Holding

The purchase tax under s.5A of the Kerala General Sales Tax Act and s.7A of the Tamil Nadu General Sales Tax Act is a constitutionally valid charging provision within State legislative competence, applicable to purchases from dealers exempt from sales tax and not an inter‑state or consignment tax.

Summary

The appellants purchased goods from dealers who were exempt from sales tax under the Kerala General Sales Tax Act, 1963 and the Tamil Nadu General Sales Tax Act, 1959, and challenged the levy of purchase tax under s.5A of the Kerala Act and s.7A of the Tamil Nadu Act. The questions were whether such purchases constitute a taxable purchase, whether the purchasers are liable to pay purchase tax despite the seller's exemption, and whether the purchase tax is a manufacture, consignment or inter‑state levy that would be ultra vires the State legislature. The Supreme Court held that the purchase tax provisions are independent charging sections that apply when the seller is exempt from sales tax, that the tax is levied on the purchaser and does not result in double taxation, and that it is a valid exercise of the State’s power under the State List. The Court relied on earlier decisions interpreting similar provisions and rejected the argument that the tax is an inter‑state or consignment tax. Consequently, the appeals were dismissed and the High Court judgments upholding the purchase tax were affirmed.

Issues considered

Whether the purchase of goods from dealers exempted from sales tax under the Kerala or Tamil Nadu Acts is a purchase "which is liable to tax" within the meaning of s.5A or s.7A.
Whether the appellant‑assessee who purchased goods exempt from sales tax is liable to pay purchase tax under s.5A of the Kerala Act or s.7A of the Tamil Nadu Act.
Whether the purchase tax imposed by s.5A of the Kerala Act or s.7A of the Tamil Nadu Act is a tax in the nature of manufacture, consignment or inter‑state levy and thus ultra vires the Constitution.

Legislation cited

Central Sales Tax Act, 1956s. 14, s. 15
Kerala General Sales Tax Act, 1963s. 10, s. 3, s. 4, s. 5, s. 5A
Tamil Nadu General Sales Tax Act, 1959s. 17, s. 2(g), s. 2(j), s. 2(n), s. 3, s. 4, s. 7A, s. 8

Headnote

Issue for Consideration Issue arose whether the purchase tax, as imposed by s.5A of the Kerala General Sales Tax Act, 1963 or s.7A of the Tamil Nadu General Sales Tax Act, 1959, is a tax in the nature of manufacture or consignment tax or an inter-state levy, and thus, ultra vires the legislative powers of the state legislature; whether the purchase of goods by the appellants from dealers exempted from payment of tax by virtue of notifications or exemptions issued under the Kerala Act or Tamil Nadu Act is a purchase “which is liable to tax” within the

Subjects

Purchase taxSales taxConstitutional validityExempt from payment of taxFirst point of salePower of the StateSource of revenue for governmentsExemption from payment of sales taxApplicable rate of taxNo reverse levyExcise dutyCustom dutyTax in the nature of manufactureConsignment taxInter‑state levyBeyond the legislative powers of the state legislatureDealers exempt from payment of sales tax, if liable to pay purchase tax

Judgment

[2025] 6 S.C.R. 310 : 2025 INSC 661

C.T. Kochouseph
v.
State of Kerala and Another Etc.
(Civil Appeal No(s). 941-945 of 2004)
09 May 2025
[Sanjiv Khanna CJI,* Sanjay Kumar and R. Mahadevan, JJ.]

Issue for Consideration
Issue arose whether the purchase tax, as imposed by s.5A of the
Kerala General Sales Tax Act, 1963 or s.7A of the Tamil Nadu
General Sales Tax Act, 1959, is a tax in the nature of manufacture
or consignment tax or an inter-state levy, and thus, ultra vires
the Constitution and beyond the legislative powers of the state
legislature; whether the purchase of goods by the appellants from
dealers exempted from payment of tax by virtue of notifications
or exemptions issued under the Kerala Act or Tamil Nadu Act is
a purchase “which is liable to tax” within the meaning of s.5A of
the Kerala Act or s.7A of the Tamil Nadu Act; and whether the
appellant-assessee who had purchased goods, that were exempt
from payment of sales tax or from the dealers who were exempt
from payment of sales tax, liable to pay purchase tax u/s.5A of
the Kerala Act or s.7A of the Tamil Nadu Act.

Headnotes†
Kerala General Sales Tax Act, 1963 – s.5A – Tamil Nadu
General Sales Tax Act, 1959 – s.7A – Levy of purchase
tax – Constitutional validity of purchase tax under the Acts –
Purchase tax, as imposed by s.5A of the Kerala Act or s.7A of
the Tamil Nadu Act, is a tax in the nature of manufacture or
consignment tax or an inter-state levy – Purchase of goods
by the assessee from dealers exempted from payment of tax
under the Kerala Act or Tamil Nadu Act, if a purchase “which
is liable to tax” within the meaning of s.5A of the Kerala Act
or s.7A of the Tamil Nadu Act – Assessee who had purchased
goods, that were exempt from payment of sales tax or from
the dealers who were exempt from payment of sales tax, if
liable to pay purchase tax:

* Author
[2025] 6 S.C.R. 311

C.T. Kochouseph v. State of Kerala and Another Etc.

Held: Constitutional validity of s.7A of the Tamil Nadu Act and s.5A
of the Kerala Act upheld – Levy of purchase tax is governed by the
provisions and stipulations of ss.5A or 7A – They are independent
and in a way constitute charging sections – ss.5A or 7A, impose
purchase tax specifically in situations where the seller is granted
exemption from payment of tax – Exemption from payment of tax
at the time of sale is a pre-condition for attracting ss.5A and 7A
respectively – It cannot be said that s.7A of the Tamil Nadu Act
and s.5A of the Kerala Act would have no application when tax
is exempt at the hands of the seller, or for that matter, the tax
u/s.3 or s.5 of the Acts at the hands of the seller is payable at
the point of first sale – The fact that the goods were not exempt
from payment of tax at the time of sale and the goods would have
attracted tax at the first point of sale, is immaterial – Purchase
tax is leviable on and payable by the purchaser – However, the
legislations do not levy the purchase tax to tax the transaction
of the sale and purchase twice – Instead, it levies purchase tax
only where no sales tax was payable on the sale – Purchase
tax is levied on the purchase of goods on which no tax has
been paid on account of any exemption as a result of which
the seller is not required to collect and pay sales tax – Decision
whether or not to levy purchase tax is a prerogative and power
of the State Legislature – It cannot be said that purchase tax is
leviable when there is cross- border or inter-State movement of
the goods or is a consignment tax – What is granted is exemption
from payment of sales tax and not the purchase tax – Grant of
exemption being for the purpose of payment of sales tax, it does
not follow that purchase tax would not be payable when conditions
of s.7A are satisfied – Furthermore, it cannot be said that the
applicable rate of tax on purchase would be nil as the tax payable
on the sale in view of the exemption from payment of sales
tax is nil – Thus, the judgments /orders of High Courts upheld.
[Paras 31, 32, 35, 37-39]

Case Law Cited
State of Tamil Nadu v. M.K.Kandaswami and Others [1976] 1 SCR
38 : (1975) 4 SCC 745; Hotel Balaji and Others v. State of A.P. and
Others [1992] Supp. 2 SCR 182 : (1993) Supp. 4 SCC 536; Devi
Dass Gopal Krishan Pvt. Ltd. and Others v. State of Punjab and
Others [1994] 3 SCR 417 : (1994) Supp. 2 SCC 59 – relied on.
312 [2025] 6 S.C.R.

Supreme Court Reports

Kailash Nath and Another v. State of Uttar Pradesh and Others,
AIR 1957 SC 790; Collector of Central Excise, Bombay-I and
Another v. Parle Exports Pvt. Ltd. [1983] Supp. SCR 933 : AIR
1989 SC 644; Casio India Company Private Limited v. State
of Haryana [2016] 2 SCR 791 : (2016) 6 SCC 209; Rajputana
Agencies Ltd. v. CIT (1959) 35 ITR 168; Thermax Private Limited
v. Collector of Customs (Bombay) [1992] 3 SCR 943 : (1992) 4
SCC 440 – held inapplicable.
State of Kerala v. T.S. Govindarajulu Naidu (1993) Supp. 3 SCC
656; Goodyear India Ltd. and Others v. State of Haryana and
Another [1989] Supp. 1 SCR 510 : (1990) 2 SCC 71; Mukerian
Papers Ltd. v. State of Punjab [1991] 1 SCR 347 : (1991) 2 SCC
580; Peekay Re-Rolling Mills (P) Ltd. v. Assistant Commissioner
and Another [2007] 4 SCR 185 : (2007) 4 SCC 30; Shanmuga
Traders and Others v. State of Tamil Nadu and Others (1998) 5
SCC 349; A.V. Fernandez v. The State of Kerala [1957] SCR 837 :
AIR 1957 SC 657; Chatturam Horilram Limited v. Commissioner of
Income Tax, Bihar and Orissa [1955] 2 SCR 290 : AIR 1955 SC
619; M/s Pine Chemicals Ltd. and Others v. Assessing Authority
and Others [1992] 1 SCR 179 : (1992) 2 SCC 683; Associated
Cement Companies Ltd. v. State of Bihar and Others [2004]
Supp. 4 SCR 868 : (2004) 7 SCC 642; Assistant Collector of
Central Excise, Calcutta Division v. National Tobacco Co. of India
Ltd. [1973] 1 SCR 822 : (1972) 2 SCC 560; Somaiya Organics
(India) Ltd. and Another v. State of Uttar Pradesh [2001] 3 SCR
33 : (2001) 5 SCC 519; Collector of Central Excise, Hyderabad
and Others v. Vazir Sultan Tobacco Company Ltd., Hyderabad
and Others [1996] 2 SCR 1194 : (1996) 3 SCC 434; Chief
Commissioner of Central Goods and Service Tax and Others v.
Safari Retreats (P) Ltd. and Others [2024] 10 SCR 793 : (2025)
2 SCC 523; Elel Hotels and Investments Limited and Others v.
Union of India [1989] 2 SCR 880 : (1989) 3 SCC 698; Federation
of Hotel and Restaurant Association of India, Etc. v. Union of India
and Others [1989] 2 SCR 918 : (1989) 3 SCC 634 – referred to.
Malabar Fruit Products Company, Bharananganam Kottayam and
Others v. Sales Tax Officer, Palai and Others (1972) 30 STC 537
(Ker); Yusuf Shabeer and Others v. State of Kerala and Others
(1973) 32 STC 359 (Ker); T.S. Govindarajalu Naidu v. State of
Kerala (1979) 43 STC 233 (Kerala); Bhawani Cotton Mills Ltd. v.
State of Punjab and Another (1967) 20 STC 290 – referred to.
[2025] 6 S.C.R. 313

C.T. Kochouseph v. State of Kerala and Another Etc.

List of Acts
Kerala General Sales Tax Act, 1963; Tamil Nadu General Sales
Tax Act, 1959.

List of Keywords
Purchase tax; Sales tax; Constitutional validity; Exempt from
payment of tax; First point of sale; Power of the State; Source of
revenue for governments; Exemption from payment of sales tax;
Applicable rate of tax; No reverse levy; Excise duty; Custom duty;
Tax in the nature of manufacture; Consignment tax; Inter-state
levy; Beyond the legislative powers of the state legislature; Dealers
exempt from payment of sales tax, if liable to pay purchase tax.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 941-945
of 2004
From the Judgment and Order dated 04.09.2003 of the High Court
of Kerala at Ernakulam in O.P. No. 25135 of 2002, TRC Nos.
20, 24 and 26 of 1996 and TRC No. 338 of 2000
With
Civil Appeal Nos. 4745 and 4746 of 2007, Civil Appeal Nos. 1937-
1939 and 6055 of 2008, Civil Appeal Nos. 938-939 of 2009, Civil
Appeal Nos. 3024-3025 of 2012 and Civil Appeal Nos. 6615-6617
of 2025

Appearances for Parties
Advs. for the Appellant:
V. Sridharan, C.N. Sreekumar, V. Chitambaresh, Arvind P. Datar,
Sr. Advs., M.P. Vinod, Atul Shankar Vinod, Dileep Pillai, Kannan
Gopal Vinod, Sahil Parghi, Ms. Apeksha Mehta, Ayush Agarwal,
Ms. Charanya Lakshmikumaran, Ms. Umang Motiyani, Ms. Falguni
Gupta, Prakash Ranjan Nayak, Ms. Anupama Kumar, Debasis Jena,
E.M.S. Anam, Ajay Aggarwal, Rajan Narain, Ms. Mallika Joshi.
Advs. for the Respondents:
Pallav Shishodia, V. Giri, K. Radhakrishnan, Sr. Advs., G. Prakash,
C.K. Sasi, Ms. Meena K Poulose, Sabarish Subramanian, C.
Kranthi Kumar, Vishnu Unnikrishnan, Sarathraj B., Danish Saifi,
Ms. Aswani Satheesh, M. Yogesh Kanna.
314 [2025] 6 S.C.R.

