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2. For the sake of convenience and to understand the scope of the controversy, we refer to the facts involved in T.C.No.39 of 2009.

3. The issue pertains to the Assessment Year 2003-04. The petitioners effected purchase of chemicals, consumables and packing materials by using Form-XVII declaration and availed concessional rate of tax at 3% as provided under Section 3(3) of the Tamil Nadu General Sales Tax Act, 1959, hereinafter called 'the Act'. Such materials were used for the manufacture of automobiles parts and industrial chains. The petitioners also exported a part of the manufactured goods through Seaport as well as Airport. Initially proceeding on the basis that such exports would also attract liability under Section 3(4) of the Act, the petitioners paid a sum of Rs.4,31,832/- and at the time of assessment, they took the stand that since the export sale took place in the State of Tamilnadu, there could be no liability under Section 3(4) of the Act.

8. Mr.N.Sriparkash, learned counsel who appeared for the petitioners in T.C.Nos.39 of 2009 and in some other cases, in his submissions contended that the petitioners purchased chemicals and packing materials by using Form-XVII and the seller charged 3% tax on the sales. The learned counsel pointed out that for using such materials, the petitioners manufactured automobile parts and industrial chains, part of which were exported to outside countries through Seaport as well as Airport.

9. The contention of the learned counsel was two fold. In the first place by virtue of Article 286(1)(b) of the Constitution, there is a fetter on the States to tax on exports and that Section 5(1) of the Tamil Nadu General Sales Tax Act prescribes what is an export. Therefore, though there is a sale by way of export, no tax could have been levied. For that proposition, the learned counsel also referred to Section 2(p) read with Rule 6(e) of the Act and the Rules framed thereunder and stated that it carves out export sales. Alternatively, it was contended that the opening words of Section 3(4) excludes the sale of manufactured goods from the purview of the said provision and the 'export sale' is also a sale covered by the said excluded category and Section 3(4) will have no application.

17. Mr.N.Inbarajan, learned counsel who is also appearing for the petitioners in T.C.No.39 of 2009, by referring to Rule 6(e) of the Tamil Nadu General Sales Tax Rules, pointed out that the rules themselves provide for a reduction of Export Sale from the taxable turnover, meaning thereby that such 'Export Sale' though a 'Sale' within this State, is none the less not eligible to tax by virtue of Constitutional exemption.

18. As against the above submissions, Mr.Haja Nasiruddin, learned Special Government Pleader (Taxes) contended that Section 3(3) overrides Sections 3(2), 3(2-A) and 3(2-C). According to the learned Special Government Pleader while under Section 3(2) reference is to the first sale in the State for sufferance of tax at the rates specified in the First Schedule. Section 3(3) provides for concessional rate of that very tax by using Form-XVII solely in public interest and thereby augment more manufacturing activities in the State.

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

(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify. "

24. Under Section 3(3), the sale of any goods including consumables, packing materials and labels and excluding certain specific goods sold to another dealer for use by such dealer for manufacturing any other goods inside the State of Tamil Nadu for sale of any goods other than certain exempted goods, such sale would attract levy of only 3% by way of sales tax to be collected by the seller. The levy is however subject to Section 3(1) wherein the turnover limit for levy of tax has been prescribed. The proviso to Section 3(3) however makes it clear that any dealer after purchasing the goods by using Form-XVII violates the conditions of such purchase as stipulated in Section 3(3) and the declaration contained in Form-XVII but dispose of such goods in any other manner should pay the difference of tax payable on the turnover relating to sale of such goods at the rate prescribed under the Act and the 3% which is already paid. The second proviso prescribes that a separate stock account of the goods purchased by using Form-XVII should be maintained by the purchasing dealer.