Inter-State sales by transfer of railway receipts during transit were exempt from State tax under article 286.

Sales of gur completed by transfer of railway receipts while the goods were in transit from one State to another were treated as inter-State sales and not as local sales merely because delivery was taken outside Uttar Pradesh. The constitutional bar on State taxation under article 286 applied to such transactions, and section 27(1)(b) of the U.P. Sales Tax Act was read consistently with the later concept in section 3 of the Central Sales Tax Act, 1956, covering sales effected by transfer of documents of title during movement of goods. The sales were therefore exempt from tax.

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Issues: Whether the sales of gur effected by transfer of railway receipts while the goods were in transit from one State to another were exempt from tax under article 286 of the Constitution read with section 27(1)(b) of the U.P. Sales Tax Act.

Analysis: The sales were not outside the State merely because delivery was taken outside Uttar Pradesh; they were effected inside the State by transfer of railway receipts. The constitutional and statutory prohibition against State taxation applied to sales in the course of inter-State trade or commerce. The Court held that the expression in section 27(1)(b) of the U.P. Sales Tax Act bore the same meaning as the concept later embodied in section 3 of the Central Sales Tax Act, 1956, namely, sales effected by transfer of documents of title during the movement of goods from one State to another. Sales of goods in transit by transfer of railway receipts therefore fell within that category and were exempt from tax.

Conclusion: The sales were exempt under article 286 of the Constitution read with section 27(1)(b) of the U.P. Sales Tax Act, in favour of the assessee.

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