenced by the decision in Goodyear (1990) 2 SCC 71 which was good law at the time Murli Manohar (1991) 1 SCC 377 was decided. However, in the light of the decision of Hotel Balaji 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 it must be held that there is one more category in addition to the three categories mentioned above. The fourth category is where a dealer in Haryana takes his goods out of Haryana without effecting a sale. An illustration would serve to highlight what we say: a Haryana manufacturer takes his goods to Delhi without effecting a sale. In Delhi, if he finds it more profitable, he will sell it to a dealer in Delhi. Or if he finds it more profitable to sell it to an exporter in Delhi he will sell the same to such exporter. These two sales are neither intra-State sales nor inter-State sales, nor export sales within the meaning of Section 5(1) of the Central Sales Tax Act. In one case, it is a sale in Delhi and in the other, it is a penultimate sale within the meaning of Section 5(3) of the Central Sales Tax Act. According to Section 9 of the Haryana Act, as explained in Hotel Balaji 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 and Murli Manohar (1991) 1 SCC 377 purchase tax can be levied and collected on the raw material purchased by the manufacturer within Haryana, which was utilised for manufacturing the goods so sold in these two situations.
8. We must make it clear that in a petition under Article 32 of the Constitution, it is not our province to go into facts. As repeatedly emphasised by this Court, the question whether a particular sale is an intra-State sale, an inter-State sale, an export sale within the meaning of Section 5(1) or a penultimate sale within the meaning of Section 5(3), or otherwise, is always a question of fact to be decided by the appropriate authority in the light of the principles enunciated by courts. In these circumstances, we content ourselves by declaring the law and leave it to be applied by the appropriate authorities. Counsel for the petitioners says that all the sales effected by all the petitioners are inter-State sales. Maybe, or may be not. We leave the matters to be disposed of by the authorities under the Act in the light of the law declared by this Court in Murli Manohar (1991) 1 SCC 377, Hotel Balaji 1993 Supp (4) SCC 536, JT (1992) 6 SC 182 and in this judgment.
9. The writ petitions are disposed of with the aforementioned clarification and observations. No costs.
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