Holding

Section 9(1)(b) of the Haryana Act exempts purchase tax on paddy used for export of rice, and retrospective amendments to Sections 2(p), 6, 15 and 15‑A do not affect that exemption for assessment years ending before April 1991; adjustment under Section 15‑A is permissible, while the Punjab Act does not provide a similar exemption.

Summary

Satnam Overseas, a miller‑exporter, bought paddy in Haryana and Punjab, milled it into rice and exported the rice. The assessing authorities initially granted exemption under Section 9(1)(b) of the Haryana General Sales Tax Act, 1973, but later revised the assessments on the ground of retrospective amendments to Sections 2(p), 6, 15 and 15‑A and the omission of Section 9. The assessee challenged the revisions, arguing that the exemption under Section 9(1)(b) applied and that the retrospective amendments could not override it, and that denial of refund under Section 15‑A was unconstitutional. The Court held that while Section 9(1)(b) provided exemption, the amendment of Sections 2(p), 6, 15 and 15‑A did not affect liability for the assessment years before April 1991, and adjustment of purchase tax under Section 15‑A was permissible. The Court also held that paddy and rice are distinct commodities, so exemption under Section 5(3) of the Central Sales Tax Act did not apply, and that the legislature may legislate retrospectively. Consequently, the appeals under the Haryana Act were allowed in part, while the appeals under the Punjab Act were dismissed, and the writ petitions were disposed.

Issues considered

The applicability of Section 9(1)(b) of the Haryana General Sales Tax Act, 1973 to exempt purchase tax on paddy used for export of rice.
Whether retrospective amendments to Sections 2(p), 6, 15 and 15‑A of the Haryana Act can override the exemption under Section 9(1)(b).
The entitlement to adjustment or refund of purchase tax paid on paddy under Section 15‑A of the Haryana Act.
The relevance of Section 5(3) of the Central Sales Tax Act and Article 286 of the Constitution to the paddy‑rice export scenario.
The liability to pay purchase tax on paddy under the Punjab General Sales Tax Act, 1948 in view of Section 4‑B.
The constitutional competence of the legislature to levy tax retrospectively.

Legislation cited

Central Sales Tax Act, 1956s. 15, s. 15(c), s. 5, s. 5(3)
Constitution of Indias. Article 246, s. Article 255, s. Article 286
Haryana General Sales Tax Act, 1973s. 15, s. 15-A, s. 17, s. 2(p), s. 40, s. 6, s. 9(1)(b)
Punjab General Sales Tax Act, 1948s. 4, s. 4-B

Subjects

purchase taxexportpaddyriceretrospective amendmentexemptionSection 9(1)(b)Section 15-ACentral Sales Tax ActArticle 286legislative competencetax refundadjustmentHaryana ActPunjab Act

Judgment

SATNAM OVERSEAS(EXPORT)THROUGH ITS A
PARTNER ETC. ETC.
v.
STATE OF HARYANA AND ANR. ETC. ETC.

OCTOBER 24, 2002
B
[SYED SHAH MOHAMMED QUADRI AND RUMA PAL, JJ.]

Haryana General Sales Tax Act, 1973 I Punjab General Sales Tax Act,
1948-Section 9, Sections 2(p), 6, 15, 15-A and 17 (as amended by Haryana C
Act 4of1991) and Section 40 I Section 4 and 4-B-Purchase tax-On paddy
meant for export of rice procured therefrom-Exemption from tax granted
under Section 9 (J)(b)-Levy of tax after amendment of Sections 2(p), 6, 15
and 15-A with retrospective effect and omission of Section 9-However during
the relevant assessment year Section 9 existed-Propriety of the levy-Held,
In the specified circumstances in which charge of purchase tax on the raw D
material is imposed, exemptions under Section 9(J)(b) are applicable-While
Section 9 remained on the statute on the date of assessment, retrospective
amendments of Section 2(p), 6, I 5 and 15-A of the Haryana Act would make
no difference in regard to levy of purchase tax on paddy-Denial of refund
of purchase tax paid by a dealer by virtue. of Section I 5~A is not illegal or
unconstitutional-Assessee is not entitled to exemption under section 5(3) of E
the Central Sales Tax Act-Assessees are liable to pay tax on the purchase of
paddy under Section 4 of the Punjab Act and the similarity between Section
4-B of the Pwyab Act and Section 9(J)(b) of Haryana Act would not relieve
the assessee from such liability-Constitution of India, I950-Article 286-
Central Sales Tax Act, 1956-Section 5, I 5. F
Legislative competence-Levy of impost with retrospective effect-Held,
Legislature is competent to levy retrospectively.

In the appeals arising under Haryana General Sales Tax Act, 1973,
assessee a miller-exporter used to purchase paddy, and after .;.ming the G
same used to export the rice procured therefrom. For the Assessment
Years 1982-83, 1983-84, 1988-89 and 1989-90 the assessing authority
granted benefit of Section 9(1)(b) of the Haryana Act and raised 'nil'
demands on the ground that the transactions of purchase of paddy by the
assessee were for export of rice procured therefrom. Deputy Excise and
271 H
272 SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A Taxation Commissioner (lnspection)-cum-Revisional Authority issued
show cause notice, and revised the assessment for the said years in view
of retrospective amendment of Sections 6, 15, ISA and 17 and omission
of Section 9 thereof holding that assessee was liable to pay purchase tax
on the paddy. However, omission of Section 9 was not retrospective and
B during the assessment years in question the amended Section 6 as well as
Section. 9 were o_n the Statute Book. Assessee challenged the abovesaid
amendments to the Haryana Act by filing writ petitions before High Court,
which upheld the validity of the impugned provisions and orders of Deputy
Commissioner ~evising the assessments.

C The cases arising under Punjab General Sales Tax Act, 1948 relate
to assessment year 1990-91 and 1991-92. In this case, the assessee
purchased paddy in the State of Punjab, milled the same and exported
the rice outside the territory of India. Tax was not paid on the purchase
of paddy. Show cause notices were issued to demand purchase tax on the
paddy converted into rice. The demand was confirmed and unsuc!=essfully
D assailed in the High Court.

In appeal to this Court with regard to the cases pertaining to
Haryana Act, the assessee contended that Section 9 of the Act imposes
charge of purchase tax on paddy and Clause (b) of sub-section (I) of the
said Section exempts the same as rice procured therefrom is exported; that
E it is not correct that with omission of Section 9 from the statute,
amendment of Section 6 and inclusion of Section 15-A with retrospective
effect from 27.5.1971, the liability to pay purchase tax is regulated by
Section 6 read with Section 15 and adjustments, if any, could be made
under Section 15-A of the Act; that it is not correct that omissio.n of Section
p 9 from the statute had no effect in view of the amendment of Section 6
and inclusion of Section l S~A; that as paddy purchased by the assessee
was exported albeit in the form of rice, the purchase of paddy itself would
be deemed to be in the course of export; and that requirement of Article
286 of the Constitution of India and Section 15(c) of Central Sales Tax
Act, 1956 are mandatory and this accounts for clause (iii) of the proviso
G to sub-section (I) of Section 15 of the Haryana Act, therefore, Section 15-
A of the Haryana Act in so far as it denies the benefits of adjustment/
refund of purchase tax in regard to paddy, is unconstitutional and ultra
vires. Alternatively it was contended that the amendment of section 15-A
by ordinance 1 of 1992 took away the benefit of adjustment/refund
H retrospectively from 27.5.1971 availed by the assessee for the last 21 years
SA TN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER''· STA TE 273
which is unjust, arbitrary and unconstitutional.
•A
The State-respondent contended that paddy and rice were two
different 'goods', therefore, on the export of rice the assessee could not
claim exemption on the purchase of paddy either under section 5(3) of
Central Sales Tax Act or under Article 286(l)(b) of the Constitution,
because penultimate sale was not that of rice but of paddy; and that only B
when paddy undergoes various processes which tantamounts to
manufacture, rice could be procured.

With regard to the cases arising under Punjab Act it was contended
by the assessee that Section 48 of the Act is analogous to Section 9(l)(b) C
of the ilaryana Act and as Section 4-B exists till date, the judgment of
this Court in Murli tlanohar's case and Jagatjeet Sugar Mills case would
apply, and therefore, there can be no demand of purchase tax on paddy.

State of Punjab contended that neither the assessee was the exporter
nor the rice procured from paddy was exported so the assessee would be D
liable to pay purchase tax on paddy.

Disposing of the appeals, the Court

HELD: 1.1. In the specified circumstances in which charge of
purchase tax on the raw material is imposed, Section 9(I)(b) of Haryana E
General Sales Tax Act, 1973 and the exemptions provided therein would
apply. While Section 9 remained on the statute till April 1, 1991,
retrospective amendment of Sections 2(p), 6, 15 and 15-A of the Haryana
Act would make no difference in regard to levy of purchase tax on paddy.
Adjustment of purchase tax paid on paddy (raw material) is permissible
under Section 15-A of the Haryana Act during the relevant period. By F
virtue of Section 15-A of the Haryana Act, denial of refund of purchase
tax, if any, paid by a dealer is not illegal much less unconstitutional.
(304-D-Fl

1.2. Specific charging provision of Section 9(l)(b) will be attracted
as the assessee purchased paddy (which is not one of the goods specified G
in Schedule B), procured rice (manufactured goods) froni the said paddy
and exported rice outside the territory of India, on which no purchase tax
was payable under the general charging provision of Section 6 which is,
inter alia, subject to the provisions of Section 9. The assessees will not be
liable to pay tax on the purchase of such paddy in view of the provisions H
274 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A of Section 9(1)(b) in the assessment years in question, or, for that matter,
any assessment year ending before April 1, 1991. 1288-H; 289-A, Bl

i.3. Section 6 of Haryana Act, by itself does not create an
independent charge on the declared goods. It merely indicates the stage
at which the tax shall be leviable and payable. Indeed, Section 6(1 )(a) itself
B mentions that in respect of the declared goods tax shall be levied at- the
stage specified in Section 17. The legislature enacted a specific provision
!Section 9(1)(b) ] with regard to levy and payment of purchase tax on
paddy when rice is procured therefrom and exported outside India. It
cannot be said that in view of Section 17 of the Haryana Act, levy of
C purchase tax on paddy would be valid notwithstanding the fact that the
same ~s exempted under section 9(l)(b). 1289-G, H; 290-A, B)

