Inter-State electricity sales cannot be taxed by a State through artificial situs or expanded consumer definitions.

Electricity supplied under prior contracts to buyers in another State was treated as an inter-State sale because electricity is goods and its movement across State boundaries brought the transaction within the Central Sales Tax Act. The State could not tax such supplies merely because the generating station was located within its territory, as Articles 269 and 286 impose independent constitutional limits. A State also could not fix the situs of sale by statutory definition of consumer or territorial nexus so as to convert an inter-State sale into an intra-State sale. The levy and demand were therefore invalid to the extent they applied to inter-State supplies.

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Issues: (i) Whether sales of electricity generated by the respondent and supplied to buyers outside the State pursuant to prior contracts constituted inter-State sales beyond the taxing power of the State Legislature. (ii) Whether the State could sustain levy of electricity duty and cess by fixing the situs of sale within the State through the statutory definition of consumer and by relying on territorial nexus.

Issue (i): Whether sales of electricity generated by the respondent and supplied to buyers outside the State pursuant to prior contracts constituted inter-State sales beyond the taxing power of the State Legislature.

Analysis: Electricity was treated as goods, and its generation, transmission, delivery and consumption were recognised as practically simultaneous. A sale of electricity for consumption in another State, when preceded by a contract and accompanied by movement from one State to another, satisfied the ingredients of an inter-State sale under the Central Sales Tax Act, 1956. The constitutional restrictions in Articles 269 and 286 operated independently of the State List entries, and therefore a State could not tax such transactions merely because the generating station was located within its territory.

Conclusion: The sales in question were inter-State sales and were not liable to State taxation.

Issue (ii): Whether the State could sustain levy of electricity duty and cess by fixing the situs of sale within the State through the statutory definition of consumer and by relying on territorial nexus.

Analysis: A State cannot, by legislative definition or contractual stipulation, artificially fix the situs of sale so as to convert an inter-State sale into an intra-State sale. The expanded definition of consumer had to be read down so as to confine it to receipt of electricity for consumption or for distribution for consumption within the State. Otherwise, the levy would travel beyond constitutional limits and infringe the scheme of inter-State trade and commerce.

Conclusion: The levy and demand, insofar as they covered inter-State supplies, were without authority of law.

Final Conclusion: The constitutional scheme protects inter-State electricity transactions from State-level imposts, and the impugned demand could not be sustained to the extent it targeted supplies moving in the course of inter-State trade.

Ratio Decidendi: Where electricity is generated under prior contracts and supplied across State boundaries for consumption elsewhere, the transaction is an inter-State sale and a State Legislature cannot, by artificial situs or expansive statutory definition, tax it in breach of constitutional restrictions.

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