Supreme Court Reports

Judgment / Order of the Supreme Court

Judgment

Sanjiv Khanna, CJI

Leave granted in SLP (C) Nos. 9420-9422 of 2012.
2. This judgment decides a batch of matters pertaining to Section 5A
of the Kerala General Sales Tax Act, 19631 and the pari materia
provision of Section 7A of the Tamil Nadu General Sales Tax Act,
1959.2
3. The following issues arise for our consideration:
I. Whether the purchase of goods by the appellants from
dealers who were exempted from payment of tax by virtue of
notifications or exemptions issued under the Kerala Act or the
Tamil Nadu Act, is a purchase “which is liable to tax” within
the meaning of Section 5A of the Kerala Act or Section 7A of
the Tamil Nadu Act?
II. Whether the appellant-assessee who had purchased goods,
that were exempt from payment of sales tax or from the dealers
who were exempt from payment of sales tax, are liable to pay
purchase tax under Section 5A of the Kerala Act or Section 7A
of the Tamil Nadu Act?
III. Whether the purchase tax, as imposed by Section 5A of the
Kerala Act or Section 7A of the Tamil Nadu Act, is a tax in the
nature of manufacture or consignment tax or an inter-state
levy, and therefore ultra vires the Constitution and beyond the
legislative powers of the state legislature?
4. At the outset, it is important to note that this is essentially a legacy
dispute. Following the enactment and enforcement of the Value
Added Tax in 2005 and the Goods and Services Tax Acts in 2017,
the legal issue in question no longer arises for consideration under
the current legal framework.

1 For short, “Kerala Act”.
2 For short, “Tamil Nadu Act”.
[2025] 6 S.C.R. 315

C.T. Kochouseph v. State of Kerala and Another Etc.

Statutory Provisions
5. At this stage, it will be apposite to quote the relevant statutory
provisions of both the Kerala and Tamil Nadu Acts.
Tamil Nadu General Sales Tax Act, 1959
“Section 2(g) “dealer” means any person who carries on
the business of buying, selling, supplying or distributing
goods, directly or otherwise, whether for cash, or for
deferred payment, or for commission, remuneration or
other valuable consideration, and includes –
(i) A local authority, company, Hindu undivided family, firm
or other association of persons which carries on such
business;
(ii) a causal trader,
(iii) a factor, a broker, a commission agent or arhati, a del
credere agent or an auctioneer, or any other mercantile
agent by whatever name called, and whether of the same
description as hereinbefore or not, who carries on the
business of buying, selling, supplying or distributing goods
on behalf of any principal, or through whom the goods are
bought, sold, supplied or distributed;
(iv) every local branch of a firm or company situated
outside the State;
(v) a person engaged in the business of transfer otherwise
than in pursuance of a contract of property in any goods
for cash, deferred payment or other valuable consideration;
(vi) a person engaged in the business of transfer of property
in goods (whether as goods or in some other form) involved
in the execution of a works contract;
(vii) a person engaged in the business of delivery of goods
on hire purchase or any system of payment by instalments;
(viii) a person engaged in the business of transfer of the
right to use any goods for any purpose (whether or not
for a specified period) for cash, deferred payment or other
valuable consideration;
316 [2025] 6 S.C.R.

Supreme Court Reports

(ix) a person engaged in the business of supplying by
way of, or as part of, any service or in any other manner
whatsoever of goods, being food or any other article
for human consumption or any drink (whether or not
intoxicating), where such supply or service is for cash,
deferred payment or other valuable consideration;
Explanation (1)- A society (including a co-operative
society), club or firm or an association which, whether
or not in the course of business, buys, sells, supplies or
distributes goods from or to its members for cash, or for
deferred payment, or for commission, remuneration or
other valuable consideration, shall be deemed to be a
dealer for the purposes of this Act .
Explanation (2)- The Central Government or any State
Government which, whether or not in the course of
business, buy, sell, supply or distribute goods, directly
or otherwise, for cash, or for deferred payment, or for
commission, remuneration or other valuable consideration,
shall be deemed to be a dealer for the purposes of this Act;

xx xx xx
Section 2(j) “goods” means all kinds of movable property
(other than newspapers, actionable claims, stocks
and shares and securities) and includes all materials,
commodities, and articles including the goods( as goods
or in some other form) involved in the execution of a
works contract or those goods to be used in the fitting
out, improvement or repair of movable property; and all
growing crops, grass or things attached to, or forming part
of the land which are agreed to be severed before sale
or under the contract of sale;

xx xx xx
Section 2(n) “sale” with all its grammatical variations and
cognate expressions means every transfer of the property
in goods (other than by way of mortgage, hypothecation,
charge or pledge) by one person to another in the course
[2025] 6 S.C.R. 317

C.T. Kochouseph v. State of Kerala and Another Etc.

of business for cash, deferred payment or other valuable
consideration and includes –
(i) a transfer, otherwise than in pursuance of a contract, of
property in any goods of cash, deferred payment or other
valuable consideration;
(ii) a transfer of property in goods (whether as goods or
in some other form) involved in the execution of a works
contract;
(iii) a delivery of goods on hire-purchase or any system
of payment by installments;
(iv) a transfer of the right to use any goods for any purpose
(whether or not for a specified period) for cash, deferred
payment or other valuable consideration;
(v) a supply of goods by any unincorporated association
or body of persons to a member thereof for cash, deferred
payment or other valuable consideration;
(vi) a supply, by way of or as part of any service or in any
other manner whatsoever, of goods, being food or any other
article for human consumption or any drink (whether or
not intoxicating) where such supply or service is for cash,
deferred payment or other valuable consideration, and such
transfer, delivery or supply of any goods shall be deemed
to be a sale of those goods by the person making (such)
the transfer, delivery or supply and a purchase of those
goods by the person to whom such transfer, delivery or
supply is made;
Explanation (3)-(a) The sale of purchase of goods shall be
deemed for the purpose of this Act, to have taken place
in the State, wherever the contract of sale or purchase
might have been made, if the goods are within the State-
(i) in the case of specific or ascertained goods, at the time
the contract of sale or purchase is made; and
(ii) in the case of unascertained or future goods, at the time
of their appropriation to the contract of sale or purchase by
the seller or by the purchaser, whether the assent of the
other party is prior or subsequent to such appropriation.
318 [2025] 6 S.C.R.

Supreme Court Reports

Explanation (3)-(b) Where there is a single contract of
sale or purchase of goods , situated at more places than
one, the provisions of clause (a) shall apply as if there
were separate contracts in respect of the goods at each
of such places.

xx xx xx
Section 2(q) “total turnover” means the aggregate turnover
in all goods of a dealer at all places of business in the
State, whether or not the whole or any portion of such
turnover is liable to tax;
Section 2(r) [“turnover” means the aggregate amount for
which goods are bought or sold, or delivered or supplied
or otherwise disposed of in any of the ways referred to in
clause (n), by a dealer] either directly or through another, on
his own account or on account of others whether for cash
or for deferred payment or other valuable consideration,
provided that the proceeds of the sale by a person of
agricultural or horticultural produce other than tea, [and
rubber (natural rubber latex) and all varieties and grades
of raw rubber] grown within the State by himself or on
any land in which he has an interest whether as owner,
usufructuary mortgagee, tenant or otherwise, shall be
excluded from his turnover;
Explanation (1)- “Agricultural or horticultural produce” shall
not include such produce as has been subjected to any
physical, chemical or other process for being made fit for
consumption, save mere cleaning, grading, sorting or dying;
Explanation (1-A).- Any amount charged by a dealer by
way of tax separately without including the same in the
price of the goods bought or sold shall not be included
in the turnover.
Explanation (2)- Subject to such conditions and restrictions,
if any, as may be prescribed in this behalf-
(i)[………]
Explanation (2) (ii) the amount for which goods are sold
shall include any sums charged for anything done by the
[2025] 6 S.C.R. 319

C.T. Kochouseph v. State of Kerala and Another Etc.

dealer in respect of the goods sold at the time of, or before
the delivery thereof;
Explanation (2) (iii) any cash or other discount on the price
allowed in respect of any sale and any amount refunded
in respect of articles returned by customers shall not be
included in the turnover; and
Explanation (2) (iv) where for accommodating a particular
customer, a dealer obtains goods from another dealer and
immediately disposes of the same to the said customer,
the sale in respect of such goods shall be included in the
turnover of the latter dealer but not in that of the former;
Explanation (3)-Any amount realised by a dealer by way
of sale of his business as a whole, shall not be included
in the turnover.
Explanation (4)-The aggregate amount for which the goods
are bought or sold or delivered or supplied through a factor,
broker, commission agent or arhati, del credere agent or
an auctioneer or any other mercantile agent, by whatever
name called, whether for cash or for deferred payment or
other valuable consideration, shall be deemed to be the
turnover of such factor, broker, commission agent, arhati,
del credere agent, auctioneer or any other mercantile
agent, by whatever name called.

xx xx xx
Section 3. Levy of taxes on sales or purchases of
goods.-
(1) Every dealer (other than the dealer, casual trader or
agent of a non- resident dealer) whose total turnover for
a year [exceeds three lakhs of rupees] and every casual
trader or agent of a non-resident dealer, whatever be
his turnover for the year, shall pay a tax for each year in
accordance with the provisions of this act.
2) Subject to the provisions of sub-section (1), in the case
of goods mentioned in the First Schedule, the tax under
this Act shall be payable by a dealer at the rate and [only]
at the point specified therein on the turnover in each year
relating to such goods:
320 [2025] 6 S.C.R.

Supreme Court Reports

Provided that all spare parts, components and accessories
of such goods shall also be taxed at the same rate as
that of the goods if such spare parts, components and
accessories are not specifically enumerated in the First
Schedule and made liable to tax under that Schedule;
[Provided further that in the case of goods mentioned in
the First Schedule which are taxable at the point of first
sale, the tax under this Act shall be payable by the first
or earliest of the successive dealers in the State who is
liable to tax under this section.]
Section 3(2-A) Subject to the provisions of sub-section (1),
in the case of goods mentioned in the Fifth Schedule, the
tax under this Act shall be payable by a dealer at the rate
and at the point specified therein on the turnover in each
year relating to such goods:
Provided that in respect of sale by the first dealer to
another registered dealer, the dealer selling the goods
shall furnish to the assessing authority in the prescribed
manner within the prescribed period a declaration duly
filled in and signed by the dealer to whom the goods are
sold containing the prescribed particulars in a prescribed
form, obtained from the prescribed authority.
Section 3(2-B) Subject to the provisions of sub-section (1),
in the case of goods mentioned in the Sixth Schedule, the
tax under this Act shall be payable by a dealer at the first
point of sale and the second point of sale, and at the rate
specified therein on the turnover in each year relating to
such goods;

xx xx xx
Section 7-A . Levy of purchase Tax. – (1) [Subject
to the provisions of sub-section (1) of section 3, every
dealer] who in the course of his business purchases
from a registered dealer or from any other person, any
goods, (the sale or purchase of which is liable to tax
under this Act) in circumstances in which [no tax is
payable under (sections 3 or 4,) as the case may be, *[not
being a circumstance in which goods liable to tax under
sub-section (2) of section 3 or section 4, were purchased
[2025] 6 S.C.R. 321

C.T. Kochouseph v. State of Kerala and Another Etc.

at a point other than the taxable point specified in the First
or the Second Schedule], and either-
(a) *[consumes or uses such goods in or for the manufacture
of other goods for sale or otherwise; or]
(b) disposes of such goods in any manner other than by
way of sale in the State; or
(c) [despatches or carries them] to a place outside the
State except as a direct result of sale or purchase in the
course of inter-State trade or commerce,
shall pay tax on the turnover relating to the purchase
aforesaid at the rate mentioned in [sections 3 or 4], as
the case may be.
Section 8. Exemption from tax. – Subject to such
restrictions and conditions as may be prescribed, a dealer
who deals in the goods specified in the Third Schedule
shall not be liable to pay any tax under this Act in respect
of such goods.

xx xx xx
Section 17. Power of Government to notify exemptions
and reductions of tax. –
(1) The Government may, by notification, [issued whether
prospectively or retrospectively,] make an exemption, or
reduction in rate, in respect of any tax payable under this
Act –
(i) on the sale or purchase of any specified goods or class
of goods, at all points or at a specified point or points in
the series of sales by successive dealers; or
(ii) by any specified class of persons, in regard to the
whole or any part of their turnover; [or] (iii) on the sale or
purchase of any specified classes of goods by specified
classes of dealers in regard to the whole or part of their
turnover.
Section 17(4) The Government may, in such circumstances
and subject to such conditions as may be prescribed,
by notification, remit the whole or any part of the tax or
322 [2025] 6 S.C.R.