1.4. The amendment to the definition of 'turnover' in Section 2(p)
and of Section 6 does not affect the position when Section 9 is part of the
statute. For the purpose of Section 6 read with Section 15 of the Haryana
D Act, a dealer is liable to pay tax on the taxable 'turnover of his sales and
purchases. Inasmuch as the sale of paddy is taxable under the Act, the
purchase value of such paddy cannot be included in the turnover; it is
evident that no purchase tax can be imposed under Section 6 of the
Haryana Act. This explains the reason as to why Section 9 specifically
provides that the charge thereunder shall be levied in the circumstances
E in which no tax is payable under any other provision of the Act (290-C-E)

Murli Manohar and Co. and Anr. v. State of Ha1yana and Anr. (19911
1SCC377; Hotel Balaji and Ors. v. State of Andhra Pradesh and Ors., (19931
Suppl. 4 SCC 536 and K.B. Handicrafts Emporium and Ors. v. State of
F Haryana and Ors., 119931 Supp. 4 sec 589, relied on.
Goodyear India Ltd. and Ors. v. State of Haryana and Anr., (1990) 2
SCC 71 and Jagatjit Sugar Mills and Ors. v. State of Punjab and Anr., 11995)
1 sec 67' referred to

G 1.5. When in order to fulfil an export obligation some goods are
purchased and processed which resulted in change of the identity and
character of the goods like processing of paddy into rice, which is exported,
then it would not be an export of the same goods. Therefore, the assessee
will not be entitled to exemption under section 5(3) of the Central Sales
Tax Act, 1956. Section 5(3) treats penultimate sale of the goods which are
H exported as _the sale in the course of export. It is difficult to accept that
SA TN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER"· STATE 275
paddy and rice are the same goods. The usual commercial parlance test A
that is applied is how such goods are known in the commercial circles. It
is a common knowledge that paddy and rice are treated in the market as
two different commodities. 1296-H; 297-A, Bl

Ganesh Trading Co., Karna/ v. State of Haryana and Anr., 1197413 SCC
620 and Babu Ram Jagdish Kumar and Co. v. State of Punjab and Ors., 119791 B
3 sec 616, relied on

State of Travancore-Cochin and Ors. v. Shanmugha Vilas Cashew Nut
Factory and Ors., 11954) SCR 53; Vijay Lakshmi Cashew Company v. Deputy
Commercial Tax Officer, 119561 1 SCC 468; Sterling Foods v. State of
Karnataka, (1986] 3 SCC 469 and Deputy Commissioner of Sales Tax v. Pio C
Food Packers, (19801 Suppl. SCC 174, referred to.

1.6. Article 286(1) of the Constitution protects sale or purchase which
takes place (a) outside the State or (b) in the course of import of goods
into or export of the goods out of the territory of India, from a State Law D
imposing or authorizing imposition of a tax. Section 15(c) of Central Sales
Tax Act directs that where in respect of sale or purchas·e of paddy, tax
has been levied in a State, then the tax leviable on the rice procured out
of such paddy shall be reduced by the amount of tax levied on such paddy.
This is to ensure that paddy and rice, being declared goods considered to
be of special importance in the inter-State trade or commerce, be relieved E
of so much burden of tax on rice as has been levied on the paddy from
which rice has been procured. It appears that clause (iii) of the proviso to
sub-section (1) of Section 15 of Haryana Act reflects the intendment of
clause (c) of Section 15 of the Central Sales Tax Act. It is not possible to
accept that Section 15-A of Haryana Act denies adjustment in regard to F
the tax paid on the purchase of paddy , as it is clear that in view of the
opening words of section 15-A of Haryana Act, inserted by the amendment,
it is subject to clause (iii) of the proviso to sub-section (1) of Section 15 of
the Haryana Act so as to deny the benefit of adjustment. It, therefore,
follows that the assessees are entitled to adjustment of purchase tax paid
on paddy when the rice procured therefrom is taxed. 1300-B-Fl G
1.7. It is true that Section 15-A of Haryana Act does not permit
refund of purchase tax paid on paddy, cotton and oilseeds by an assessee
though such a relief is available in regard to other goods. Challenge to
Section 15-A of Haryana Act on the ground of violation of Section 15(c)
of the Central Sales Tax Act or Article 286 (l)(b) of the Constitution H
276 SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A cannot be sustained because the only relief that is granted by Section 15(c)
of Central Act is reduction of tax leviable on the sale of rice procured from
?u~ of paddy, where tax has been levied on sale or purchase of such p~ddy
ms1de the State. This relief is incorporated by the Haryana Act in clause
(iii) of the proviso to sub-section (1) of Section 15. Even Article 286(1)(b)
B does not provide for exemption of tax on the purchase of paddy. There is
no other provision either in Article 286 or in the Central Sales Tax Act
which bars a State from levying tax on the sale or purchase of paddy which
is not exported out of the territory of India. Section 15-A of Haryana Act
proceeds on the premise that purchase tax is payable, inter alia, on paddy.
Thus, it is clear that before the omission of Section 9 from the Haryana
C Act, no purchase tax was payable on paddy under Section 6 of the Act,
therefore, during the aforesaid period, the assessee cannot complain of the
den iii I of the benefit of adjustment and refund of purchase tax on. the basis
of Section. \5-A of the Haryana Act. The position would, however, be
different after April 1, 1991, when Section 9 was omitted from the Act.
1300-F-H; 301-A, BJ
D
1.8. in the instant case, having regard to the provisions of Section
40 of the Haryana Act, the authorities can not revise the. assessment for
period beyond five years. Further, even though Section 15-A of Haryana
Act was given retrospectivity with effect from May 27, 1971, it would.
E hardly be effective between May 27, 1971 and April 1, 1991 when the
benefit of exemption under section 9(1)(b) ceased to exist, as such the
contentions that giving Section 15-A retrospectivity of 21 years would be
harsh, arbitrary and illegal are devoid of merit. (302-G, H; 303-AI

1.9. No relief was available in regard to penultimate purchase of
F paddy which was converted into rice and exported. This position obtained
till clause (ca) of Section 15 of the Central Sales tax Act was inserted by
Act 33of1996 on September 28, 1996. Clause (ca) provides, where a tax
on sale or purchase of paddy is leviable under a State Law and the rice
procured out of such paddy is exported out of India then for the purposes
of sub-section (3) of section 5 of Central Sales tax Act, the paddy and rice
G have to be treated as a single commodity. Clause (ca) cannot be said to be
clarificatory for, it neither supplies an obvious omission in the Central
Sales tax Act nor purport to explain any provision of that Act. It confers
a new benefif hitherto not available. It is not given retrospective effect
expressly. There is also nothing to.imply that it has retrospective operation.
H However, had it been declaratory or curative, it would have been treated
SA TNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STA TE 277
as retrospective. (303-A, B, D( A
Shri Chaman Singh and Anr. v. Srimathi Jaikaur, [19691 2 SCC 429,
referred to.

'Craies on Statute Law', referred to.
B
l.10. It cannot be said that in not granting refund of purchase tax
only in regard to three goods-paddy, cotton and oil seeds-there is violation
of Article 14 of the Constitution. In the matter of taxation, the legislature
has greater latitude to give effect to its policy of raising revenue and for
that purpose selecting the goods for taxing. The classification of goods
based on the policy of taxing some goods and leaving others outside the C
net of taxation cannot be assailed as violative of Article 14 of the
Constitution. (303-E, Fl
. Mis. Steelworth Ltd v. State ofAssam, [1962) Suppl. 2 SCR 589; Gopal
Narain v. State of Uttar Pradesh and Anr., (1964) 4 SCR 869; Murthy Match D
works, etc. etc. v. The Asstt. Collector of Central Excise, etc., (1974) 3 SCR
121; Gang~ Sugar Corporation Ltd. v. State of Uttar Pradesh and Ors., (1980)
l sec 223, referred to.

2.1. Mere similarity between Section 9(l)(b) of the Haryana Act and
Sectio.n 4-B of Punjab G_eneral Sales Tax Act, 1948 would not relieve a E
. dealer oftlle liability to pay purchase tax on paddy as the scope of charging
Sections under the said Acts are different. [304-G)

2.2, A plain reading of Section 4 of Punjab Act shows that it is subject
to the provisions of Sections 5 and 6. It cannot but be held that the
assessees are liable to pay tax on the purchase of paddy under Section 4 F
of the Punjab Act and the similarity between Section 4-B of the Punjab
Act and Section 9 of the Haryana Act is of no assistance. (294-D; 296-8)

Murli Manohar & Co. and Anr. v. State of Haryana and Anr., (1991 [ 1
sec 377 and Jagatjit Sugar Mills and Ors. v. State of Punjab and Anr., (19951 G
1 sec 67, distinguished.

3. Legislature is competent to levy impost, it can as well legislate
retrospectively. (301-C[

Rai Ramkarishna and Ors. v. The State of Bihar., (19641 I SCR 897; H
278 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A Jawaharmal v. State of Rajasthan and Ors., 119661 I SCR 890; Mis. J.K.
Cotton S~inning and Weaving Mills Ltd. and Anr. v. Union of India and Ors.,
11987] Supp. SCC 350 and State of Tamil Nadu v. Arooran Sugars ltd.,
(1997] l sec 326, relied on.

B CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11174 of
1975.

