Inter-State sale test applied to distributorship agreements where branded goods were earmarked and moved under the contract.

Distribution agreements requiring the manufacturer to supply identified branded goods to designated distributors, with the distributors bound to purchase them and the goods earmarked at the factory, were treated as contracts of sale in substance. On that basis, the movement of refrigerators from Faridabad to Delhi was found to be occasioned by the agreements rather than a separate transfer for storage or logistics. Applying the settled test under section 3(a) of the Central Sales Tax Act, 1956, the distributorship form did not alter the legal character of the transaction, because the substance was a transfer of property for consideration and the inter-State movement was integral to the sale.

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Issues: Whether the distribution agreements between the manufacturer and the distributors were in substance contracts of sale, and whether the movement of refrigerators from Faridabad to Delhi under those agreements constituted inter-State sales under section 3(a) of the Central Sales Tax Act, 1956.

Analysis: The agreements, read as a whole, showed that the manufacturers were bound to supply the goods under specified brands to identified distributors, while the distributors were bound to buy them subject only to incidental matters such as periodic price fixation, inspection, delivery, transit risk, and territorial marketing arrangements. The goods were earmarked for the respective distributors at the factory itself, and the movement from Faridabad to Delhi was not a routine transfer for storage independent of the agreements. Applying the settled test that a sale becomes inter-State only when the movement of goods is occasioned by the contract of sale, the Court found that the agreements created a sufficient link between the contract and the movement of goods. The form of the arrangement as a distributorship did not alter its legal character, because the substance of the transaction was a transfer of property for consideration.

Conclusion: The agreements were contracts of sale, and the movement of the refrigerators from Faridabad to Delhi was occasioned by those agreements. The transactions were inter-State sales and the answer was against the assessee.

Ratio Decidendi: Where goods are appropriated under an agreement that in substance obliges supply and purchase of identified branded goods, the movement of those goods from one State to another is occasioned by the contract and constitutes an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956.

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