Supreme Court Reports

penalty or fee payable in respect of any period by any
dealer under this Act.”
Kerala General Sales Tax Act, 1963
“5. Levy of tax on sale or purchase of goods: - (1) Every
dealer (other than a casual trader or agent of a non-resident
dealer) whose total turnover for a year is not less than
[one lakh rupees] and every casual trader or agent of a
non-resident dealer, whatever be his total turnover for the
year, shall pay tax on his taxable turnover for that year,––
(i) in the case of goods specified in the First or Second
Schedule, at the rates and only at the points specified
against such goods in the said Schedule;
[xxx]
(iii) in the case of transfer of the right to use any goods
for any purpose (whether or not for a specified period) at
the rate of [six per cent] at all points of such transfer on
an aggregate turnover of [rupees one lakh] and above;
[(iv) (a) in the case of transfer of goods involved in the
execution of works contract where transfer is in the form
of goods at the rates and at the points specified against
such goods in the First, Second or Fifth Schedule [ x x x ]
(b) In the case of transfer of goods involved in the execution
of works contract (where the transfer is not in the form
of goods but in some other form) specified in the Fourth
Schedule, at the rate specified against such contract in
the said Schedule:
Provided that no tax is payable in respect of the turnover
of goods the transfer of which was effected without any
processing or manufacture on which tax was levied under
clause (i) on any earlier sale in the State or which are
exempted from tax and for goods coming under the Fifth
Schedule, no tax specified for the first sale is payable,
on which tax was levied in any earlier sale in the State:
Provided further that tax payable in respect of turnover of
goods coming under the second schedule the transfer of
which was effected without any processing or manufacture
[2025] 6 S.C.R. 323

C.T. Kochouseph v. State of Kerala and Another Etc.

shall not exceed the rate and only at the points specified
against such goods in the said Schedule].
(v) in the case of goods specified in the Fifth Schedule
at the rates and at the two points specified against such
goods in the said Schedule;
[Provided that where there are no two points of sale in
the State for any goods coming under the Fifth Schedule
and the first sale is to a person other than a registered
dealer, the rate specified in column (8) of that Schedule
shall apply to such sales]
[(2) Every dealer other than a dealer referred to in sub-
section (1) whose total turnover for a year in respect of the
goods specified in the First or Second or Fifth Schedule
or goods involved in the execution of works contract
(whether it is in the form of goods or in some other form)
specified in the Fourth Schedule is not less than [rupees
one lakh] shall pay tax at the rate and only at the point or
points specified against the goods in the First or Second
or Fifth Schedule or goods involved in the execution of
works contract (whether it is in the form of goods or in
some other form) specified in the Fourth Schedule, as the
case may be, on his taxable turnover in that year relating
to such goods:
Provided that where a tax has been levied under sub-
section (1) or sub-section (2) of this section or under section
5A in respect of the sale or purchase or goods specified
in the Second Schedule and such goods are sold in the
course of interstate trade or commerce, the tax so levied
shall be refunded to such person in such manner and
subject to such conditions as may be prescribed
[(2A) (i) Notwithstanding anything contained in this Act or
the rules made thereunder every dealer shall pay turnover
tax on the turnover of goods as specified hereunder,
namely:-
(a) by an oil company defined in the Explanation under
serial number [97] of the First Schedule to this Act whose
total turnover in a year exceeds rupees fifty Iakhs at the
324 [2025] 6 S.C.R.

Supreme Court Reports

rate of three per cent on the turnover from the Ist day of
April, 1991 till 31st day of July, 1991 and thereafter at the
rate of four per cent on the turnover:
[(b) by any dealer in Foreign Liquor (Indian made) or
Foreign Liquor (Foreign made) as specified in entries
against serial numbers 53 and 54 of the First Schedule
at the rate of three per cent on the turnover at all points;
(c) by any dealer in jewellery made of gold, silver and
platinum group of metals at the rate of three per cent on
the turnover;
(d) by any dealer in cooked food including beverages not
falling under the entries against serial numbers 53 and
54 of the First Schedule sold or served in hotels and/
or restaurants and not covered by the entries against
serial number 40 of the First Schedule whose turnover
in a year.––
exceeds rupees five lakhs but does not Rupees one
thousand exceed rupees ten lakhs exceeds rupees ten
lakhs but does not at the rate of one per cent exceeds
rupees twenty five lakhs on the turnover exceeds rupees
twenty five lakhs at the rate of two per cent on the turnover:
Provided that tax under sub-sections (1) and (2) of section
5 on such turnover and tax under section 5A shall not be
levied on such dealer;
(e) by any dealer in medicines and drugs including
Allopathic, Ayurvedic, Homoeopathic, Sidha or Unani
preparations or Glucose I. P. at the point of first sale in
the State at the rate of half per cent on the turnover of
such goods:
Provided that dealers other than those who receive the
goods on branch transfer or on consignment shall not be
liable to pay turnover tax when the total turnover does not
exceed rupees fifty lakhs in the year;
(f) by any dealer in tea at the point of second sale in the
State at the rate of three fourth per cent on the turnover
of such good;
[2025] 6 S.C.R. 325

C.T. Kochouseph v. State of Kerala and Another Etc.

(g) by any dealer not coming under sub-clauses (a) to
(f) of goods coming under the First Schedule or the Fifth
Schedule whose total turnover in a year exceeds rupees
fifty lakhs at the rate of haIf per cent on the turnover of
such goods at all points of sale or purchase as the case
may be.]
Provided that no tax under this sub-section shall be payable
on that part of such turnover–
[(i) x x x ]
(ii) which relates to:
(a) sale or purchase of goods in the course of interstate
trade or commerce:
(b) sale or purchase of goods in the course of export out
of the territory of India or sale or purchase in the course
of import into the territory of India;
(c) sale or purchse exempted from tax by notification
under section 10;
(d) all amounts falling under the head ‘freight’, when
specified and charged for by the dealer separately without
including such amounts in the price of the goods sold;
(e) all amounts falling under the head ‘charges for delivery’,
when specified and charged for by the dealer separately
without including such amounts in the price of the goods
sold;
(f) all amounts allowed as discount, provided that such
discount is allowed in accordance with the regular practice
of the dealer or is in accordance with the terms of a contract
or agreement entered into in a particular case and provided
also that the accounts show that the purchaser has paid
only the sum originally charged less discount;
(g) all amounts allowed to purchasers in respect of goods
returned by them to the dealer when the goods are taxable
on sales provided that the goods were returned within a
period of three months from the date of delivery of the
goods and the accounts show the date on which the goods
326 [2025] 6 S.C.R.

Supreme Court Reports

were returned and the date on which and the amount for
which refund was made; and
(h) all amounts received from the sellers in respect of
goods returned to them by the dealer, when the goods
are taxable on the purchase value provided that the goods
were returned within a period of three months from the
date of delivery of the goods and the accounts show the
date on which the goods were returned and the date on
which and the amount for which refund was received:
Provided further that save as otherwise provided in this
sub-section, no other deduction shall be made from the total
turnover of a dealer for the purposes of this sub-section.
(ii) The provisions of this Act and the rules made thereunder
shall, so far as may be, apply in relation to the assessment,
collection or refund of the turnover tax under this sub-
section including the provisions relating to appeals and
penalties, as they apply in relation to the assessment,
collection or refund of tax under the other provisions of
this Act.
[(iii) Notwithstanding anything contained in sub-section (1)
of section 22, no dealer shall collect from his purchaser
the turnover tax payable by him under this sub-section.]
(3) Notwithstanding anything contained in sub-section (1)
or sub-section (2), the tax payable by a dealer in respect
of any sale of industrial raw materials, [component parts,
containers or packing materials] which is liable to tax at
a rate higher than [two and a half per cent] when sold
to industrial units for use in the production of finished
products inside the State for sale or for packing of such
finished products inside the State for sale, as the case
may be, shall be at the rate of only [two and a half per
cent] on the taxable turnover relating to such industrial
raw materials, [component parts, containers or packing
materials], as the case may be:
Provided that this sub-section shall not apply where the
sale of such finished products is not liable to tax either
under this Act or under the Central Sales Tax Act, 1956
[2025] 6 S.C.R. 327

C.T. Kochouseph v. State of Kerala and Another Etc.

(Central Act 74 of 1956) or when such finished products
are exported out of the territory of India:
Provided further that the provisions of this sub-section
shall not apply to any sale unless the dealer selling the
goods furnishes to the assessing authority in the prescribed
manner a declaration duly filled in and signed by the dealer
to whom the goods are sold containing the prescribed
particulars in the prescribed form.]
[(3A) x x x x ]
(4) Notwithstanding anything contained in sub-section (1),
every dealer registered under sub-section (3) of section 7
of the Central Sales Tax Act, 1956 (Central Act 74 of
1956), shall, whatever be the quantum of his total turnover,
pay tax for each year in respect of the sale of the goods
with reference to the purchase of which he has furnished
a declaration under sub-section (4) of section 8 of the
aforesaid Central Act [on his taxable turnover in respect
of such goods:]
Provided that this sub-section shall not apply to any dealer
in respect of the sale of the goods the purchase of which
is liable to tax under subsection (1).
[(5) Notwithstanding anything contained in sub-section (1)
or sub-section (2), but subject to sub-section (6), where
goods sold are contained in containers or are packed in
any packing materials, the rate of tax and the point of levy
applicable to such containers or packing materials, as the
case may be, shalI, whether the price of the containers or
the packing materials is charged separately or not be the
same as those applicable to goods contained or packed,
and in determining turnover of the goods, the turnover in
respect of the containers or packing materials shall be
included therein.
(6) Where the sale or purchases of goods, contained in any
containers or packed in any packing materials is exempt
from tax, then, the sale or purchase of such containers or
packing materials shall also be exempt from tax.
328 [2025] 6 S.C.R.

Supreme Court Reports

Explanation:– In sub-section (5) and sub-section (6), the
word “containers’’ includes gunny bags, tins, bottles or
any other containers.]
5A. Levy of purchase tax:–(1) Every dealer who, in the
course of his business, purchases from a registered dealer
or from any other person any goods, the sale or purchase
of which is liable to tax under this Act, in circumstances
in which no tax is payable under [Sub-Sections (1), (2),
(3), (4), or (5) of Section 5] and either:–
(a) consumes such goods in the manufacture of other
goods for sale or otherwise: or
(b) [uses or] disposes of such goods in any manner other
than by way of sale in the state; or
(c) despatches them to any place outside the State except
as a direct result of sale or purchase in the course of inter-
state trade or commerce; shall, whatever be the quantum
of the turnover relating to such purchase for a year, pay
tax on the taxable turnover relating to such purchase for
the year at the rates mentioned in Section 5.
(2) Notwithstanding anything contained in sub-section (1),
a dealer (other than a casual trader or agent of a non-
resident dealer purchasing goods, the sale of which is
liable to tax under section 5, shall not be liable to pay tax
under sub-section (1) if his total turnover for a year less
than [one lakh rupees]:
Provided that where the total turnover of such dealer for
the year in respect of the goods mentioned in clause (i) of
sub-section (1) of section 5 is not less than [fifty thousand
rupees], he shall be liable to pay tax on the taxable turnover
in respect of those goods.
(3) Notwithstanding anything contained in the foregoing
provisions of this section, a dealer referred to in sub-
section (1), who purchases goods, the sale of which is
liable to tax under clause (ii) of sub-section (1) of Section 5,
and whose total turnover for a year is not less than [one
lakh rupees] but not more than [one lakh ten thousand
[2025] 6 S.C.R. 329

C.T. Kochouseph v. State of Kerala and Another Etc.

rupees] may, at his option instead of paying the tax in
accordance with the provisions of subsection (1), pay tax
[at the rate] mentioned in [ x x x x ] sub-section (1) of
Section 7 in accordance with the provisions of that section.”