From the Judgment and Order dated 17 .8.1995 of the Punjab and
Haryana High Court in C.W.P. No. 7576 of 1993.
.
c WITH

C.A. Nos.11175-78, 11183-84, 11179, 11180, 11181, 11182/95, 2552,
2254,2553, 1581-96, 7679-7681,3664,3665,3666,3667,3668,3669, 12583-
87, 3670,_257, 1597-1606, 1607, 2220, 3661, 3662, 3663, 3834-36, 12877- .
78/96, 346/97, 3993/99, W.P.(C) Nos.82/96, 36, 141, 144, 178, 179, 181,
D 537, 538, 668, 675, 676, 240 of 1998 with C.A. Nos. 6940-57 and 6958 of
2002.

P. Chidambaram, D.A. Dave, Anoop G. Chaudhary, V.C. Mahajan,
Mahendra Anand, C.S. Vaidyanathan, Ms. Anjana Gosain, D.S. Chauhan,
E Ms. Bina Gupta, Ramesh Singh, Ms. Vanita Bhargava, Ms. Rakhi Ray, Sarwa
· Mitter, Ms. Santosh Gupta, Ms. June Chaudhary, Amit Gupta, P. Venugopal,
P.S. Sudheer, K.J. John, R.P. Gupta, O.P. Goyal, Haris Beeran, Pradeep
Gupta, Kau,shal Yadav, K.K. Mohan, K.K. Gupta, Gopal Jain, P. Manish Ms.
Nisha Bagchi, Sukhdip Singh Barar, Adv. for Uday Umesh Lalit, Atul Nanda,
Rajeev Sharma, R.S. Suri, Neeraj Kumar Jain, Aditya Kumar Chaudhary,
F Bharat Singh for J.P. Dhanda, Manoj Swarup, (NP) K.S. Rana, (NP), Ms.
Indra Sawhney (NP), P.N. Puri, (NP) for the appearing parties.

The Judgment of the Court was delivered by

SYED SHAH MOHAMMED QUADRI, J. Leave is granted in the
G special leave petitions.

The solution to the questions raised in this batch of cases turns on a
true interpretation of the provisions of the Haryana General Sales Tax Act,
1973 (for short, "the Haryana Act")/the Punjab General Sales Tax Act, 1948
H (for short, "the Punjab Act") in the light of the provisions of Article 286 of
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI,J.] 279
the Constitution and the Central Sales Tax Act, 1956 (for short, "the CST A •
Act").

For the sake of convenience, these cases can be divided into two groups.
(A) The first consists of two categories of cases arising under the Haryana
Act in respect of assessments for the period : (i) ending with October 14,
1990 and (ii) between October 15, 1990 and September 28, 1996; and (B) B
The second takes in cases arising under the Punjab Act.

Mr. P. Chidambaram, the learned senior counsel appearing for the
appellants, has piloted the arguments in the batch, which were adopted by
other learned counsel appearing for the appellants in different appeals/writ C
petitions. The contentions of the learned counsel are two fold. The first
being, Section 9 of the Haryana Act imposes charge of purchase tax on
paddy and clause (b) of sub-section (I) of the said section exempts the same
as the rice procured therefrom is exported. The second is that the High Court
committed error in holding that with omission of Section 9 from the Statute,
amendment of Section 6 and inclusion of Section 15A with retrospective D
effect from 27.5.1971, the liability to pay purchase tax is regulated by Section
6 read with Section 15 and adjustments, if any, could be made under Section
15-A of the Haryana Act. The case of the State of Haryana, as projected by
the learned senior counsel, Mr. Mahendra Anand, is that the Haryana Act
contains more charging sections than one, viz., Sections 6, 9 and 17; as E
Section 9 has been omitted and Sections 2(p), 6, 15 and 15-A have been
amended retrospectively, the assessee is liable to pay tax on purchase of raw
material.

For appreciating the contentions, we shall take up the cases falling
under groups (A)(i) and (B), which go together. It would suffice to refer to F
the facts giving rise to Civil Appeal Nos.11175-11178 of 1995. The assessee
is a miller-exporter who purchases paddy in the State of Haryana, mills the
same and exports the rice procured therefrom to places outside the territory
of India. For the Assessment Years 1982-83, 1983-84, 1988-89 and 1989-90,
on the ground that the transactions of purchase of paddy by the assessee were
for export of rice procured therefrom, the assessing authority granted benefit G
of Section 9(1 )(b) of the Haryana Act and completed assessments raising
'Nil' demand. However, the Deputy Excise and Taxation Commissioner
(lnspection)-cum-Revisional Authority, Kamal, (for short, "Dy.
Commiss:oner") issued show cause notice under Section 40 of the Haryana
Act and, after giving due opportunity of being heard to the assessee, revised H
280 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A the assessment for the said years in view of the retrospective amendment of
Sections 6, 15, l 5A and 17 and omission of Section 9 thereof holding that
the assessee was liable to pay the purchase tax on the paddy. The assessees
challenged amendments of Sections 6, 9, 15, 15-A and 17 of the Haryana Act
which were given retrospective effect by filing writ petitions before the High
B Court of Punjab and Haryana. A Full Bench of the High Court upheld the
validity of the impugned provisions of the Haryana Act and the orders of the
Dy. Commissioner revising the assessments and, thus, dismissed the writ
petitions. The appellants are in appeal, by special leave, before this Court
challenging the legality of the judgment and order of the Full Bench of the
High Court.·
c It needs to be noticed, at the outset, that in view of the provisions of
sub-section (3) of Article 246 read with Entry 54 of List II of the Seventh
Schedule to the Constitution, a State is competent to legislate authorising
imposition of.taxes on the sale or purchase of goods (other than newspaper),
subject to the provisions of Entry 92A of List-I. Under the said Entry [92A
D of List-I], the Parliament is competent to legislate authorising imposition of
taxes on the sale or purchase of goods (other than newspaper}, where such
sale or purchase takes place in the course of inter-State trade or commerce.
In other words, any Act passed by a State Legislature authorising imposition
of taxes on sale or purchase of goods will be subject to the legislation made
E by the Parliament under Entry 92A of List -I of the Seventh Schedule to the
Constitution.

A reference to Article 286 of the Constitution of India would also be
apposite. It prescribes restriction as to the imposition of tax on the sale or
purchase of goods and is in the following tenns:
F "286. Restrictions as to imposition of tax on the sale or purchase of
goods:~(!) No law of a State shall impose, or authorise the imposition
of, a tax on the sale or purchase of goods where such sale or purchase
takes place-
. (a) outside the State; or
G
(b) in the course of the import of the goods into, or export of the
goods out of, the territory of India.
(2) Parliament may by law formulate principles for detennining when
1
a sale or purchase of goods takes place in any of the ways mentioned
H in clause (I}.
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE (QUADRI, J.] 28 J
(3) Any law of a State shall, in so far as it imposes, or authorises the A
imposition of, -

(a) a tax on the sale or purchase of goods declared by Parliament by
law to be of special importance in inter-State trade or commerce, or

(b) a tax on the sale or purchase of goods, being a tax of the nature B
referred to in sub-clause (b ), sub-clause (c) or sub-clause ( d) of
clause (29A) of article 366,

be subject to such restrictions and conditions in regard to the system
of levy, rates and other incidents of the tax as Parliament may by law
specify."
c
A plain reading of clause (I) of the Article, noted above, ·shows that it
lays down restrictions on a State law as to the imposition or authorising the
imposition of a tax on sale or purchase of goods where such sale or purchase
takes place (a) outside the State or (b) in the course of import of goods into
or export of goods out of the territory of India. Clause (2) thereof empowers D
the Parliament to formulate principles for determining as to when a sale or
purchase of goods takes place in any of the ways aforementioned. The directive
embodied in clause (3) is that any law of a State shall, insofar as it imposes
or authorises the imposition of tax, specified in sub-clauses (a) and (b) thereof,
be subject to such restrictions and conditions in regard to the system of levy,
rates and other incidence of tax, as the Parliament may by law specify. The E
said sub-clauses are as follows: (a) a tax on the sale or purchase of goods
declared by Parliament by law to be of special importance in inter-State trade
or commerce (the declared goods); or (b) a tax on the sale or purchase of
goods being a tax of the nature referred to in sub-clause (b ), sub-clause ( c)
or sub-clause (d) of clause 29A of Article 366.
F
In exercise of the power conferred under clause (2) of Article 286, the
Parliament enacted the CST Act formulating principles for determining when
a sale or purchase of goods takes place in the course of inter-State trade or
commerce or outside a State or in the course of import or export. Section 5
of the CST Act embodies the principles as to when a sale or purchase of G
goods is said to take place in the course of import or export. Sub-section (I)
of Section 5 says that a sale or purchase of goods shall be deemed to take
place in the course of export of the goods out of the territory of India only
if the sale or purchase either occasions such export or is effected by a transfer
of documents of title to the goods after the goods have crossed the customs
frontiers of India. Sub-section (2) provides that a sale or purchase of goods H
282 SUPREME COURT REPORTS (2002] SUPP. 3 S.C.R.

A shall be deemed to take place in the course of import of goods into the
territory of India only if the sale or purchase either occasions such import or
is effected by a transfer of documents of title to the goods before the goods
have crossed the customs frontiers oflndia. Sub-section (3), which commences
with a non-obstante clause, provides that despite sub-section (I), the last sale
B or purchase of any goods preceding the sale or purchase occasioning the
export of those goods out of the territory of India, shall also be deemed to
be in the course of such export if such last sale or purchase took place after
and was for the purpose of complying with the agreement or order for or in
relation to such export. In other words, the penultimate sale or purchase
before the sale or purchase occasioning the export of those goods shall be
C treated as a sale or purchase in the course of export of the goods. This is
incorporated to get over the judgment of this Court in Md. Serajuddin and
Ors. v. The State of Orissa, [1975] 2 SCC 47.

