Inter-State works contract test: movement of goods occasioned by the contract, not the place of erection, governs tax treatment.

Transactions involving supply, erection and commissioning of lifts and elevators were analysed under the Central Sales Tax Act and the Karnataka Sales Tax Act to determine whether they were inter-State sales or local works contracts. The decisive test is whether movement of goods from one State to another was occasioned by the contract or was incidental to it. It is not necessary that the contract expressly require inter-State movement, nor that property in the goods pass only at the place of erection. The principles governing inter-State sales also apply to works contracts involving transfer of property in goods, and State situs rules cannot convert an in substance inter-State transaction into a local taxable one.

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Issues: Whether the transactions for supply, erection and commissioning of lifts and elevators constituted inter-State sales or taxable local works contracts, and whether tax under section 5-B of the Karnataka Sales Tax Act was exigible.

Analysis: The contract orders originated in Karnataka, but the goods were manufactured at Ghaziabad, tested, dismantled and dispatched to Karnataka for erection and commissioning. For the purpose of section 3 of the Central Sales Tax Act, 1956, the decisive test is whether the movement of goods from one State to another was occasioned by the contract or was an incident of it. It is not necessary that the contract should expressly stipulate inter-State movement or that the property in goods should pass at the place where the works contract is executed. The principles governing inter-State sales apply equally to transfer of property in goods involved in execution of works contracts, and the situs fixed by State law cannot bring within the State's taxing power a transaction that is in substance inter-State in character.

Conclusion: The transactions were inter-State in nature and were not exigible to tax as local works contracts under section 5-B of the Karnataka Sales Tax Act.

Final Conclusion: The revision petitions failed, as the impugned order of the Tribunal was upheld and the Revenue's challenge to the taxability of the transactions did not succeed.

Ratio Decidendi: For determining whether a works contract transaction is inter-State, the controlling test is whether the contract occasioned the movement of goods from one State to another, and the place where property in goods passes or where erection is completed is not decisive.

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