Summary of the Statutory Position
6. A brief overview of the relevant statutory provisions is set out below:
• Section 3 of the Tamil Nadu Act is the charging provision. It
imposes a liability to pay tax on every dealer whose annual
turnover exceeds the prescribed threshold, as well as on every
casual dealer and agent of a non-resident dealer. The tax is
payable on the dealer’s taxable turnover at the rates specified
under the Act. Section 3 does not differentiate between sale
and purchase. The heading refers to ‘sales or purchase’.
• The term ‘turnover’ is defined in section 2(r) of the Tamil Nadu
Act to include the total value of goods bought, sold, supplied
or distributed by a dealer, whether directly or through others,
and whether on the dealer’s own account or on behalf of
another. However, the definition excludes the sale proceeds of
agricultural or horticultural produce, except where the produce
is tea grown in Tamil Nadu either by the dealer or on land in
which the dealer holds an interest. The Explanation to this
provision clarifies that produce which has undergone physical,
chemical or other processing for the purpose of making it fit
for consumption ceases to be treated as agricultural produce.
This exclusion does not apply where the processing is limited
to cleaning, grading, sorting or drying.
• Section 3(2) of the Tamil Nadu Act further provides that, in the
case of goods enumerated in the First Schedule, tax is payable
at the rate and point of levy specified therein, irrespective of
the dealer’s aggregate turnover.
• Section 8 of the Tamil Nadu Act deals with exemptions and states
that no tax shall be payable on the sale of goods specified in
the Third Schedule, subject to such conditions and restrictions
as may be prescribed.
• Section 17 of the Tamil Nadu Act empowers the State Government
to grant, by notification, either full or partial exemptions from tax
330 [2025] 6 S.C.R.

Supreme Court Reports

or reductions in the rate of tax. Such notifications may apply to
particular goods or classes of goods, at all or specific points of
sale, or to particular dealers or classes of dealers in respect of
the whole or any part of their turnover. These exemptions may
apply generally throughout the State or be confined to specified
local areas and may be subject to conditions or restrictions.
The Government is also empowered to vary or cancel such
notifications.
• Section 18 of the Tamil Nadu Act provides that where a dealer
contravenes any condition or restriction specified in a notification
issued under section 17, the exemption shall be deemed not
to have been granted, and the dealer shall be liable to pay tax
accordingly.
• Section 7A of the Tamil Nadu Act, introduced by Act 1 of 1959,
imposes a purchase tax in circumstances where no tax is
payable under sections 3, 4, or 5. It applies where a dealer
purchases goods liable to tax and the goods are (i) used in the
manufacture of other goods, (ii) disposed of otherwise than by
sale within the State, or (iii) sent outside Tamil Nadu otherwise
than by way of inter-State sale. In such cases, the purchasing
dealer is liable to pay tax on the purchase aforesaid at the
applicable rate mentioned in Section 3 or 4.
• The provisions of the Kerala Act reflect a framework broadly
similar to that of the Tamil Nadu Act, particularly in relation to
charging, exemptions, and the imposition of purchase tax.
• Section 5 of the Kerala Act is the charging section. It provides
that every dealer whose turnover exceeds the prescribed
threshold, as well as every casual dealer and agent of a non-
resident dealer, is liable to pay tax on the turnover for that year.
In the case of goods specified in the First or Second Schedule,
the tax is payable at the rate and at the point of levy specified
therein. The heading reads — “levy of tax on sale or purchase
of goods”.
• Section 5A of the Kerala Act3 is in pari materia to section 7A of
the Tamil Nadu Act. It provides for the levy of purchase tax in

3 Inserted by Act 14 of 1970.
[2025] 6 S.C.R. 331

C.T. Kochouseph v. State of Kerala and Another Etc.

specified circumstances. The section applies where a dealer,
in the course of business, purchases goods that are liable to
tax, from either a registered dealer or any other person, but no
tax is payable under section 5 in respect of such transaction. If
such goods are (i) consumed in the manufacture of other goods,
whether for sale or otherwise, (ii) used or disposed of in a manner
other than by sale within the State, or (iii) dispatched to a place
outside the State, except where such dispatch is in the course
of inter-State trade or commerce, the dealer becomes liable to
pay tax on the purchase turnover relating to such goods. The
rate applicable shall be as specified in section 5.

Decisions of this Court Interpreting Similar or Identical Provisions
7. A three-Judges Bench of this Court in State of Tamil Nadu v.
M.K.Kandaswami and Others,4 way back in the year 1975, had
interpreted Section 7A of the Madras General Sales Tax Act, 1959.5
On analysis of sub-section (1) to Section 7A, this Court delineated
the following ingredients that must be cumulatively satisfied for the
purpose of levy :
i. The person who purchases the goods is a dealer;
ii. The purchase is made by him in the course of his business;
iii. Such purchase is either from a registered dealer or from any
other person;
iv. The goods purchased are goods, the sale or purchase of which
is liable to tax under the Madras Act;
v. Such purchase is in the circumstances in which no tax is payable
under Sections 3, 4 or 5 of the Madras Act; and
vi. The dealer either consumes such goods in the manufacture
of other goods for sale or otherwise, or despatches such
goods in any manner other than by way of sale in the State,
or despatches them to a place outside the State except as a
direct result of sale or purchase in the course of inter-State
trade or commerce.

4 (1975) 4 SCC 745.
5 For short, “Madras Act”.
332 [2025] 6 S.C.R.

Supreme Court Reports

8. To effectuate the object and purpose of the enactment of Section 7A
of the Madras Act, or for that matter Section 5A of the Kerala Act,
this Court outright rejected the contention, reversing the decision
of the High Court, inter alia, holding that when the sale is exempt
and therefore not to be included in the turnover of the dealer selling
the goods, the exemption would equally enure to the benefit of the
purchaser who is liable to pay tax in terms of Section 7A(1) of the
Madras Act. This is unacceptable as it would render Section 7A(1)
wholly nugatory. Clarifying the distinction between three inter-related
but distinct concepts, namely, ‘taxable person’, ‘taxable goods’ and
‘taxable event’, which must be satisfied before a person can be
saddled with tax liability, it is observed that conflating the three could
result in a serious error in the interpretation and application of the
Madras Act. Referring to Section 7A as the charging provision read
with Section 3(2) and the definition clauses of the term ‘goods’ in
Section 2(j), ‘dealer’ in Section 2(g) and ‘sale’ in Section 2(n) in the
context of ‘taxable person’, ‘taxable goods’ and ‘taxable event’, it is
held, that the expression – “goods, the sale or purchase of which
is liable to tax under the Act”, refers to the character and class of
goods in relation to their exigibility. Essentially, this expression is held
to define “taxable goods”, that is, goods listed in the First Schedule
of the Act, the sale or purchase of which is subject to tax at the
specified rate and point of levy. The words “the sale or purchase of
which is liable to tax under the Act” qualify the term “goods” and, by
necessary implication, exclude goods that are totally exempt from
tax “at all points”6 under Section 8 or Section 17(1). Such “exempt
goods”,7 not being “taxable goods”, cannot be brought to charge
under Section 7-A.
9. Elaborating further on the contours of Section 7A, viz. the expression
“under the Act”, M.K.Kandaswami (supra), elucidates that Section 7A
creates a separate and independent charge which is distinct
and not subject to Section 3. In effect, Section 7A is a charging
provision itself, intended to bring to tax goods which, under normal
circumstances, would have been taxed at some point in the State,
but in the circumstances, no tax was payable under Sections 3, 4

6 Both — sale or purchase.
7 ‘Exempt goods’ here, as explained hereinafter, refers to goods on which no sales or purchase tax can be
levied.
[2025] 6 S.C.R. 333

C.T. Kochouseph v. State of Kerala and Another Etc.

or 5 of the Madras Act. Section 7A brings such goods to tax at the
hands of the purchaser, provided the purchaser is a dealer, in the
following three alternative circumstances:
a) when he consumes the goods in the manufacture of other goods
for sale or otherwise, or
b) despatches them in any manner other than by way of sale in
the State, or
c) despatches them to a place outside the State, except as a
direct result of sale or purchase in the course of inter-State
trade or commerce.
Referring to ingredient (iv) and (v)8, it is observed that these are not
mutually exclusive; the existence of one does not necessarily negate
or preclude the other. In fact, ingredients (iv) and (v) can co-exist
harmoniously. Ingredient (iv) is satisfied if the particular goods in
question are shown to qualify as ‘taxable goods’. However, there
may be a particular circumstance in a given case, because of which
the sale or purchase does not attract tax under Sections 3, 4 or 5 of
the Madras Act. Section 7A addresses such situations by imposing a
tax on the purchasing dealers’ purchase turnover, provided that one
of the alternative conditions — (a), (b) or (c) to Section 7A(1) — is
fulfilled.
10. M.K.Kandaswami (supra) also considers Section 5A of the Kerala
Act and interprets it in the same manner. Specific reference was
made to a decision of the Single Judge of the High Court of
Kerala in Malabar Fruit Products Company, Bharananganam
Kottayam and Others v. Sales Tax Officer, Palai and Others 9
wherein the constitutional validity of Section 5A was challenged.
The Single Judge upheld the validity of Section 5A and elucidated
the legislative scheme by giving examples. For instance, in a case
where a sale is made by the seller whose turnover is below the
specified minimum, the purchaser may be liable to pay tax on the
purchase in the circumstances mentioned in clauses (a), (b) and (c)

8 Ingredient (iv). The goods purchased are goods, the sale or purchase of which is liable to tax under the
Madras Act.
Ingredient (v). Such purchase is in the circumstances in which no tax is payable under Sections 3, 4 or
5 of the Madras Act.
9 (1972) 30 STC 537 (Ker).
334 [2025] 6 S.C.R.

Supreme Court Reports

of Section 5A(1). Another example considers the sale of agricultural
or horticultural produce, which is excluded from the turnover of the
seller. In this scenario, although the person selling such produce
is treated as a ‘dealer’, such sale is not part of his turnover; the
purchaser may nonetheless be taxed under Section 5A, when
agricultural or horticultural produce are “goods liable to tax” and the
conditions thereof are satisfied. This judgment was upheld by the
Division Bench of the High Court of Kerala in Yusuf Shabeer and
Others v. State of Kerala and Others.10 Approving the view taken
in Yusuf Shabeer (supra), this Court observed:
“34. In our opinion, the Kerala High Court has correctly
construed Section 5-A of the Kerala Act which is in pari
materia with the impugned Section 7-A of the Madras
Act. “Goods the sale or purchase of which is liable to tax
under this Act in Section 7-A(1)” means “taxable goods”,
that is, the kind of goods, the sale of which by a particular
person or dealer may not be taxable in the hands of seller
but the purchase of the same by a dealer in the course
of his business may subsequently become taxable. We
have pointed out and it needs to be emphasised again that
Section 7-A itself is a charging section. It creates a liability
against a dealer on his purchase turnover with regard to
goods, the sale or purchase of which though generally liable
to tax under the Act, have not due to the circumstances
of particular sales, suffered tax under Sections 3, 4 or 5,
and which after the purchase, have been dealt by him in
any of the modes indicated in clauses (a), (b) and (c) of
Section 7-A(1).”
In view of the reasoning given, the appeals preferred by the State
of Tamil Nadu were allowed and the judgment of the High Court
was reversed. The decisions of the High Court of Kerala in Malabar
Fruit Products (supra) and Yusuf Shabeer (supra), as observed
above, were approved.
11. We have examined the judgment of this Court in State of Kerala v.
T.S. Govindarajulu Naidu,11 which upheld the judgment of the High

10 (1973) 32 STC 359 (Ker).
11 (1993) Supp. 3 SCC 656.
[2025] 6 S.C.R. 335

C.T. Kochouseph v. State of Kerala and Another Etc.