Next, we shall advert to Section 15 of the CST Act which runs thus:

D "15. Restrictions and condi~ions in regard to tax on sale or purchase
of declared goods within a State.-- Every sales tax law of a State
shall, insofar as it imposes or authorises the imposition of a tax on the
sale or purchase of declared goods, be subject to the following
restrictions and conditions, namely:-
E (a) the tax payable under that law in respect of any sale or purchase
of such goods inside the State shall not exceed four per cent of
the sale or purchase price thereof, and such tax shall not be
levied at more than one stage;
(b) · where a tax has been levied under that law in respect of the sale
p or purchase inside the State of any declared goods and such
goods are sold in the course of inter-State trade or commerce,
and tax has been paid under this Act in respect of the sale of
such goods in the course of inter-State trade or commerce, the
tax levied under such law shall be reimbursed to the person
making such sale in the course of inter-State trade or commerce
G · in such manner and subject to such conditions as may be provided
in any law in force in that State;
(c) where a tax has been levied under that law in respect of the sale
or purchase inside the State of any paddy referred to in sub-
clause (i) of clause (i) of section 14, the tax leviable on rice
H procured out of such paddy shall be reduced by the amount of
SATN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 283
tax levied on such paddy; A
(ca) where a tax on sale or purchase of paddy referred to in sub-
clause (i) of clause (i) of Section 14 is leviable under the law and
the rice procured out of such paddy is exported out of India,
then, for purposes of sub-section (3) of Section 5, the paddy and
rice shall be treated as a single commodity; B
(d) each of the pulses referred to in clause (via) of Section 14, whether
whole or separated, and whether with or without husk, shall be
treated as a single commodity for the purposes of levy of tax
under that law."

The provisions, quoted above, enumerate the restrictions and conditions C
in regard to tax on sale or purchase of declared goods within a State, which
is defined in clause (c) of Section 2 of the CST Act to mean the goods
declared under Section 14 to be of special importance in inter-State trade or
commerce. It may be pointed out here that paddy and rice are enumerated in
sub-clauses (i) and (ii) respectively of clause (i) of Section 14 and they are, D
therefore, 'declared goods'.

Reverting-to Section 15, clause (a) imposes two restrictions on the tax
to be imposed on sale or purchase of declared goods inside the State : (I) an
upper ceiling of four per cent on sale or purchase price of such goods and
(2) such tax shall not be levied at more than one stage•. Clause (b) provides E
relief of reimbursement of tax paid under the CST Act in case of double
taxation of declared goods, that is, where tax has been levied under the State
Act on sale or purchase of such goods and is again levied under the CST Act
in respect of sale of such goods in the course of inter-State trade or commerce.
The edict of clause (c) makes it clear that a State law which imposes or F
authorises the imposition of tax on sale or purchase of rice or paddy inside
the State has to be treated in the following manner: where a tax has been
levied in respect of sale or purchase inside the State on paddy, the tax leviable
on rice procured out of such paddy shall be reduced by the amount of tax
levied on it (such paddy); for example, assuming that in a State the rate of
tax on the sale or purchase price of paddy is one per cent and of rice is four G
per cent, then the tax leviable on the sale of rice will be reduced by one per
cent; consequently, the tax payable on the sale of rice would be only three
per cent.

*This second assertion has been deleted by the Finance Act No. 20 of 2002 w.e.f. 1.4.2002. H
284 SUPREME COURT REPOjUS [2002) SUPP. 3 S.C.R..

A Clause (ca) is inserted by The Finance (No.2) Act, 1996 (33 of 1996)
w.e.f. September 28, 1996. It directs that where a tax on sale or purchase of
paddy is leviable under a State law and the rice procured out of such paddy
is exported out of India then for purposes of penultimate sale (under Section
5(3)), the paddy and rice shall be treated as a single com.modity. In the
B circumstances mentioned in clause (ca), it brings paddy on par with pulses
dealt with in clause (d). The mandate embodied in clause (d) is that pulses
enumerated in clause (via) of Section 14, whether whole or separated, and
whether with or without husk, shall be treated as a single commodity for the
purposes of levy of tax under any State law.

C In the light of the discussion of the afore-mentioned provisions of the
Constitution of India and of the CST Act, we proceed to interpret the relevant
provisions of the Haryana Act and the Punjab Act. The provisions of the
Haryana Act have undergone series of amendments and we deem it appropriate
to observe with concern that in the mass of amendments now it is by no
means an easy task for ariy legal practitioner or even a Court, and more so
D for a trader or an ordinary citizen, to cull out the correct position in regard
to one's liability on the sales and purchases of the goods in a given assessment
year before 1996. Be that as it may, we shall now deal with the contentions
of the learned senior counsel for the appellants/petitioners.

E It may be mentioned that after formation of the State of Haryana on
November I, 1966, it adopted the Punjab Act which was in force in the then
composite State of Punjab. The Haryana Act was passed in the year 1973.
Between 1982 and April, 1991, Section 6 was amended as many as eight
times. The last amendment of Section 6 was by Ordinance No.2 of 1990,
which was promulgated on October 15, 1990 and later replaced by Haryana
F Act 4 of 1991 on April 16, 1991. By the said Act, the amended Section 6 was
given retrospective effect from May 27, I 971. It is unnecessary to refer to all
the earlier amendments as they have no bearing on the issue under
determination. Section 6, insofar as it is relevant for our purpose, as it stood
after the last mentioned amendment, read thus:

G "Section 6. Incidence of Taxation - (I) Subject to other provisions of
this Act, every dealer whose gross turnover during the year
immediately preceding the 27th day of May, 1971, exceeded the
taxable quantum, shall from the 27th day of May, 1971 and every
other dealer shall, on the expiry of thirty days after the date on which
H his gross turnover first exceeds the taxable quantum, be liable to pay
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUA DR!, J.] 285
tax under this Act on the sale or purchase of goods by him in the A
State at the stage hereinafter provided.-

(a) on declared goods at the stage specified under Section 17;

(b) & (c) xxx xxx xxx

Provided that this sub-section shall not apply to a dealer who deals B
exclusively in goods specified in Schedule B or who executes a sub-
contract with a contractor who is liable to pay tax in respect of the
works contract of which the sub-contract is a part:

Provided further that in the case of a dealer, -
c
(a) xxx xxx xxx

(b) who manufactures or processes any goods for
sale, the liability
to pay tax shall commence, from the date on which his gross
turnover, during any year, first exceeds the taxable quantum;

(c) xxx xxx xxx D
(d) who deals in declared goods, the liability to pay tax shall
commence from the date on which his gross turnover of such
goods exceeds the taxable quantum;
(e) to (h) xxx xxx xxx
E
(3) to (5) xxx xxx xxx"

A perusal of the above provision would show that it is a charging
section. It opens with the phrase "subject to the other provisions of this Act"
; having been given retrospective effect from May 27, 1971, it would apply F
in regard to the assessment years in question, the last of them being 1989-
90. The impost under Section 6 is: (I) subject to the other provisions of the
Act; (2) on every dealer whose gross tum over during the relevant period,
exceeds the taxable quantum; (3) on the taxable event of sale or purchase of
goods; and (4) in respect of declared goods (say paddy) tax is payable at the
stage of last purchase. What is subjected to tax is the difference between the G
'gross tum over' and the 'taxable quantum', which are defined in clauses
(gg) and (p), respectively, of Section 2. To comprehend the scope of the
charge under Section 6, which is subject to other provisions of the Act, it has
to be read with Section 2(p), Section 15, Section 17 and Section .27. A
combined reading of these provisions would disclose that tax is leviable on H
286 SUPREME COURT REPORTS [2002) SUPP. 3 $.C.R.

A ihe taxable tum over of sales or purchases of goods at the rate mentioned in
Section 15 at specified stages - in the case of declared goods at the stage
specified in Section 17.

The first proviso to sub-section (I) of Section 6 exempts: (a) a dealer
who deals exclusively in goods specified in Schedule 'B'; and (b) a dealer
B who executes a sub-contract with a contractor. These are the only exemptions
that Section 6 speaks of, though Section 13 confers power on the Government
to grant exemption in specified cases.

Here, it would be relevant to note that the said Haryana Act 4 of 1991,
C omitted Section 9 of the principal Act, which, be it noted, is not retrospective.
Consequently, in respect of the assessment years in question, Section 6, as
amended by Haryana Act 4 of 1991 as well as Section 9 of the Haryana Act
were on the Statute Book and this fact should be borne in mind while
considering Ieviability of the purchase tax on the raw material (Paddy) during
the period ending with Assessment Year 1989-90.
D
It, is pertinent to read Section 9 of the Haryam1 Act. Though Section 9
was also amended on ten occasions between 1976 and 1991, for the present
discussion, all those amendments are inconsequential. Section .9(1 )(b) as on
October 15, 1990, insofar·as it is relevant, is extracted here:

E "Section 9.

(I), Where a dealer liable to pay tax under this Act,

(a) xxx xxx xxx

(b) purchases goods, other than those specified in Schedule B, from
F 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 the
place outside the State in any manner otherwise than by way of
sale in the course of inter-State trade or commerce or in the
G course of export outside the territory of India within the meaning
of section 5 of the Central Sales Tax Act, 1956; or
(c) XXX xxx xxx
in the circumstances in which no tax is payable under any o~
H provision of this Act, there shall be levied, subject to the provisions
SA TN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER"· STATE [QUAD RI, J.] 287
of Section 17, a tax on the purchase of such goods at such rate as A
may be notified under Section 15."

This provision has had a chequered history. In Goodyear India Limited
and Ors. v. State of Haryana and Anr., (1990] 2 SCC 71, it was declared
ultra vires the power of the State Legislature. However, in Mur{i Manohar
and Co. and Anr. v. State of Haryana and Anr.. (1991] 1 sec
377, it was B
explained that the unconstitutionalily was confined to assignment sales.
Ultimately, in Hotel Balaji and Ors. v. State of Andhra Pradesh and Ors.,
(1993] Suppl. 4 SCC 536, it was declared that judgment of this Court in
Goodyear's case (supra) was not a good law. Consequently, Section 9(1)(b)
was a valid provision. We shall examine its ingredients and impact vis-a-vis C
other provisions till it was omitted with effect from April 1, 1991.

