Inter-State sale nexus test applied: goods moved under contract remained outside-state sales, defeating reassessment as local sales.

Where goods were moved from Tamil Nadu to other States in performance of the supply contract, the transactions were inter-State sales and could not be recharacterised as intra-State sales merely because the Madras Controller of Stores inspected, tested, accepted and sealed the goods for administrative supervision. The controlling test was the existence of a real and conceivable nexus between the contract of sale and the movement of goods, and that nexus was satisfied here. On that basis, the original assessment under the Central Sales Tax Act, 1956, was the correct assessment, and reassessment under section 16 of the Madras General Sales Tax Act, 1959, was unsustainable.

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Issues: Whether the reassessment under section 16 of the Madras General Sales Tax Act, 1959, was sustainable where the goods were moved from Tamil Nadu to other States pursuant to the supply contract, and whether the transactions were liable to be treated as intra-State sales instead of inter-State sales.

Analysis: The contract and despatch instructions showed that the supplies were intended for consignees outside the State and that the movement of goods from Tamil Nadu to other States was undertaken in performance of the contract. The role of the Madras Controller of Stores was only to inspect, test, accept and seal the goods for administrative supervision and did not convert the outside-State supplies into local sales. The controlling test was whether there was a conceivable and real nexus between the contract of sale and the movement of goods, and that nexus was present here. On that basis, the original assessment under the Central Sales Tax Act, 1956, was the correct assessment, and the attempt to reopen the completed assessment on the footing that the transactions were intra-State sales was unsustainable.

Conclusion: The reassessment jurisdiction under section 16 of the Madras General Sales Tax Act, 1959, could not be validly invoked, and the disputed transactions were inter-State sales.

Final Conclusion: The writ petitions succeeded because the challenged reassessment orders could not stand and the sales were held to fall within inter-State trade or commerce.

Ratio Decidendi: Where the movement of goods from one State to another is occasioned by and integrally connected with the contract of sale, the transaction is an inter-State sale and cannot be recharacterised as an intra-State sale by treating an administrative inspection step at the destination State as part of the sale.

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