Court of Kerala in T.S. Govindarajalu Naidu v. State of Kerala.12 In
our view, the Division Bench of the High Court of Kerala misapplied
the ratio laid down in M.K. Kandaswami (supra) in accepting the
assessee’s contention. M.K. Kandaswami (supra) involved an
exemption granted under Section 17(1) of the Tamil Nadu Act on
the sale of goods. Misinterpreting the ratio in M.K. Kandaswami
(supra), the High Court held that the exemption extended to both
sales tax and purchase tax, thereby excluding the applicability of
purchase tax under Section 7A of the Tamil Nadu Act or the pari
materia provision of Section 5A of the Kerala Act. Unfortunately,
this aspect was not addressed in the brief judgment delivered by
this Court in T.S.Govindarajulu Naidu (supra) which dismissed the
State’s appeal against the High Court’s decision. This Court recorded
that an exemption had been granted under Section 10 of the Kerala
Act and observed that the exemption applied to the payment of tax
under the Act, encompassing both sales and purchase tax.
12. A two-Judge Bench of this Court in Goodyear India Ltd. and
Others v. State of Haryana and Another13 examined the relevant
provisions of the Haryana General Sales Tax Act, 197314 as well
as the scope, effect, and validity of Section 13-AA of the Bombay
Sales Tax Act, 1959.15 The Court referred to its earlier judgment in
M.K.Kandaswami (supra) which was relied upon by the Revenue
but was sought to be distinguished on the ground that the legal
question involved was different. The contention of the assessee was
accepted. The Court observed that Section 9 of the Haryana Act
begins with the words, “where a dealer liable to pay tax under the
Act,” rather than “whether a dealer has paid tax or has not paid tax.”
The phrase “liable to pay tax under the Act” refers to the obligation
to pay sales tax on certain purchases. The Court clarified that the
liability to pay tax arises upon the occurrence of a taxable event, that
is, the event that gives rise to the charge. Although the assessment
and actual recovery of tax may happen later, the liability is triggered
by this taxable event. The imposition of tax involves three stages.
First, the declaration of liability. This is established by the statute and

12 (1979) 43 STC 233 (Kerala).
13 (1990) 2 SCC 71.
14 For short, “Haryana Act”.
15 For short, “Bombay Act”.
336 [2025] 6 S.C.R.

Supreme Court Reports

defines who is legally bound to pay tax. Second, assessment, which
quantifies the liability, but does not create it; the liability already exists
under the law. Lastly, recovery, this is initiated when the taxpayer
fails to pay voluntarily. Crucially, the liability to pay tax arises on the
occurrence of the taxable event, it does not exist or accrue prior to
that event, nor can it arise at a later point in time. Referring to the
clauses of Section 9, the Court held that the key phrase attracting
taxation is: “goods, the sale and purchase of which is liable to tax
under the Act.” This phrase relates to the nature and category of
goods in terms of their taxability.
13. Contrary to the interpretation in M.K.Kandaswami (supra), the
decision in Goodyear (supra) observes that Section 9 of the
Haryana Act does not itself impose purchase tax merely on the
act of purchasing taxable goods. Instead, the tax is imposed when
these goods are used in such a way that they lose their original
identity and are transformed into new taxable goods or goods which
are then dispatched outside the State. Only at that stage is the
tax levied, and the liability to pay arises. While referring again to
M.K.Kandaswami (supra) and specifically to ingredients (iv) and (v)
mentioned therein, the Court noted that ingredient (vi)16 was neither
argued nor properly considered in that case. Instead, only a brief
mention was made regarding the wording of the section. The Court
then referred to constitutional provisions, including the Constitution
(Forty-Sixth Amendment) Act, 1982 and Entry 54 of List II in the
Seventh Schedule of the Constitution of India, to hold that no tax is
payable under the Haryana Act when goods are exported outside
the State in the course of an inter-State sale.
14. In his concurring opinion, Ranganathan J. observed that Section 9
of the Haryana Act and Section 13-AA of the Bombay Act both aim
to levy purchase tax, but the tax does not become payable at the
moment of purchase. Instead, liability arises later, if the purchaser
either uses the goods to manufacture other taxable goods, or
dispatches the manufactured goods to a place of business outside
the State, other than by way of inter-State sale or export.

16 Ingredient (vi). The dealer either consumes such goods in the manufacture of other goods for sale or
otherwise, or despatches such goods in any manner other than by way of sale in the State, or despatches
them to a place outside the State except as a direct result of sale or purchase in the course of inter-State
trade or commerce.
[2025] 6 S.C.R. 337

C.T. Kochouseph v. State of Kerala and Another Etc.

15. At this point, it is important to note the distinction in the wording of
Section 9 of the Haryana Act. As stated in paragraph 8 of Goodyear
(supra), the amended Section brought within its scope the purchase
of goods (other than those listed in Schedule B) from within the State,
when such goods are used to manufacture other goods, or when the
manufactured goods are disposed of outside the State other than
by way of inter-State sale or export.
16. A similar issue with reference to the Gujarat Sales Tax Act, 1969,17
Uttar Pradesh Sales Tax Act, 194818 as well as the Andhra Pradesh
General Sales Tax Act, 195719 was examined by a three-Judge Bench
of this Court, which included Ranganathan, J., in Hotel Balaji and
Others v. State of A.P. and Others.20 Jeevan Reddy, J., writing for
himself and Ramaswami, J., referred to some earlier judgments and
concurred with the opinion expressed in M.K.Kandaswami (supra),
while disagreeing with the ratio in Goodyear (supra). The ratio in
Goodyear (supra), it was stated, cannot be accepted for detailed
reasons being set out in Part-V of the judgment. Referring to the
relevant State enactments, it was stated that where a purchaser
uses goods as raw material, processing material, or consumable
stores in the manufacture of taxable goods, purchase tax becomes
leviable upon the occurrence of such events. In such a situation, it
is immaterial whether the manufactured goods are sold within the
State or dealt with in some other manner, including consigning to the
manufacturer’s own depots or to the depots of his agents outside
the State. The contention that such a levy amounts to excise duty
or use tax—since it attaches on the use of goods in manufacturing
of other goods and not on the purchase of goods—was rejected as
missing the true nature of the tax. This Court clarified that such a tax
is on the purchase price of raw materials used in the manufacture
of goods, not on the value of manufactured products. A concession
granted to the manufacturers in the purchase of certain types of raw
material etc. does not preclude the imposition of purchase tax when
the statutory conditions viz. happening of certain events are met.

17 For short, “Gujarat Act.”
18 For short, “Uttar Pradesh Act”.
19 For short, “Andhra Pradesh Act”.
20 (1993) Supp. 4 SCC 536.
338 [2025] 6 S.C.R.

Supreme Court Reports

On the question whether the decision in Goodyear (supra) requires
reconsideration, it is observed as under:
“90. The crucial question, therefore, is what is the basis of
taxation in either of the above provisions? In other words,
the question is whether levy of tax is on the purchase
of goods or upon the consignment of the manufactured
goods? Let us first deal with Section 9 of the Haryana Act
(as amended in 1983). Properly analysed, the following
are the ingredients of the Section : (i) a dealer liable to
pay tax under the Act purchases goods (other than those
specified in Schedule B) from any source in the State
and (ii) uses them in the State in the manufacture of any
other goods and (iii) either disposes of the manufactured
goods in any manner otherwise than by way of sale in the
State or despatches the manufactured goods to a place
outside the State in any manner otherwise than by way of
sale in the course of a inter-State trade or commerce or
in the course of export outside the territory of India within
the meaning of sub-section (1) of Section 5 of the Central
Sales Tax Act, 1956. If all the above three ingredients
are satisfied, the dealer becomes liable to pay tax on the
purchase of such goods at such rate, as may be notified
under Section 15.
91. Now, what does the above analysis signify? The
section applies only in those cases where (a) the goods
are purchased (for convenience sake, I may refer to them
as raw material) by a dealer liable to pay tax under the
Act in the State, (b) the goods so purchased cease to
exist as such goods for the reason they are consumed
in the manufacture of different commodities and (c) such
manufactured commodities are either disposed of within
the State otherwise than by way of sale or despatched
to a place outside the State otherwise than by way of an
inter-State sale or export sale. It is evident that if such
manufactured goods are not sold within the State of
Haryana, but yet disposed of within the State, no tax is
payable on such disposition; similarly, where manufactured
goods are despatched out of State as a result of an
inter-State sale or export sale, no tax is payable on such
[2025] 6 S.C.R. 339

C.T. Kochouseph v. State of Kerala and Another Etc.

sale. Similarly again where such manufactured goods are
taken out of State to manufacturers’ own depots or to the
depots of his agents, no tax is payable on such removal.
Goodyear takes only the last eventuality and holds that
the taxable event is the removal of goods from the State
and since such removal is to dealers’ own depots/agents
outside the State, it is consignment, which cannot be
taxed by the State legislature. With the greatest respect
at our command, we beg to disagree. 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 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) 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 is simple: if the manufactured
goods are disposed of otherwise than by sale within the
State or are 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 the levy and collect it since there is no reason for
waiving the purchase tax in these two situations. Now
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 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)
340 [2025] 6 S.C.R.

Supreme Court Reports

of the Central Sales Tax 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 underlying
the provision. The object is to tax the purchase of goods
by a manufacturer whose existence as such goods is put
an end to by him by using them in the manufacture of
different goods in certain circumstances. The tax is levied
upon the purchase price of raw material, not upon the sale
price — or consignment value — of manufactured goods.
Would it be right to say that the levy is upon consignment
of manufactured goods in such a case? True it is that the
levy materialises only when the purchased goods (raw
material) is consumed in the manufacture of different
goods and those goods are disposed of within the State
otherwise than by way of sale or are consigned to the
manufacturing-dealer’s depots/agents outside the State of
Haryana. But does that change the nature and character of
the levy? Does such postponement — if one can call it as
such — convert what is avowedly a purchase tax on raw
material (levied on the purchase price of such raw material)
to a consignment tax on the manufactured goods? We
think not. Saying otherwise would defeat the very object
and purpose of Section 9 and amount to its nullification
in effect. The most that can perhaps be said is that it is
plausible (as pointed out by Ranganathan, J. in his separate
opinion) to characterise the said tax both as purchase tax
as well as consignment tax. But where two interpretations
are possible, one which sustains the constitutionality and/
or effectuates its purpose and intendment and the other
which effectively nullifies the provision, the former must be
preferred, according to all known canons of interpretation.
This is also the view expressly approved by Mukharji, J.
in his opinion, as pointed out hereinbefore. In para 71 of
his opinion, the learned Judge states:
“It is well settled that reasonable construction
should be followed and literal construction
may be avoided if that defeats the manifest
object and purpose of the Act. See C.W.T. v.
[2025] 6 S.C.R. 341

C.T. Kochouseph v. State of Kerala and Another Etc.

Kripashankar Dayashankar Worah and Income
Tax Commissioner for City of London v. Gibbs”
(emphasis supplied)”

92. However, we would presently show that merely because
the levy attaches on the happening or non-happening of
a subsequent event, the nature and character of the levy
does not change. In several enactments, for instance,
tax is levied at the last sale point or last purchase point,
as the case may be. How does one determine the last
purchase point in the State? Only when one knows that
no purchase took place within the State thereafter. But
that can only be known later. If there is a subsequent
purchase within the State, the purchase in question ceases
to be the last purchase. As pointed out pertinently by P.S.
Poti, J. (as he then was) in Malabar Fruit Products Co.
v. S.T.O. [(1972) 30 STC 537 (Ker)] applying the logic of
the dealers, it would not be possible to tax any goods at
the last purchase point in the State, inasmuch as the last
purchase point in regard to any goods could be determined
only when the goods are sold later and not when the goods
are purchased. In the said decision, the learned Judge
was dealing with the validity and construction of Section
5-A of Kerala General Sales Tax Act, 1963, sub-section
(1) whereof read as follows:
“5-A. Levy of purchase tax.— (1) Every dealer
who in the course of his business purchases from
a registered dealer or from any other person any
goods, the sale or purchase of which is liable
to tax under this Act, in circumstances in which
no tax is payable under Section 5, and either—
(a) consumes such goods in the manufacture
of other goods for sale or otherwise; or
(b) disposes of such goods in any manner other
than by way of sale in the State; or
(c) despatches them to any place outside the
State except as a direct result of sale or purchase
in the course of inter-State trade or commerce;
342 [2025] 6 S.C.R.