A careful reading of Section 9( 1)(b) discloses that: it postulates existence
of circumstances in which no tax is payable under any other provisions of the
Act by a dealer who: (i) is liable to pay tax under the Act; (ii) purchases
goods (referred to, 'raw material') {other than those specified in Schedule B} D
from any source in the State; "(iii) uses them in the State in the manufacture
of any other goods (referred to as, 'manufactured goods'); (iv) disposes of
the manufactured goods in any manner otherwise than by way of sale or (v)
despatches the manufactured goods to a place outside the State in any manner
and provides that in such a case there shall be levied, a tax, subject to the
provisions of Section 17, on the purchase of raw material at such rate as may E
be notified under Section 15. This in substance is the charge under Section
9(l)(b). It is important to note that.the afore-mentioned levy of purchase tax
on the raw material would have no application when the manufactured goods
are : (a) disposed of by way of sale in the State; (b) despatched to a place
outside the State: (I) in the course of inter-State trade or commerce; or (2) p
in the course of export outside the territory of India within the meaning of
Section 5 of the CST Act. In other words, levy of purchase tax thereunder
on the raw material is exempted if the manufactured goods are dealt with in
the qianner outlined in clauses (a) and (b) hereinabove.

The exemptions contained in Section 9(1 )(b) are confined to cases cf G
impost levied thereunder and not otherwise. In other words, where purchase
tax is. leviable on goods under Section 6, and not under Section 9(1 )(b ), a
dealer cannot claim benefit of the exemptions mentioned in latter Section.

The rationale for the exemption of purchase tax on the raw material
from the purchase tax in the afore-mentioned cases, is succinctly elucidated H
288 SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A by Jeevan Reddy, J. speaking for a Bench of three learned Judges of this
Court in Hotel Balaji 's case (supra) as follows :-

"The levy created by the said provision is a levy on the purchase of
raw material purchased within the State which is consumed in the
manufacture of other goods within the State. If, however, the
B manufactured goods are sold within the State, no purchase tax is
collected on the raw material, evidently because the State gets larger
revenue by taxing the sale of such goods. (The value of manufactured
goods is bound to be higher than the value of the raw material.) The
State legislature does not wish to - in the interest of trade and general
public - tax both the raw material and the finished (manufactured)
c product. This is a well-known policy in the field of taxation. But
where the manufactured goods are not sold within the State but are
yet disposed of or where the manufactured goods are sent outside the
State (otherwise than by way of inter-State sale or export sale) the tax
has to be paid on the purchase value of the raw material. The reason
D is simple : if the manufactured goods are disposed of otherwise than
by sale within the State or arr. sent out of State (i.e., consigned to
dealers own depots or agents), the State does not get any revenue
because no sale of manufactured goods has taken place within Haryana.
In such a situation, the State says, it would retain ihe levy and collect
it since there is no reason for waiving the purchase tax in these two
E situations. N,ow coming to inter-State sale, and export sale, it may be
noticed that in the case of inter-State sale, the State of Haryana does
get the tax revenue - may be not to the full extent. Though the
Central Sales Tax is levied and collected by the Government of India,
Article 269 of the Constitution provides for making over the tax
F collected to the States in accordance with certain principles. Where,
of course, the sale is an export sale within the meaning of Section
5(1) of the Central SalesTax Act (export sales) the State may not get
any revenue but larger national interest is served thereby. It is for
these reasons that tax on the purchase of raw material is waived in
these two situations. Thus, there is a very sound and consistent policy
G underlying the provision."

We are in respectfu 1 agreement with the above passage.

The same principle is reiterated in Jagatjit Sugar Mills and Ors. v.
State of Punjab and Anr., (1995] I SCC 67 and applied in K.B. Handicrafts
H Emporium and Ors. v. State of Haryana and Ors., [ 1993) Suppl. 4 SCC 589 .
...
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.l 289
In these cases, in the light of the above discussion, we conclude that A
specific charging provision of Section 9(1)(b) will be attracted as the assessee
purchased paddy (which is not one of the goods specified in Schedule B),
procured rice (manufactured goods) from the said paddy and exported rice
outside the territory of India, on which no purchase tax was. payable under
the general charging provision of Section 6 which is, inter alia, subject to the B
provisions of Section 9. We have already held above that the assessees will
not be liable to pay tax on the purchase of such paddy in view of the provisions
of clause (b) of sub-section ( 1) of Section 9 in the assessment years in
question, or, for that matter, any assessment year ending ?efore April I
1991. To the same effect is the view expressed by this Court in the cases of
Murli Manohar (supra), Hotel Balaji (supra) and K.B. Handicrafts Emporium C
(supra). The High Court was, therefore, clearly in error in not following the
ratio of these judgments on untenable grounds.

The next contention of Mr. P. Chidambaram that the High Court erred
in holding that omission of Section 9 from the statute had no effect in view
of amendment of Section 6 and inclusion of Section 15-A and that the liability D
to pay purchase tax was regulated by Section 6 read with Section 15 and
adjustments, if any, could be made under Section 15-A of the Haryana Act.
Mr. Mahendra Anand supported the conclusion ~f the High Court on the
basis of retrospectiye amendment of Sections 2(p), 6, 15 and 15A of the
Haryana Act. We shall take up these contentions.
E
We have already referred to Sections 6 and 9 of the Haryana Act. To
recapitulate, Section 6, which is a general charging section, provides that
every dealer shall be liable to pay tax under the Act on the sale or purchase
of, inter alia, declared goods by him in the State at the stage specified under
Section 17. It says that at the stage of sale or purchase of the declared goods, F
the tax shall be levied and paid as specified against such goods in Schedule
'D'. It also provides that where the goods have not been subjected to tax at
any of the stages of sale or purchase specified in Schedule 'D', the tax shall
be levied and paid by a dealer liable to pay tax under the Act at the stage of
the last purchase of such goods by him, after providing deductions admissible
under Section 27. It is not possible to read that the section by itself creates G
an independent charge on the declared goods. It merely indicates the stage at
which the tax shall be leviable and payable. Indeed, clause (a) of sub-section
(I) of Section 6 itself mentions that in respect of the declared goods tax shall
be levied at the stage specified in Section 17. It is, therefore, futile to contend
that under Section 17 levy of tax on declared goods is not dependant on the H
290 SUPREME COURT REPORTS (2002] SUPP. 3 S.C.R.

A use and disposal of such goods whether as such or in the manufactured form.
It has already been pointed out above that when paddy, declared goods, is
manufactured into rice which is exported outside India, as postulated in clause
(b) of sub-section (I) of Section 9 of the Haryana Act, the liability for
payment of purchase tax on such paddy would be 'nil'. The legislature enacted
B a specific provision (Section 9(1 )(b )) with regard to levy and payment of
purchase tax on paddy when rice is procured therefrom and exported outside
India. We find it difficult to sustain the argument that in view of Section 17
of the Haryana Act, levy of purchase tax on paddy would be valid
notwithstanding the fact that the same is exempted under Section 9(1 )(b ).
·Though in Murli Manohar 's case (supra), the raw material was not one of the
C declared goods; it makes no difference so far as the ratio of that decision is
concerned.

For the purpose of Section 6 read with Section 15 of the Haryana Act,
a dealer is liable to pay tax on the taxable turnover of his sales and purchases.
The expression 'taxable turnover' is defined in clause (p) of Section 2 to
D mean that part of a dealer's gross turnover which remains after allowing
deductions.under Section 27 of the Haryana Ai:t. Explanation (2) to the said
clause provides that the proceeds of sale of any goods on the purchase of
which tax.is leviable under the Act or the purchase value of any goods on
the sale of which tax is leviable under the Act shall not be included in the
E turnover. Inasmuch as the sale of paddy is taxable under the Act, the purchase
value of such paddy cannot be included in the turnover; it is evident that no
purchase tax can be imposed under Section 6 of the Haryana Act. This
explains the reason as to why Section 9 specifically provides that the charge
thereunder shall be levied in the circumstances in which no tax is payable
under any other provision of the Act. fo other words, it is only because no
F tax can be levied and collected on the purchase of paddy either under Section
6 or under any other provision of the Haryana Act, that Section 9 imposes
the tax, except in the circumstances provided in clause (b) of sub-section (I) .
of Section 9. This is the view taken by a Bench of three learned Judges of
this Court in Murli Manohar's case (supra) where the liability under Section
G 9 was directly in question. This view was reiterated by two more Benches of
this Court in Hotel Balaji 's case (supra) and KB. Handicraft Emporium
(supra). The Full Bench of the High Court, in our view, was not right in
declining to act upon the ratio of the judgments in the aforementioned cases.·
In the result, we hold that the amendment to the definition of 'turnover' in
clause (p) of Section 2 and of Section 6 does not affect the position when
H Section 9 is part of the statute.
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.) 29 J
Connected with the topic under discussion are the cases arising under A
the Punjab Act - Group (B). It is urged that Section 4-B of the Punjab Act
is analogous to Section 9( I)(b) of the Haryana Act and as the former provision
(Section 4-B) exists till date the judgment of this Court in Murli Manohar 's
case (supra) applies, therefore, there can be no demand of purchase tax on
paddy.
B
We have indicated above th.at cases arising under the Punjab Act (Group
(B)) go with cases in Group (A)(i) and relate to the period when Section
9(1)(b) of the Haryana Act was in force i.e. before October 14, 1990. The
facts giving rise to the appeal [Civil Appeal No. 3666 of 1996] may briefly
be noted as representative of the facts of cases falling in this group. The C
appeal relates to Assessment Years 1990-91 and 1991-92. The assessee
purchased paddy in the State of Punjab, milled the same and exported rice
procured therefrom to places outside the territory of India. No tax was paid
on the purchase of paddy. However, show-cause notices were issued to demand
purchase tax on the paddy converted into rice in those years. The demand
was confirmed and that was unsuccessfully assailed in the High Court. D.
Mr. R.P. Gupta, ]·earned counsel appearing for the assessee, placf:d
reliance on !he observations of this court in Mukerian Paper limited v. State
of Punjab, [1991] 2 SCC 580 and argued that Section 4-B of the Punjab Act
was similar to Section 9 of the Haryana Act, so the ratio of the judgments
of this Court in Murli Manohar 's case (supra) and Jagatjit Sugar Mi/I's case E
(supra) would apply and as such the demand of purchase tax would be wholly
illegal. Mr. V.C. Mahajan, learned senior counsel appearing for the State of
Punjab, urged a feeble contention that neither the assessee was the exporter
nor the rice procured from paddy was exported so the assessee would be
liable to pay purchase tax on paddy.
F
In view of the fact that the case proceeded on the basis that the assessee
was exporter of rice as this fact is also evident from the judgment under
appeal, it is difficult to accept the contention of the learned senior counsel.

