Inter-State sale taxability turns on transaction character, and an ordinance may validly validate the levy.

Residence of the dealer was held irrelevant to sales tax liability; the decisive factors were the locus and character of the transactions. Goods brought from outside Madras and delivered there for consumption were treated as falling within the Explanation to Article 286(1)(a) and also as transactions in the course of inter-State trade and commerce under Article 286(2). The earlier view that such sales lay outside Article 286(2) protection was treated as displaced. Although the transactions would otherwise have been exempt, section 2 of Ordinance III of 1956 validated the levy for transactions within the ordinance period, so the sales were held liable to tax.

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Issues: Whether the sales transaction was exempt from sales tax as a transaction in the course of inter-State trade and commerce, and whether the levy was nonetheless validated by Ordinance III of 1956.

Analysis: The residence of the dealer was held to be irrelevant to taxability, the decisive factor being the locus and character of the transactions. The transaction involved goods brought from outside the State into Madras and delivered there for consumption, so it fell within the Explanation to Article 286(1)(a). At the same time, it was also a transaction in the course of inter-State trade and commerce within Article 286(2). The earlier view that such transactions were outside the protection of Article 286(2) was treated as having been displaced. The transaction would therefore have been exempt from tax but for the effect of section 2 of Ordinance III of 1956, which validated the levy for transactions covered by the ordinance period.

Conclusion: The sales were liable to tax and the writ petition failed.

Ratio Decidendi: Residence of the dealer does not affect sales tax liability, and an inter-State sale that would otherwise be protected by Article 286(2) may be validly taxed if subsequently validated by a competent ordinance.

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