Supreme Court Reports

shall, whatever be the quantum of the turnover
relating to such purchase for a year, pay tax on
the taxable turnover relating to such purchase for
that year at the rates mentioned in Section 5.””
17. Referring to the argument and discussion on the validity of Section
5A of the Kerala Act in Malabar Fruit Products Company (supra),
this Court, in Hotel Balaji (supra) observes:
“93. One of the arguments urged against the validity of
the said provision was that inasmuch as the tax is levied
depending upon the mode in which the goods purchased
are consumed, disposed of or despatched, the tax is really
one in the nature of consumption tax or use tax, but not
sales tax. This argument was answered by the learned
Judge in the following words:
“According to me, this contention is based on
a misconception of the scope of taxation on
the sale of goods. It is true that sales tax is
a tax imposed on the occasion of the sale of
goods. But it has no reference to the point of
time at which the sale or purchase takes place.
It refers to the connection with the event of
purchase or sale and not the point of time at
which such purchase or sale takes place. To
read it otherwise would render any retrospective
imposition of sales tax invalid as in every such
case the tax would not be one which arises
on the occasion of sale. By the same logic, it
would not be possible to tax any goods at the
last purchase point in the State, for the last
purchase point in regard to any goods could
be determined only when the goods are sold
later and not when the goods are purchased.
On the same reasoning as urged by counsel,
one should say in such a case that since the
goods are taxed only when the goods are sold
outside the State or are despatched for such sale
outside the State and so the last purchases are
taxed not on the ‘occasion’ of the purchases and,
[2025] 6 S.C.R. 343

C.T. Kochouseph v. State of Kerala and Another Etc.

consequently, it is beyond the competence of the
Legislature. That certainly cannot be and that
Supreme Court has held in the decision in State
of Madras v. Narayanaswami Naidu [(1968) 21
STC 1 (SC)] that the goods are taxable in such
cases in the financial year when they become
the last purchases.”
94. The decision of Poti, J. was affirmed by a division
bench of Kerala High Court in Yusuf Shabeer v. State of
Kerala [(1973) 32 STC 359 (Ker)]. Both these decisions
were expressly referred to and approved by a three-
Judge Bench of this Court in State of T.N. v. Kandaswami
[(1975) 4 SCC 745]. Kandaswami [(1975) 4 SCC 745] was
concerned with the construction of Section 7-A of the Tamil
Nadu General Sales Tax Act which too levied a purchase
tax and is couched in language similar to Section 5-A of
the Kerala Act. While dealing with the scheme of Section
7-A, this Court quoted with approval certain passages from
the judgment of Poti, J. including the following sentence:
“If the goods are not available in the State for
subsequent taxation by reason of one or other
of the circumstances mentioned in clauses (a),
(b) and (c) of Section 5-A(1) of the Act then the
purchaser is sought to be made liable under
Section 5-A.”
95. This statement accords with our understanding of the
scheme of Section 9 of Haryana Act as set out hereinabove.
To repeat, the scheme of Section 9 of Haryana Act is to
levy the tax on purchase of raw material and not to forego
it where the goods manufactured out of them are disposed
of (or despatched, as the case may be) in a manner not
yielding any revenue to the State or serving the interests
of nation and its economy, as explained hereinbefore. The
purchased goods are put an end to by their consumption
in manufacture of other goods and yet the manufactured
goods are dealt with in a manner as to deprive the State
of any revenue; in such cases, there is no reason why
the State should forego its tax revenue on purchase of
raw material.
344 [2025] 6 S.C.R.

Supreme Court Reports

96. Another observation in Kandaswami [(1975) 4 SCC
745] relevant for the present purpose may also be noticed:
(SCC p. 751, para 26)
“It may be remembered that Section 7-A is at
once a charging as well as a remedial provision.
Its main object is to plug leakage and prevent
evasion of tax. In interpreting such a provision,
a construction which would defeat its purpose
and, in effect, obliterate it from the statute
book, should be eschewed. If more than one
construction is possible, that which preserves
its workability, and efficacy is to be preferred to
the one which would render it otiose or sterile.
The view taken by the High Court is repugnant
to this cardinal canon of interpretation.”
97. In the light of the above scheme of Section 9, it
would not be right, in our respectful opinion, to say that
the tax is not upon the purchase of raw material but on
the consignment of the manufactured goods. It is well
settled that taxing power can be utilised to encourage
commerce and industry. It can also be used to serve the
interests of economy and promote social and economic
planning. Section 9 of Haryana Act and Section 13-AA
of Bombay Act are intended to encourage the industry
and at the same time derive revenue. It is also not right
to concentrate only on one situation viz., consignment of
goods to manufacturer’s own depots (or to the depots of
his agents) outside the State. Disposal of goods within
the State without effecting a sale also stands on the same
footing, an instance of which may be captive consumption
of manufactured products in the manufacture of yet other
products. Once the scheme and policy of the provision is
appreciated, there is no room, in our respectful opinion, for
saying that the tax is on the consignment of manufactured
goods.”
18. Ranganathan, J., in his concurring opinion, observed that he was
delivering a separate judgment since he had been a party to Goodyear
(supra) and wished to explain his views. He acknowledged the
[2025] 6 S.C.R. 345

C.T. Kochouseph v. State of Kerala and Another Etc.

force of the argument of the States that the provisions in question
only impose a tax on purchases. He observed that it is designated
as a purchase tax and levied on the turnover of such purchases.
Pertinent to us are his observations that the State may sometimes
give up tax or specify concessional rates of tax on sales based on
some declarations or certificates, but the goods may be taxed in the
hands of the purchaser. It is emphasised that such a levy clearly falls
within the legislative competence of the State Legislature. The ambit
of the power to levy tax in respect of the sale or purchase of goods
is very wide and would cover any tax having nexus with the sale or
purchase of goods, including attaching a levy to the last purchase in
the State. This test, Ranganathan, J. held, was a more appropriate
one than the ambiguous standard of ‘taxable event’. A tax on the
sale or purchase of goods will not cease to be a tax simply because
the determination of the character as a ‘last purchase’ depends on
certain subsequent events that may be spread over a subsequent
period of time.
19. In our opinion, the judgment in Hotel Balaji (supra) covers the
issues in question. However, Hotel Balaji (supra) did not consider
and examine the judgment of the three-Judge Bench in Mukerian
Papers Ltd. v. State of Punjab,21 which followed the ratio of
Goodyear (supra). Interpreting the provisions of Section 4B of the
Punjab General Sales Tax Act, 1948,22 Mukerian Papers Ltd. (supra)
held that one of the requirements for the accrual of purchase tax is
that the manufactured goods must be sent outside the State. The
liability to pay purchase tax does not arise at the time of purchasing
raw materials within the State or their use in manufacturing goods
other than those listed in Schedule B. It was observed that, although
the purchase tax is levied on the raw materials purchased by the
manufacturer, the actual levy is deferred until those materials are
consumed in the manufacture of a commercially distinct commodity.
The relevant date, for the purpose of taxation, is the date on which
the goods are sent outside the State. Thus, the taxable event occurs
when the goods are sent outside the State, regardless of when the
raw materials were purchased or converted into a new commodity. The

21 (1991) 2 SCC 580.
22 For short, “Punjab Act”.
346 [2025] 6 S.C.R.

Supreme Court Reports

Revenue relied on the decision in Kandaswami (supra), contending
that it was rendered in the context of a similar provision and thus its
ratio covers the case. Rejecting this argument, this Court in Mukerian
Papers Ltd. (supra), observed that although Kandaswami (supra)
was indeed rendered in relation to an analogous provision, it had
been distinguished in Goodyear (supra) on the ground that it did
not address the core that arose in the latter case. Notably, Mukerian
Papers Ltd. (supra), in paragraph 6, holds that the Bench need not
dilate on that issue further, as the correctness of Goodyear (supra)
had not been questioned before it.
20. Mukerian Papers Ltd. (supra), Goodyear (supra), as well as the
decision in Hotel Balaji (supra), were considered by a three-Judge
Bench of this Court in Devi Dass Gopal Krishan Pvt. Ltd. and
Others v. State of Punjab and Others.23 The three-Judge Bench in
Devi Dass (supra) comprised two Judges – A.M. Ahmadi, J. (as his
Lordship then was) and M.N. Venkatachaliah, CJI. – who were also
members of the Bench in Mukerian Papers Ltd. (supra).24 In Devi
Dass (supra), this Court noticed that several state legislations—
including those from Punjab, Tamil Nadu, Kerala, West Bengal,
and Bombay—had been brought up for consideration in Hotel
Balaji (supra). However, due to time constraints, only the cases
relating to the Uttar Pradesh, Gujarat, and Andhra Pradesh Acts were
taken up in Hotel Balaji (supra), segregating the cases concerning
the other States. One of the arguments raised in Devi Dass (supra)
was that a conflict existed between Hotel Balaji (supra) and Mukerian
Papers Ltd. (supra), the latter being said to squarely affirm the
decision in Goodyear (supra). A reference was sought to a larger
Bench on this basis. Rejecting the contention, this Court noted that the
correctness of Goodyear (supra) had not been examined in Mukerian
Papers Ltd. (supra), a fact expressly recorded in Mukerian Papers
Ltd. (supra) and further addressed in paragraph 101 in Hotel
Balaji (supra). Moreover, Mukerian Papers Ltd. (supra) merely
applied Goodyear (supra) to the specific facts of the case; it neither
affirmed nor dissented from the reasoning in Goodyear (supra).
Referring to the issue of the vires of the State enactments that were

23 (1994) Supp. 2 SCC 59.
24 A.M. Ahmadi, J., as his Lordship then was, was the author of the judgment in Mukerian Papers Ltd.
(supra).
[2025] 6 S.C.R. 347

C.T. Kochouseph v. State of Kerala and Another Etc.

struck down as unconstitutional in Goodyear (supra) on the grounds
that they imposed a tax during the course of inter-State trade or
commerce amounting to a consignment tax, and also that the taxable
event was not purchase, specific reference was made to the reasoning
of Ranganathan, J. in Hotel Balaji (supra), which reads as under:
“3. (…)The learned Judge recalled his observations in
his concurring opinion in Goodyear and observed that
the particular viewpoint presented in Hotel Balaji was
not presented in Goodyear and that on reconsideration,
he finds the reasoning in support of the validity of the
provisions more persuasive. The learned Judge said:
(SCC pp. 549-50, para 10)
“This larger concept, namely, that these various
alternatives are not set out in the section with a
view to fasten the charge of tax at the point of
use, consumption, manufacture, production and
consignment or despatch but in an attempt to
make clear that what is sought to be levied is a
tax on raw materials on the occasion of their last
purchase inside the State had not been projected
before, or considered by us. I am inclined now
to think that this is an approach that basically
alters the parameters and removes the provision
from the area of vulnerability.”
(emphasis supplied)”

This Court in Devi Dass (supra) affirmed the reasoning in Hotel
Balaji (supra), clearly holding that the decision in Goodyear (supra)
did not lay down the correct law:
“6. Now coming to the merits of the contention, we are
of the considered opinion that there is no reason to take
a view different from the one taken in Hotel Balaji [1993
Supp (4) SCC 536 : (1993) 88 STC 98] . All the contentions
urged now have been considered and dealt with in the
said decision. In our opinion, the approach adopted
in Goodyear [(1990) 2 SCC 71 : 1990 SCC (Tax) 223] does
not accord with the scheme, intendment and language of
the relevant provisions of the Haryana and Bombay Acts
and cannot be accepted.”
348 [2025] 6 S.C.R.