We shall now examine the contentions of Mr. Gupta.
G
Section 4-B was inserted in the Punjab Act by "tfie Punjab Act 3 of 1973
with effect from November 15, 1972. It reads as follows:

"4-B. Levy of purchase tax on certain goods.- Where a dealer who
is liable to pay tax under this Act purchases any goods other than
those specified in Schedule B, from any source and H
./
292 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A (i) uses them within the State in the manufacture of goods specified
in Schedule B, or
(ii) uses them within the State in the manufac_ture of any goods,
other than those specified in Schedule B, and sends the goods so
manufactured outside the State in any manner other than by way
of sale in the course of inter-State trade or commerce or in the
B
course of export out of the territory of India, or

(iii) uses such goods for a purpose other than that of resale within the
State or sale in the course of inter-State trade or commerce or in
the course of export out of the territory of India, or
c (iv) sends them outside the State other than by way of sale in the
course of inter-State trade or commerce or in the course of export
out of the territory of India,

and no tax is payable on the purchase of such goods under any other
provisions of this Act, there shall be levied a tax on the purchase of
D
such goods at such rate not exceeding the rate specified under sub-
section (I) of section 5 as the State Government may direct."

The afore-quoted section makes it clear that it can be invoked when a
dealer who is liable to pay tax under t))e Act : (a) purchases any goods
E (referred to as raw material) other than those specified in Schedule B; (b)
uses the raw material within the State in the manufacture of goods specified
in Schedule B; or (c) uses them within the State in the manufacture of any
goods other than those specified. in Schedule B and sends the goods so
manufactured out of the State in any manner; (d) uses the raw material for
a purpose other than that of resale within the State or; (e) sends the raw
F material outside the State; and (f) no tax is payable under any other provision
of the Punjab Act on such raw material. On fulfillment of these requirements,
Section 4-B imposes a tax on the purchase of the raw material at such rates
not exceeding the rate specified under sub-section (!) of Section 5, as the
State Government may direct. The analysis of the section would remain
G incomplete without recording that·the raw material is exempt from the levy
of purchase tax when the manufactured goods are sent outside the State by
way of sale in the course of inter-State trade or commerce or in the course
of export out of the territory ot: India.

A comparison of Section 4-B of the Punjab Act with Section 9(1)(b) of
H the Haryana Act shows that to a large extent there is similarity in both these
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 293
provisions. To the same effect is the observation of a Bench of three learned A
Judges of this Court in Mukerian 's case (supra), which reads thus:

" ... even though the language of Section 4-B of the Act is not identical
with the relevant part of Section 9(1) of the Haryana 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, B
as here, the liability 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."

In Devi Dass Gopal Krishan Pvt. Ltd. and Ors. v. State of Punjab and
c
Ors., [1994] Suppl. 2 SCC 59), while sustaining the legislative competence
of the State of Punjab to enact Section 4-B and upholding its validity, this
court after analysing the said section observed that Section 4-B of the Punjab
Act was in substance similar to Section 9(l)(b) of the Haryana Act.
D
In Jagatjit Sugar Mills case (supra), a Bench of three learned Judges
opined thus:

"In our opinion, the purpose of Section 4-B is altogether different. It
is designed really to identify and affirm - in a broad sense, create
- the levy of purchase tax in some cases and to provide for exemption E
from purchase tax in certain other specified situations. This is done
in the interest of manufacturers-dealers, consuming public and other
dealers - a common feature in almost all the sales t~ enactments
.... "
.;..

Though Section 4-B of the Punjab Act is not in isdem terminis with F
Section 9( I )(b) of the Haryana Act, however, they are in pari materia. It is
not the similarity of the sai\i provisions alone that would determine the liability
of a dealer to pay purchase tax on paddy under the said Acts. It is the ambit
of charging sections in those Acts, which will be determinative. Section 6 of
the Haryana Act, as pointed out above, did not charge purchase tax on paddy G
before October 14, 1990 and in the circumstances mentioned in Section . ,,.
9( l )(b) imposed purchase tax but provided for its exemption in sped tied
situations.

· We must now examine the scope of charge under Section 4 of the
Punjab Act which, insofar as it is relevant for our purpose, is extracted H
294 SUPREME COURT REPORTS (2002] SUPP. 3 S.C.R.

A hereunder :
"4. Incident of taxation - (I) Subject to the provisions of sections 5
and 6 every dealer except one dealing exclusively in goods declared
tax-free under section 6 whose gross turnover during the year
immediately preceding the commencement of this Act exceeded .. the
B taxable quantum shall be liable to pay tax under this Act on all sales
affected after the coming into force of this Act and purchases made
after the commencement of the East Punjab General Sales Tax
(Amendment) Act, 1958 :

Provided that the tax shall not be payable on sales involved in the
c execution of a contract which is shown to the satisfaction of the
assessing authority to have been entered into before the commencement
of this Act."

A plain reading of this provision shows that it is subject to the provisions of
sections 5 and 6. It says that every dealer shall be liable to pay tax under this
D Act (i) on all sales affected after the coming into force of this Act if his gross
turnover during the year immediately preceding the commencement of this
Act exceeded the taxable quantum; and (ii) on all purchases made by him
after the commencement of the East Punjab General Sales Tax (Amendment)
Act, 1958. Section 5 provides for levy of tax on taxable turnover. Section 6
E exempts tax on sale of goods enumerated in Schedule B. As defined in
Section 5(2), 'taxable turnover' would mean that part of a dealer's gross
turnover which remains after deducting therefrom, - "(a) his turnover during
the period on - (i) *** *** *•• (ii) ........ sale in the course of inter-State trade
or commerce or sale in the course of export of goods out of the territory of
India, or of goods specified in his certificate of registration for use by him
F in the manufacture in Punjab or any goods, other than goods declared tax free
under Section 6, or sale in the course of inter-State trade or commerce, or·
sale in the course of export of goods out of the territory of India........ " The
value of purchase of goods (paddy) does not figure in the amounts which can
be deducted for purposes of determining taxable turnover. The definition of
G 'purchase' ,in clause (ff) is an inclusive definition. It means, inter alia,
acquisition·of goods specified in Schedule 'C' for cash or deferred payment.

In Jagatjit Sugar Mills' case (supra), this Court held that Section 4
levies tax not only upon 'all sales affected' but also on 'all purchases made'
and negatived the contention that no purchase tax was payable under Section
H 4 of the Act on goods other than those mentioned in Schedule 'C' (contains
SA TN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 295
paddy and rice). It was held, A
"Firstly, clause (ft) in Section 2 is not a charging section. It only
defines "purchase". Secondly, the definition not only includes the
purchase of Schedule C goods but purchase of other goods which are
subject to purchase tax under any other provisions of the Act. The
fact that the words "or of goods on the purchase whereof tax is B
payable under any provisions of this Act" were inserted in this
definition by the same Amendment which introduced Section 4-8
into the Act does not mean that the said words are confined to Section
4-8. If that were the intention, the legislature would have used
appropriate words to that effect. Moreover, Section 4-8 is designed C
for a different purpose. The said definition cannot, therefore, be read
in derogation of Section 4( I) nor can the levy created by Section 4( I)
be curtailed or cut down in any manner by the said definition."

Section 29, which provides exemption in certain cases, is also of no
avail to the assessee. It reads as under : D
"29. Provisions in case of inter-State tmde, etc -

(I) Notwithstanding anything contained in this Act -

(a) a tax on the sale or purchase of goods shall not be imposed under
this Act E
(i) where such sale or purchase takes place outside the State of
Punjab; or
(ii) where such sale or purchase takes place in the course of import
of the goods into, or export of the goods out of, the territory of p
India;
Provided that the last sale or purchase of any goods preceding the
sale or purchase occasioning the export of such goods out of the
territory of India shall also be deemed to be in the course of such
export, if such last sale or purchase takes place after making an G
agreement or order for such export;

Provided further ..................."

Sub-clause (ii) of clause (a) of sub-section,(!), which is relevant here, read
with the first proviso, applies where such sale or purchase is a penultimate H
296 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A sale or purchase and takes place in the course of import of the goods into or
export of the goods out of the territory of India. This clause is also of no
consequence; firstly, because paddy and rice being two different commodities
and secondly, the proviso was inserted only with effect from February 5,
1999 by Act 4 of 1999.

B In the light of the above discussion, it cannot but be held that the
assessees are liable to pay tax on the purchase of paddy under Section 4 of
the Punjab Act and the similarity between Section 4-B of the Punjab Act and
Section 9 of the Haryana Act and the ratio of the judgments in Murli
Manohar 's case and other cases, referred to above, are of no assistance to
C them.
We may now notice the contention of Mr. Chidambaram based on sub-
section (3) of Section 5 of the CST Act. The learned senior counsel argued
that as paddy purchased by the assessees was exported albeit in the rice form,
therefore, the purchase of paddy itself would be deemed to be in the course
D of export. He pointed out that the latin name for paddy and rice was the same
viz. Oryza Sativa L. and they fall in one and the same group. He suggested
that the judgments of this Court in Ganesh Trading Company, Karna/ v.
State of Haryana and Anr., [1974] 3 SCC 620 and Babu Ram Jagdish Kumar
and Co. v. State of Punjab and Ors., [1979] 3 SCC 616), holding that 'paddy
E and rice are different commodities', were not rendered in the context of sub-
section (3) of Section 5 of the CST Act and that they require reconsideration.
On the other hand, Mr. Mahendra Anand strenuously urged that paddy and
rice were two different 'goods', therefore, on the export of rice the assessee
could not claim exemption on the purchase of paddy either under Section
5(3) of the CST Act or under Article 286(l)(b) of the Constitution of India
F because penultimate sale was not that of rice but of paddy. He argued that
only when paddy would undergo various processes, which tantamounts to
manufacture, rice could be procured.

