Inter-State sales test under sales tax law: provisional assessments vacated for failure to apply the section 3(a) movement principle.

Inter-State sales under section 3(a) of the Central Sales Tax Act were analysed against Article 286 and the State sales tax exemption framework, with the controlling test being whether the sale itself occasioned movement of goods from one State to another or whether such movement was merely incidental to the contract. The assessment authorities were said not to have properly applied this settled position when making provisional assessments on transactions claimed as exempt inter-State sales under section 26(1)(b) of the General Sales Tax Act, 1125. The provisional assessment orders were therefore not sustained and were vacated, with fresh assessments directed on the clarified legal basis.

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Issues: Whether the provisional assessment orders could stand when the assessed sales were claimed to be inter-State sales exempt from tax under section 26(1)(b) of the General Sales Tax Act, 1125, read with section 3(a) of the Central Sales Tax Act, 1956.

Analysis: The State taxing power was examined in the light of Article 286 of the Constitution of India, the Sixth Amendment, and the scheme of the Central Sales Tax Act, 1956. Inter-State sales were treated as distinct from inside sales, and the controlling test was whether the sale occasioned the movement of goods from one State to another or whether the movement was under a covenant or incident of the contract of sale. The assessment authorities had proceeded without adequately applying the then-settled legal position on section 3(a), and the provisional assessments were therefore found to have been made without proper consideration of the inter-State character of the transactions.

Conclusion: The provisional assessment orders could not be sustained and were vacated, with directions for fresh assessments in accordance with the clarified legal position.

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