Supreme Court Reports

21. Appropriate at this stage would be to refer to the order dated
27.10.2009 passed in the present batch of appeals, wherein the
two-Judge Bench referred the matter to a larger Bench. After making
a reference to Section 5A of the Kerala Act, this Court distinguished
‘payability’ and ‘liability’ to observe:
“We have analyzed Section 5A of the Act. In our view,
Section 5 is the charging section. Under Section 5A, what
is, inter alia, stated is that every dealer who, in the course
of his business purchases from a registered dealer or
from any other person any goods, the sale or purchase
of which is liable to tax under this Act, in circumstances in
which no tax is payable under sub- sections (1), (2), (3),
(4) and (5) of Section 5 and who either consumes such
goods in the manufacture of other goods for sale or who
uses or disposes of goods in any manner other than by
way of sale in the State or who despatches such goods
to any place outside the State, except as a direct result
of sale or purchase in the course of inter-State trade or
commerce shall pay tax on the taxable turnover relating
to such purchase for the year at the rates mentioned in
Section 5.
If one carefully analyse Section 5A of the Act, it becomes
clear that there is a clear dichotomy between liability to tax
[taxability] on the one hand and “payability” on the other.
The significance of Section 5A, prima facie, appears to
be that if the State has lost revenue/tax which otherwise
it would have recovered had the purchase taken place
from a registered non-exempted dealer, then Section 5A
enables the State to recover such loss from the assessee
herein. In such a case, Section 5A would stand attracted,
subject to the other conditions being fulfilled. This is where
the difference between “payability” and “leviability” comes
into existence. The goods in question were undoubtedly
liable to tax. However, since exemption notification under
Section 10 of the Act came into the field, though liable to
tax, such goods were exempted from payment of tax. In
our view, therefore, there is a clear demarcation between
these two concepts of “leviability/taxability” on the one
hand vis- a-vis “payability” on the other. Our view is also
[2025] 6 S.C.R. 349

C.T. Kochouseph v. State of Kerala and Another Etc.

fortified to this extent by the reasoning of the judgement
of this Court in the case of State of Tamil Nadu vs. M.K.
Kandaswamy & Ors. reported in [1975] 36 S.T.C. 191. In
that case, a three-Judge Bench of this Court was required
to decide interpretation and scope of Section 7A of the
Madras General Sales Tax Act, 1959 [for short, “Madras
Act”], which section was in pari materia with Section 5A of
the Act. While interpreting Section 7A of the Madras Act,
this Court observed that the main object of Section 7A of
the Madras Act is to plug leakage and prevent evasion
of tax. It further stated that, in interpretation of such a
provision, a construction which would defeat the purpose
of the Act should be eschewed. It further observed that
the phraseology used in Section 7A of the Madras Act,
though somewhat involved, is fairly plain when it comes
to giving meaning of the Section. The Court further
observed that the language of Section 7A of the Madras
Act [which is akin to Section 5A of the Act] indicates the
meaning of the word “taxability/liability” is to be read in
the context of the expression “taxable goods”. If one
reads the judgement, it clearly indicates what we have
said in the earlier paragraphs, namely, that the concept
of “taxability/leviability” is different and distinct from the
concept of “payability”. That is why when the goods,
which are otherwise liable to tax, are exempted by virtue
of notification from payability under Section 10 of the Act,
Section 5A of the Act has been enacted to levy tax on
certain transactions on which otherwise the State loses
its revenue. This distinction has not been kept in mind
in the decision of a two-Judge Bench of this Court in
the case of Peekay Re-rolling Mills (P) Ltd. vs. Assistant
Commissioner & Anr. reported in 2007 (4) S.C.C.30. In
that judgement, it has been held that the expression
“levy” would include ‘collection’ or ‘payment’ as well and
not merely authorisation of the levy. With respect to our
learned brothers, we do not agree that the word ‘levy’ in
the context of Section 5 and Section 5A of the Act would
include ‘collection’ or ‘payment’ of tax.
In the circumstances, on account of difference of opinion,
we direct the Registry to place the present batch of civil
350 [2025] 6 S.C.R.

Supreme Court Reports

appeals before the Hon’ble the Chief Justice of India for
referring the matter to the larger Bench of this Court.”
22. A reading of the aforesaid quotation would reveal that the Division
Bench clearly agreed with the reasoning given in M.K.Kandaswami
(supra) distinguishing ‘taxability’/‘liability’ and ‘payability’ as two
different concepts in tax. The reference order notes that the exemption
granted under Section 10 of the Kerala Act does not affect the taxability/
liability, but only payability. Thus, where goods ordinarily subject to tax
are exempted from payment under Section 10 of the Act by virtue of
a notification, Section 5A has been enacted to nonetheless impose
tax on certain transactions, thereby safeguarding the State’s revenue
from potential loss. The reasoning and ratio in M.K.Kandaswami
(supra) was expressly agreed as correct. However, what prompted
the two-Judge Bench to refer the matter to a larger Bench was the
decision of another two-Judge Bench of this Court in Peekay Re-
Rolling Mills (P) Ltd. v. Assistant Commissioner and Another,25
which the Bench felt holds that the expression ‘levy’ would include
‘collection’ or ‘payment’ as well and not mere authorisation for levy.
The two-Judge Bench in the reference order dated 27.10.2009 did
not agree with the observation that the ‘levy’ would include ‘collection’
or ‘payment’ of tax in the context of Section 5 and 5A of the Act.
23. We have examined the judgment in Peekay Re-Rolling Mills
(P) Ltd. (supra), which refers to several decisions, including the
judgments in Bhawani Cotton Mills Ltd. v. State of Punjab and
Another26 and Shanmuga Traders and Others v. State of Tamil
Nadu and Others.27 The Court in Peekay Re-Rolling Mills (P) Ltd.
(supra) holds that Sections 5 and 5A of the Kerala Act are distinct
and independent, relying on the observations in M.K.Kandaswami
(supra). The Court quotes the finding that Section 7A of the Madras
Act is a self-contained charging provision and applies the same
reasoning to uphold the validity of the levy under Section 5A of the
Kerala Act.
24. However, the two-judge Bench in Peekay Re-Rolling Mills (P) Ltd.
(supra) states that the observations in M.K. Kandaswami (supra)

25 (2007) 4 SCC 30.
26 (1967) 20 STC 290.
27 (1998) 5 SCC 349.
[2025] 6 S.C.R. 351

C.T. Kochouseph v. State of Kerala and Another Etc.

have no real bearing on the relevant issue, since M.K. Kandaswami
(supra) did not involve a question of tax on declared goods under
Section 14 of the Central Sales Tax Act, 195628 and conditions laid
down in this regard, particularly that of a single-point levy. Since
Section 15 of the Central Act mandates that tax on declared goods
must be levied at a single point, the Court held that once the goods
are declared goods they cannot again be taxed under Section 5A.
That would amount to a second-stage levy, contrary to the scheme
under Section 15 of the Central Act.
25. Peekay Re-Rolling Mills (P) Ltd. (supra) then turns to the majority
view in Bhawani Cotton Mills (supra). In Bhawani Cotton Mills
(supra) the majority judgment of the Constitution Bench authored by
Vaidialingam, J. had examined the question of levy of purchase tax
on declared goods which are goods of national importance included
in Schedule C notified in terms of Section 14 of the Central Act.
Section 15 of the Central Act,29 as then applicable, had a stipulation
that sales tax law of a State, insofar as it imposes or authorizes levy
of tax, shall be subject to the conditions specified in Clauses (a)
and (b). Clause (a) in specific terms has stated that tax in respect
of any sale or purchase of declared goods inside the State shall
not exceed 3% of the sale and purchase price and secondly, the
tax will not be levied at more than one stage. In the said case, the
levy of purchase tax on cotton was set aside on the grounds that
the tax imposed under the Punjab Act conflicted with Section 15
of the Central Act. The plea of the assessee that sales tax may
have been paid by the earlier transactions and therefore the levy of
purchase tax would violate clause (a) to Section 15 was accepted.
Pertinently, Bhawani Cotton Mills (supra) refers to the decision of
this Court in A.V. Fernandez v. The State of Kerala,30 which refers
to the following observations in Chatturam Horilram Limited v.

28 For short, “Central Act”.
29 “15. Every sales tax law of a State shall, in so far 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 :-
(a) the tax payable under that law in respect of any sale or purchase of such goods inside the State shall
not exceed three 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 or purchase inside the State of any
declared goods and such goods are sold in the course of inter-State trade or commerce, the tax so levied
shall be refunded to such person in such manner and subject to such conditions as may be provided in
any law in force in that State.” – as quoted in Bhawani Cotton Mills (supra).
30 AIR 1957 SC 657.
352 [2025] 6 S.C.R.

Supreme Court Reports

Commissioner of Income Tax, Bihar and Orissa,31 to distinguish
three stages in the imposition of tax, namely, declaration of liability,
assessment and recovery:
“If there is a liability to tax, imposed under the terms of
the taxing statute, then follow the provisions in regard
to the assessment of such liability. If there is no liability
to tax there cannot be any assessment either. Sales or
purchases in respect of which there is no liability to tax
imposed by the statute cannot at all be included in the
calculation of turnover for the purpose of assessment and
the exact sum which the dealer is liable to pay must be
ascertained without any reference whatever to the same.
There is a broad distinction between the provisions
contained in the statute in regard to the exemptions of
tax or refund or rebate of tax on the one hand and in
regard to the non-liability to tax or non-imposition of tax
on the other. In the former case, but for the provisions
as regards the exemptions or refund or rebate of tax, the
sales or purchases would have to be included in the gross
turnover of the dealer because they are prima facie liable
to tax and the only thing which the dealer is entitled to in
respect thereof is the deduction from the gross turnover
in order to arrive at the net turnover on which the tax can
be imposed. In the latter case, the sales or purchases are
exempted from taxation altogether. The Legislature cannot
enact a law imposing or authorising the imposition of a tax
thereupon as they are not liable to any such imposition of
tax. If they are thus not liable to tax, no tax can be levied
or imposed on them and they do not come within the pur-
view of the Act at all. The very fact of their nonliability to
tax is sufficient to exclude them from the calculation of the
gross turnover as well as the net turnover on which sales
tax can be levied or imposed.”
26. This reasoning in Bhawani Cotton Mills (supra) applies only where
the exemption is absolute—i.e., from both sale and purchase. It does
not apply when the exemption is partial. If the legislature exempts

31 AIR 1955 SC 619.
[2025] 6 S.C.R. 353

C.T. Kochouseph v. State of Kerala and Another Etc.

sales but taxes purchases, the tax on the purchaser remains valid.
In such cases, an exemption for one leg of the transaction does not
imply exemption for the other. This interpretation is supported by the
language of Sections 5A and 7A of the Kerala and Tamil Nadu Acts,
which allow purchase tax even where no sales tax is imposed on
the seller or the sale.
27. Peekay Re-Rolling Mills (P) Ltd. (supra) also refers to Shanmuga
Traders (supra), which had been distinguished by the High Court
in the impugned judgment. However, the Court was of the opinion
that in the impugned judgment the Division Bench of the High Court
erroneously distinguishes Shanmuga Traders (supra) from the facts
of the case. Shanmuga Traders (supra) again is a case relating to
declared goods under Section 14 of the Central Act, which it was held
can be taxed only at a single point. It is for the State to determine
whether the single point should be the point of first sale, intermediate
sale or the last sale in the State. If the State designates the point of
first sale as the single point of taxation and then exempts that point—
whether through a general provision or one specifically applicable
to a particular class of sellers or goods—then tax cannot be levied
either at the first sale or at any subsequent stage. The ratio in the
said case is not applicable as this is not a case of declared goods
and the bar under Section 15 of the Central Act does not apply.
28. Peekay Re-Rolling Mills (P) Ltd. (supra) also relies on M/s Pine
Chemicals Ltd. and Others v. Assessing Authority and Others,32
which holds that exemption arises only when there is a tax liability.
The Court reaffirms that exemption presupposes that tax is otherwise
leviable. This was further affirmed in Associated Cement Companies
Ltd. v. State of Bihar and Others,33 which clarified that exemption
is relevant only when there is liability. Thus, goods can be liable or
exigible to tax, but due to exemption, the obligation to pay may not
arise.
29. Peekay Re-Rolling Mills (P) Ltd. (supra) refers to Assistant
Collector of Central Excise, Calcutta Division v. National
Tobacco Co. of India Ltd.,34 which makes a distinction between

32 (1992) 2 SCC 683.
33 (2004) 7 SCC 642.
34 (1972) 2 SCC 560.
354 [2025] 6 S.C.R.