It may be noticed that the principle laid down by this Court in Ganesh
G Trading Co. (supra) and Babu RamJagdish Kumar case (supra) was accepted
by the Parliament and Section 14 of the CST Act was amended to show that
paddy and rice are two distinct goods. In Vijay laxmi Cashew Company v.
Deputy Commercial Tax Officer, [1996] 1 SCC 468, this Court held that to
claim the benefit under Section 5(3) of the CST Act, a dealer would have to
establish the identity of the goods purchased and the goods exported out of
H the territory of India. When in order to fulfil an export obligation some goods
SATN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 297
are purchased and processed which resulted in change of the identity and A
character of the goods like processing of paddy into rice, which is exported,
then it would not be an export of~the same goods. Therefore, the assessee will
not be entitled to exemption under Section 5(3) of the CST Act. We have
already indicated above that sub-section (3) of Section 5 treats penultimate
sale of the goods which are exported as the sale in the course of export. It
is difficult to accept the contention of Mr. Chidambaram that paddy and rice B
are the same goods. The usual commercial parlance test that is applied is how
such goods are known in the commercial circles. It is a common knowledge
that paddy and rice are treated in the market as two different commodities.
We are not persuaded to accept the submission that the case of Ganesh
Trading Co. (supra) in which it is held that paddy and rice are different C
commodities and which was followed by a Bench of three learned Judges in
Jagdish Kumar's case (supra) require reconsideration. Those cases arose under
the Punjab Act and Ganesh Trading Co. 's case (supra) was decided even
before the insertion of sub-section (3) of Section 5. With great respect to the
learned Judges, we are in entire agreement with the view expressed in those
cases that paddy and rice are two different commodities. It is unnecessary to D
delve into the process of procuring rice from paddy to ascertain whether a
complicated process results in change of identity of goods (raw material) as
was found in State ofTravancore-Cochin and Ors. v. Shanmugha Vilas Cashew
Nut Factory and Ors., (1954] SCR 53 and in Vijay Laxmi Cashew Company,
v. Deputy Commercial Tax Officer, (1996] I SCC 468 or involves only a E
simple process as was the case in Sterling Foods v. State of Karnataka,
[1986] 3 SCC 469 and Deputy Commissioner of Sales Tax v. Pio-Food
Packers, (1980] Suppl. SCC 174 not affecting the identity of the goods (raw
material). It is a common ground that the Parliament treated paddy and rice
as two different goods as is evident from sub-clauses (i) and (ii) of Clause
(i) of Section 14 of the CST Act which was inserted by the Parliament by Act F
103of1976 with effect from September 7, 1976. The argument of the learned
senior counseJ based on Section 5(3) of the CST Act must, therefore, fail.
Mr. P. Chidambaram has argued that the requirements of Article 286 of the
Constitution and Section 15(c) of the CST Act are mandatory and this accounts
for clause (iii) of the proviso to sub-section (I) of Section 15 of the Haryana G
Act, therefore, Section 15-A of the Haryana Act, insofar as it denies the
benefit of adjustment/refund of purchase tax in regard to paddy, is
unconstitutional and ultra vires; in the alternative it was urged that the
amendment of Section 15-A by Ordinance I of 1992 took away the benefit
of adjustment/refund retrospectively from May 27, 1971, availed by the
assessees for the last twenty one years which is unjust, arbitrary and H
298 SUPREME COURT REPORTS [2002] SUPP. 3 S.C.R.

A unconstitutional.

J Section 15-A was first inserted in the Haryana Act on January 25, 1990
and was given retrospective effect from May 27, 1971. Like its companion
sections, it also underwent many changes. We are concerned with Section
15-A, as substituted by the Haryana Act 9 of 1993 on February IO, 1993
B retrospectively from May 27, 1971. It was as under:

*"15-A. Adjustment or refund of tax in certain cases-

Subject to the provisions of clause (iii) of proviso to sub-section (I)
.of Section 15 and subject to the conditions and restrictions, as may
C be prescribed -

(i) the tax leviable under this Act or the Central Sales Tax Act, 1956,
· on the sale of goods by a dealer, manufactured by him, shall be
reduceotl by the amount of tax ·paid in the State on the sale or purchase
of goods, other than paddy, cotton and oilseeds, used in their
D manufacture, and

(ii) when no tax is leviable on the sale of manufactured goods except
those specified in Schedule B, subject to the conditions and exceptions
specified therein, or when the tax leviable on the sale of manufactured
goods is less than the tax paid in the State on the sale or purchase of
E goods, other than paddy, cotton and oil seeds, used in their
manufacture, the full amount of tax paid or the excess amount of tax
paid over the tax leviable on sale, as the case may be, shall be
refundable if the manufactured goods are sold in the State or in the
course of inter-State trade or commerce or in tlie course of export out
of the territory of India.
F
Provided that in case the manufactured goods have been sold
before the I st day of January, 1988, the tax paid on goods, le viable
to tax at the first stage of sale under section 18, used in their
manufacture, shall not be refunded."
G This provision speaks of adjustment and refund of tax in certain cases.
It operates subject to the provisions of clause (iii) of proviso to sub-section
(!) of Section 15, we shall refer to it presently, and is also subject to the
conditions and restrictions, as may be prescribed. Clause (i) of Section 15-

• A new Section IS·A was substituted by Haryana Act, No. 12 of2000 dated 19.9.2000 .
H however. it was not given retrospective effect.
SATNAM OVERSEAS (EXPORT) THROlJGH ITS PARTNER"· STATE [QUADRI, J] 299

A stipulates that the tax leviable under the Haryana Act or the CST Act on A
the sale of goods by a dealer manufactured by him shall be reduced by the
amount of tax paid in the State on the sale or purchase of the raw material,
other than the tax paid on the last purchase of paddy, cotton and oil seeds
used in their manufacture. Clause (ii) speaks of a situation where no tax is
leviable on the sale of manufactured goods [except those specified in Schedule B
'B'], subject to the .conditions and exceptions specified therein; or when the
tax leviable on the sale of manufactured goods is less than the tax paid in the
State on the sale or purchase of raw material other than the tax paid on the
last purchase of paddy, cotton and oil seeds used in their manufacture, the
full amount of tax paid or the excess amount of tax paid over the tax leviable
on the sale, as the case may be, shall be refundable if the manufactured goods C
are sold in the State or in the course of inter-State trade or commerce or in
the course of export out of the territory of India. It is plain that this clause
.. provides for refund of tax paid on the last purchase of raw material, except
on paddy, cotton and oil seeds. However, the proviso creates an exemption
to the refund of tax when the manufactured goods have been sold before the
!st day of January, 1988. What is relevant to note is that the purchase tax D
paid on paddy, cotton and oil seeds (which are used as raw material) can
neither be refunded nor adjusted. It is in view of this provision that show
cause notices were issued to the assessees denying both the benefit of
adjustment as well as refund of tax paid on the purchase of paddy.
E
The last mentioned amendment inserted in Section 15-A, the following
words "subject to the provisions of clause (iii) of proviso to sub-section ( 1)
of Section 15". Clause (iii) ofproviso to sub-section (1) of Section 15 of the
Haryana Act reads as under:

"15.(1) Subject to the provisions of this Act, there shall be levied on p
the taxable turnover of a dealer a tax, at such rates, not exceeding,

(a) and (b) xxx xxx xxx

Provided that -

(i) and (ii) xxx xxx xxx * G
(iii) in the case of rice procured out of paddy on the purchase of
which a tax has been levied inside the State, tax leviable on such rice
shall be reduced by the amount of tax levied on such paddy."

*I. Clause (iii) was insisted by Haryana Act 44 of 1976 w.e.f. 7.9.1976. H
300 SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A It specifies different rates of tax leviable on the taxable turnover of a
dealer depending on the nature of goods. Clause (iii) of the proviso to sub-
section (1) says that the tax leviable on rice, which is procured from the
purchase tax suffered paddy, shall be reduced by .the amount of tax levied on
such paddy.

B Having referred to the provisions of Article 286 of the Constitution and
Section IS(c) of the CST Act, we have pointed out that clause (1) of Article
286 protects sale or purchase which takes place (a) outside the State or (b)
in the course of import of goods into or export of the goods out of the
territory of India, from a State Law imposing or authorising imposition of a
C tax. We have also indicated that clause (c) of Section 15 of the CST Act
directs that where in respect of sale or purchase of paddy, tax has been levied
in a State, then the tax leviable on the rice procured out of such paddy shall
be reduced by the amount of tax levied on such paddy. This is to ensure that
paddy and rice, being declared goods, considered to be of special importance
in the inter-State trade or commerce, be relieved of so much burden of tax
D on rice as has been on the paddy from which rice has been procured. It
appears to us that clause (iii) of the proviso to sub-section (I) of Section 1S
reflects the intendment of clause (c) of Section lS of the CST Act. It is not
possible to accept that Section l S-A denies adjustment in regard to the tax
paid on the purchase of paddy, as it is clear that in view of the opening words
E of Section l S-A, inserted by the amendment referred to above, it is subject
to clause (iii) of the proviso to sub-section (I) .of Section IS. Consequently,
applying the principle ofharrnonious construction Section IS-A cannot be so
interpreted as to override the provisions of either Section IS(c) of the CST •
Act or clause (iii) of the proviso to sub-section (I) of Section· IS of the
Haryana Act so as to deny the benefit of adjustment. It, therefore, follows
F that the assessees are entitled to adjustment of purchase tax paid on paddy
when the rice procured therefrom is taxed.

