Inter-State sale doctrine barred Travancore-Cochin tax on coal delivered to ships in State waters.

Coal sold for delivery to ships in Travancore-Cochin waters under contracts placed from the State was treated as moving from Candle Island in Madras and as passing property only on delivery into the bunkers within the State waters. Applying Article 286(2) and the Bengal Immunity principle, the transactions were held to be in the course of inter-State trade or commerce. Section 26 of the Travancore-Cochin General Sales Tax Act expressly excluded such taxation, so the Sales Tax Laws Validation Act, 1956 could not revive the levy. The tax demand was therefore set aside.

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Issues: Whether the sale of coal delivered to ships in Travancore-Cochin waters pursuant to orders placed from the State constituted inter-State sales beyond the taxing power of the State, and whether the Travancore-Cochin General Sales Tax Act, 1125, and the Sales Tax Laws Validation Act, 1956, could sustain the levy.

Analysis: The Court held on the materials that the coal moved from Candle Island in the Madras State to vessels berthed in Travancore-Cochin under contracts of sale, and that property passed only when the coal was delivered into the bunkers in the State waters. Applying Article 286(2) of the Constitution as explained in the Bengal Immunity decision, the transactions were treated as occurring in the course of inter-State trade or commerce. Section 26 of the Travancore-Cochin General Sales Tax Act, 1125, contained an express prohibition against taxing such inter-State sales, and therefore the Validation Act could not revive or validate the levy for this State.

Conclusion: The sales were inter-State sales outside the State's taxing competence, and the impugned levy could not be sustained.

Final Conclusion: The petition succeeded, the tax demand was set aside, and costs were awarded to the petitioner.

Ratio Decidendi: A State cannot impose sales tax on a transaction that is found to be in the course of inter-State trade or commerce where the governing State law itself excludes such taxation and the constitutional ban under Article 286 applies.

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