Supreme Court Reports

“levy” and “assessment”, holding that levy includes both imposition
and assessment of tax but not collection. This interpretation stems
from Article 265 of the Constitution, which separately mentions levy
and collection. Cases like Somaiya Organics (India) Ltd. and
Another v. State of Uttar Pradesh35 and Collector of Central Excise,
Hyderabad and Others v. Vazir Sultan Tobacco Company Ltd.,
Hyderabad and Others36 are also cited, particularly with respect to
excise duty under the Central Excise and Salt Act, 1944. These cases
explain that levy is on manufacture, while collection is deferred to
the stage of removal for administrative convenience, and this did not
affect the nature of the levy, which was on the manufacture of the
goods. These observations pertain to the levy of excise duty under
the Central Excise and Salt Act, 1944. It has been consistently held
that excise duty is levied on the event of manufacture or production
of goods. While the point of collection may be deferred until the
goods are removed, the taxable event remains manufacture. In
our view, the decision in Peekay Re-Rolling Mills (P) Ltd. (supra)
does not support the argument advanced by the assessees. The
legal position is well established; the levy or incidence of tax, and
the payment of tax are distinct concepts. Goods may be liable or
exigible to tax by virtue of their nature or transaction, but when an
exemption is granted, it only means that the payment of tax is not
required—though the liability in principle remains.
30. The confusion in Peekay Re-Rolling Mills (P) Ltd. (supra) arises
under the portion of the judgment viz. “distinction between ‘levy’ and
‘collection’”. Peekay Re-Rolling Mills (P) Ltd. (supra) refers to the
following observations of this Court in National Tobacco Co. of
India Ltd. (supra) :
“19. The term ‘levy’ appears to us to be wider in its import
than the term ‘assessment’. It may include both ‘imposition’
of a tax as well as ‘assessment’. The term ‘imposition’ is
generally used for the levy of a tax or duty by legislative
provisions indicating the subject-matter of the tax and the
rates at which it has to be taxed. The term ‘assessment’,
on the other hand, is generally used in this country for the

35 (2001) 5 SCC 519.
36 (1996) 3 SCC 434.
[2025] 6 S.C.R. 355

C.T. Kochouseph v. State of Kerala and Another Etc.

actual procedure adopted in fixing the liability to pay a tax
on account of particular goods or property or whatever
may be the object of the tax in a particular case and
determining its amount. The Division Bench appeared
to equate ‘levy’ with an ‘assessment’ as well as with the
collection of a tax when it held that ‘when the payment of
tax is enforced, there is a levy’. We think that, although
the connotation of the term ‘levy’ seems wider than that of
‘assessment’, which it includes, yet, it does not seem to
us to extend to ‘collection’. Article 265 of the Constitution
makes a distinction between ‘levy’ and ‘collection’.
(emphasis supplied)”

In our opinion, the word ‘levy’ rightly refers to the exigibility or
imposition of tax. The ‘assessment’ of tax is the second stage and
refers to the determination of the tax liability imposed by the levying/
charging/imposition provisions. The ‘collection’ or ‘recovery’ of tax
is the third aspect. Lastly, it must be remembered that Peekay Re-
Rolling Mills (P) Ltd. (supra) is also a case of declared goods.

Conclusion
31. In view of the aforesaid discussion and applying the ratio in terms
thereof, we must reject the argument on behalf of the assessee
that Section 7A of the Tamil Nadu Act and Section 5A of the Kerala
Act will have no application when tax is exempt at the hands of the
seller, or for that matter, the tax under Section 3 or Section 5 of the
aforesaid Act at the hands of the seller is payable at the point of first
sale. Sections 5A or 7A, as the case may be, impose purchase tax
specifically in situations where the seller is granted exemption from
payment of tax. The legal position is that exemption from payment
of tax at the time of sale is a pre-condition for attracting Sections 5A
and 7A respectively. Further, the fact that in case the goods were
not exempt from payment of tax at the time of sale and the goods
would have attracted tax at the first point of sale, is immaterial and
inconsequential. Levy of purchase tax is governed by the provisions
and stipulations of Sections 5A or 7A. They are independent and in
a way constitute charging sections. Purchase tax is leviable on and
payable by the purchaser. However, the legislations do not levy the
purchase tax to tax the transaction of the sale and purchase twice.
356 [2025] 6 S.C.R.

Supreme Court Reports

Instead, it levies purchase tax only where no sales tax was payable
on the sale. Further, purchase tax has not been made leviable in all
situations, except in three situations, namely, (a) where the goods
on which no tax is paid were used in manufacture; or (b) where
the goods were despatched out of the State other than by way of
inter-State trade or commerce; or (c) where the goods are disposed
of in a manner other than sale within the State. However, the need
to satisfy the conditions do not change the nature of the charge,
which is, tax on purchase. These aspects and the constitutionality
has been explained in Hotel Balaji (supra) and Devi Dass (supra)
referred to above.
32. The challenge to the constitutional validity must be rejected on the
basis of the ratio elucidated by this Court in Kandaswami (supra),
Hotel Balaji (supra) and Devi Dass (supra). The contention of the
appellant-assessees that the constitutional validity of the impugned
provisions was not examined while deciding Kandaswami (supra)
ought to be rejected, even if we would accept that the question of
constitutional validity was not directly addressed. Hotel Balaji (supra)
specifically upholds the constitutionality of the impugned provisions,
disagreeing with the opinion/ratio expressed in Goodyear (supra).
We would also like to record that purchase tax is levied on the
purchase of goods on which no tax has been paid on account of any
exemption as a result of which the seller is not required to collect
and pay sales tax. The decision whether or not to levy purchase
tax is a prerogative and power of the State Legislature. As noticed
above, the liability to pay is distinct from levy of tax. This being so,
the argument that purchase tax is leviable when there is cross-border
or inter-State movement of the goods or is a consignment tax must
be rejected. Even otherwise, the event, that is inter-State movement
of the goods, which does not amount to inter-State sale, falls within
the legislative domain and power of the State Legislature. The State,
when it imposes such tax, does not exceed its power to impose tax
conferred by the State List as inter-State sale of goods is not being
subjected to tax. The rationale explaining the validity have been
elucidated in both Hotel Balaji (supra) and Devi Dass (supra).
33. While examining tax provisions, we must give sufficient latitude to the
Legislature. Income generation in the form of taxes is an important
source of revenue for both the State and the Central governments.
[2025] 6 S.C.R. 357

C.T. Kochouseph v. State of Kerala and Another Etc.

Some play in the joints should be given to the Legislature while
dealing with laws relating to taxation and economic activities except
in case of encroachment upon the power to tax that is not vested
with them in terms of the Union or the State List, etc.37
34. Realising the above legal position, a different set of arguments was
raised in Civil Appeal Nos. 3024-3025 of 2012 filed by M/s Britannia
Industries Limited. According to us, the arguments do not have
any merit and must be rejected. We would briefly refer to the said
arguments and our reasons for rejecting them.
35. It is submitted that in terms of Section 17 of the Tamil Nadu Act,
sales of vegetable oil by the dealers up to a particular turnover
was granted exemption from payment of tax.38 This, in our opinion,
supports the case of the Revenue for what is granted is exemption
from payment of sales tax and not the purchase tax. Thereafter,
reference is made to sub-sections (1), (2) and (2A) of Section 8 of
the Central Act. In particular, with reference to explanation to Section
8(2A) of the Central Act, it is submitted that the benefit of the said
sub-section is not available as the Government Order39 granting
exemption had specified circumstances or conditions for grant of
exemption. This, it is submitted, is to ensure that the exemption is
available only to intra-State sales and not inter-State sales. This
argument also supports the case of Revenue. The contention that
purchase tax payable under Section 7A at the rates mentioned
under Sections 3 and 4 should be treated as exempt in view of the
GO issued under Section 17, as stated above, is untenable. The
GO refers to the tax payable at the time of sale, that is, the sales
tax. The GO does not grant exemption from payment of purchase
tax. The grant of exemption being for the purpose of payment of
sales tax, it does not follow that purchase tax would not be payable
when conditions of Section 7A are satisfied. Further, it would be
contradictory or rather nugatory to argue that the rate of tax specified
in the Schedule should be taken as nil as no payment is to be made

37 See Chief Commissioner of Central Goods and Service Tax and Others v. Safari Retreats (P) Ltd. and
Others, (2025) 2 SCC 523; Elel Hotels and Investments Limited and Others v. Union of India, (1989) 3
SCC 698; Federation of Hotel and Restaurant Association of India, Etc. v. Union of India and Others,
(1989) 3 SCC 634.
38 As per Government Order dated 27.03.1998, as amended by Government Order dated 02.06.2000.
39 For short, “G.O.”
358 [2025] 6 S.C.R.

Supreme Court Reports

on the sale amount as sales tax. If we accept this argument, it would
defeat the very purpose and objective of enacting Section 7A of the
Tamil Nadu Act. Section 7A is only attracted where the sales tax is
not payable, which means there should be an exemption notification
under Section 17 or exemption under the Third Schedule, read with
Section 8 of the Tamil Nadu Act.
36. In view of the aforesaid reasoning, the judgments of this Court in
Kailash Nath and Another v. State of Uttar Pradesh and Others40
and Collector of Central Excise, Bombay-I and Another v. Parle
Exports Pvt. Ltd.41 will have no application. The reason as noted
above is simple: the exemption notification pertains solely to tax on
sales and does not extend to purchase tax, which becomes payable
only when sales tax is exempt.
37. In view of the above, we also reject the argument that the applicable
rate of tax on purchase would be nil as the tax payable on the sale in
view of the exemption from payment of sales tax is nil. Reliance placed
on Casio India Company Private Limited v. State of Haryana42 is
misplaced and liable to be rejected as Casio India (supra) deals with
the issue of payment of tax under the Central Act and not with the
provisions we are concerned. The ratio of the said case cannot be
applied in view of the direct judgments of this Court in Kandaswami
(supra), Hotel Balaji (supra) and Devi Dass (supra).
38. The argument that the rate applicable under Section 7A would be
the effective rate and not the rate mentioned in the Schedule must
be rejected for the reasons set out above. The exemption in the
present case relates only to payment of sales tax and not purchase
tax. For the same reason, we would reject the argument relying upon
the judgment in the case of Rajputana Agencies Ltd. v. CIT43 and
Thermax Private Limited v. Collector of Customs (Bombay).44
These decisions again are directly not applicable to the legislations
in question but relate to the rate of tax applicable in case of dividend
tax or the levy of additional duty under the Central Excise Rules,

40 AIR 1957 SC 790.
41 AIR 1989 SC 644.
42 (2016) 6 SCC 209.
43 (1959) 35 ITR 168.
44 (1992) 4 SCC 440.
[2025] 6 S.C.R. 359

C.T. Kochouseph v. State of Kerala and Another Etc.

1944 with reference to the provisions of the relevant enactments
and the rules thereunder. It must be remembered that excise duty
and customs duty are payable by the importer or the manufacturer.
There is no reverse levy in the case of customs duty or the excise
duty in terms of the two enactments. Purchase tax can be levied
and payable, even the sales tax is not payable.
39. Accordingly, question nos. I and II are answered in affirmative, that
is, in favour of the Revenue and against the appellant-assessees in
terms of the aforesaid reasoning and decision. Question No. III is
answered in negative in favour of the State and against the appellant-
assessees by upholding the constitutional validity of Section 5A of
the Kerala Act and Section 7A of the Tamil Nadu Act. The reference
is answered accordingly. All the appeals preferred by the appellant-
assessees are dismissed and the judgments/orders of the High Court
of Kerala and the High Court of Judicature at Madras are upheld.
40. The stay order(s) shall stand vacated.
41. Pending applications, if any, shall stand disposed of.
42. There shall be no order as to costs.

Result of the case: Appeals dismissed.

†
Headnotes prepared by: Nidhi Jain