It is true that Section ISA does not permit refund of purchase tax paid
on paddy, cotton and oilseeds by.an assessee though such a relief is available
in regard to other goods. In the light of the above discussion, the challenge
G to Section ISA on the ground of violation of Section l S(c) of the CST Act
or Article 286 (I )(b) of the Constitution cannot be sustained because the only
relief that is granted by Section lS(c) is reduction of tax leviable on the sale
of rice procured from out of paddy, where tax has been levied on sale or
purchase of such paddy inside the State. This relief is incorporated by the
H Haryana Act in clause (iii) of the proviso to sub-section (I) of Section l S.
SATNAM OVERSEAS (EXPORT) THROUGH !TS PARTNER 1•, STATE [QUADRI, J.] 30 J
Even clause (b) of sub-article (I) of Article 286 does not provide for exemption A
of tax on the purchase of paddy, There is no other provision either in Article
286 or in the CST Act which bars a State from levying tax on the sale or
purchase of paddy which is not exported out of the territory of India. Section
15A proceeds on the premise that purchase tax is payable, inter alia, on
paddy. From the above discussion, it is clear that before the omission of
Section 9 from the Haryana Act, no purchase tax was payable on paddy B
under Section 6 of the Act, therefore, during the aforesaid period, the assessee
cannot complain of the denial of the benefit of adjustment and refund of
purchase tax on the basis of Section 15-A of the Haryana Act. The position
would, however, be different after April I, 1991, when Section 9 was omitted
~~A~ C
In regard to the competence of a legislature to levy impost, it is well
established that it can do so, it can as well legislate retrospectively.

In Rai Ramkarishna and Ors. v. The State of Bihar, [1964] l SCR 897),
a Constitution Bench of this Court observed, where the legislature could D
make a valid law, it could provide not only for the prospective operaticn of
the material provisions of the said law, but also for the retrospective operation
of the said provisions. It was also observed that the legislative power included
the subsidiary or the auxiliary power to validate law which was found to be
invalid, Even if a law passed by the legislature was struck down by the
Courts, it was competent for the appropriate legislature to pass a validating E
law so as to make the provisions of the earlier law effective from the date
when it was passed. In that connection, it was held that the test of the length
of rime covered by the retrospective operation could not by itself be treated
as a decisive test.

In Jawaharmal v. State of Rajasthan and Ors., (1966] 1 SCR 890 a F
Constitution Bench of this Court laid down,

"What it (Section 2 of the Act of 1964) does is to amend retrospectively
Section 3 of the principal Act by inserting a proviso ........... The
power to legislate includes the power to legislate prospectively as G
well as retrospectively and in that behalf, tax legislation is no different
from any other legislation. The power to tax can be competently
exercised by the legislature either prospectively or retrospectively;
and that is precisely what Section 2 has done in the present case.
Therefore, there was no substance in the argument that Section 2 of
the Act was invalid." H
302 SUPREME COURT REPORTS [2002) SUPP. 3 S.C.R.

A In that case Section 3 of the Rajasthan Passengers and Goods Taxation
Act, 1959 (Act 18 of 1959) was amended by Rajasthan Finance Act Nos.14
of 1961 and 11 of 1962 to raise the maximum rates leviable under the Act.
The Acts did not, however, obtain the assent of the President, as required by
Article 255 of the C.:mstitution. The defect was cured by issuing Ordinance
No.4 of 1964 which was replaced by Act 22 of 1964 for which the assent of
B the President was duly obtained. Section 2 of the said Act of 1964
retrospectively re-enacted the amendments to Section 3 of the Principal Act
by Acts of 1961 and 1962 and Section 4 of the Act validated all the collections
and levies under the earlier Acts and also purported to cure the infirmity in
the said earlier Act arising from non-compliance with Article 255. The
C petitioner therein challenged the validity of the said ordinance as well as the
Act of 1964 under Article 32 of the Constitution, which failed.

In Mis. J.K. Cotton Spinning and Weaving Mills Ltd. and Anr. v. Union
of India and Ors., (1.987] Supp. SCC 350 by Section 51 of Finance Act,
1982, Rules 9 and 49 of the Central .Excise Rules, l 944 were amended
D retrospectively from the date of framing of the Rules in 1944. After referring
to the cases of Rai Ramakrishna and Jawaharmal (supra), it was observed
that the Court might have to consider the question as to whether excessive
retruspective operation prescribed by a taxing statute amounted to
contravention of the citizens' fundamental rights and in dealing with such a
E question the Court might have to take into account all the relevant and
surrounding facts and circumstances in relation to the taxation and in that
connection the test of the length of time covered by the retrospective operation
cannot, by itself, necessarily be a decisive test. By examination of the merits
of the case it was held that the retrospective effect given to the said provisions
was subject to Section 11-A of the Act and was, therefore, not excessive and
F arbitrary.

In State of Tamil Nadu v. Arooran Sugars Ltd., (1997] l SCC 326, the
same principle is reiterated and it is added that in special situation this Court
has held that such excessive retrospectivity was violative of Anicle 14 of the
Constitution.
G
In the instant case, having regard to the provisions of Section 40 of the
Haryana Act, the authorities can not revise the assessment for period beyond
five years. Further, even though Section 15-A was given retrospectivity with
effect from May 27, 1971, it wouid hardly be effective between May 27,
H 1971 and April I, 1991 when the benefit of exemption under Section 9(l)(b)
SATN AM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 303
ceased to exist, as such the contentions that giving Section 15-A retrospectivity A
of 21 years would be harsh, arbitrary and illegal are devoid of merit.

No relief was available in regard to penultimate purchase of paddy
which was converted into rice and exported. This position obtained till clause
(ca) of Section 15 of the CST Act was inserted by Act 33 of 1996 on
September 28, 1996. The said clause (ca) provides, where a tax on sale or B
purchase of paddy is leviable under a State Law and the rice procured out of
such paddy is exported out of India, then for the purposes of sub-section (3)
of Section 5 of the CST Act, the paddy and rice have to be treated as a single
commodity. What is, however, contended in clause (ca) is only declaratory
and, therefore, retrospective. We do not so think. A declaratory Act is defined C
in 'Craies on Statute Law' thus :

"For modem purposes a declaratory Act may be defined as an Act to
remove doubts existing as to the common law, or the meaning or
effect of any statute. Such Acts are usually held to be retrospective."

It cannot be said to be clarificatory for, it neither supplies an obvious
D
omission in the CST Act nor purport to explain any provision of that Act. It
confers a new benefit hitherto not available. It is not given retrospective
effect expressly. There is also nothing to imply that it has retrospective
operation. However, had it been declaratory or curative, it would have been
treated as retrospective. See: Shri Chaman Singh and Anr. v. Srimathi Jaikaur, E
(1969] 2 sec 429.

We do not also find any force in the contention of Mr. Chidambaram
that in not granting refund of purchase tax only in regard to three goods -
paddy, cotton and oil seeds - there is violation of Article 14 of the Constitution.
It is a settled proposition of law that in the matter of taxation, the legislature F
has greater latitude to give effect to its policy of raising revenue and for that
purpose selecting the goods for taxing. The classification of goods based on
the policy of taxing some goods and leaving others outside the net of taxation
cannot be assailed as violative of Article 14 of the Constitution. See:
Mis. Steelworth Ltd v. State of Assam, (1962) Suppl. 2 SCR 589 and Gopal G
Narain v. State of Uttar Pradesh and Anr., [1964] 4 SCR 869.

The observations of Krishna Iyer, J. in Murthy Match Works, Etc. Etc.
v. The Asstt. Collector of Central Excise, etc,. (1974] 3)] SCR 121 which are
approved by a Constitution Bench in Ganga Sugar Corporation Ltd v. State

Six th Edition page 59.
H
304 SUPREME COURT REPORTS (2002) SUPP. 3 S.C.R.

A of Uttar Pradesh and Ors., [·1980] I SCC 223 are worth quoting :

"It is well established that the modern State, in exercising its sovereign
powers of taxation, has to deal with complex factors relating to the
objects to be taxed, the quantum to be levied, the conditions subject
to which the levy has to be made, the social and economic policies
B which the tax is designed to subserve, and what not. In the famous
words of Holmes, J., in Bain Peanut Co. v. Finson, (1930) 282 US
499:

We must remember that the machinery of government would not
work if it were not allowed a little play in its joints."
c
Granting ~elief, whether of refund or otherwise, stands on the same
footing.

To sum up:

D (I) In the specified circumstances in which charge of purchase tax
on the raw material is imposed, clause (b) of sub-section (I) of
Section 9 of the Haryana Act and the exemptions provided therein
would apply; the law declared by this Court in Murli Manohar
and Co.; Hotel Balaji and K.B. Handicrafts (supra) holds the
field;
E
(2) while Section 9 remained on the Statute till April I, 1991,
retrospectiv~ amendments of Sections 2(p), 6, 15 and 15-A of
the Haryana Act would ma!ce no difference in regard to levy of
purchase tax on paddy;
F (3) adjustment of purchase tax paid on paddy (raw material) is
permissible under Section 15-A of the Haryana Act during the
relevant period;
(4) by virtue of Section 15-A of the Haryana Act, denial of refund
of purchase tax, if any, paid by a dealer is not illegal much less
unconstitutional; and
G
(5) mere similarity between Section 9(1 )(b) of the Haryana Act and
Section 4-B of the Punjab Act would not relieve a dealer of the
liability to pay purchase tax on paddy as the scope of charging
sections under the said Acts are different.
H In view of the above discussion, the appeals filed by the assessees
SATNAM OVERSEAS (EXPORT) THROUGH ITS PARTNER v. STATE [QUADRI, J.] 305
under the Haryana Act are allowed in part and the appeals filed by the A
assessees under the Punjab Act are dismissed. The writ petitions are dispofed
of accordingly.

No costs.

Insofar as the question of payment of interest, if any, is concerned, it B
is left open to be adjudicated in the connected cases.

K.K.T. Appeals/Petitions disposed of.