Inter-State sale classification controls tax treatment where goods move under a pre-existing contract and later deposit forfeiture adds no fresh sale.

Turnover from a cotton transaction was examined under the Tamil Nadu General Sales Tax Act, 1959. The arrangement was treated as a make-belief loan, not a genuine loan, and the relevant sale, if any, was identified at the stage of the original contract that caused the goods to move from Bombay to Coimbatore. The later forfeiture of the deposit for failure to return the goods on time did not create a fresh sale; it was only a contractual forfeiture. Because the movement of goods was occasioned by the pre-existing contract, the transaction was not a local sale within the State and was not liable to tax under the Act.

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Issues: Whether the turnover arising from the cotton transaction was taxable under the Tamil Nadu General Sales Tax Act, 1959 as a local sale or as an inter-State sale.

Analysis: The transaction was found to be a make-belief loan arrangement and not a genuine loan. On that footing, the relevant sale, if any, had to be located at the stage when the contract was entered into and the goods were moved from Bombay to Coimbatore in pursuance of that arrangement. The forfeiture of the deposit on the assessee's failure to return the goods within time did not create a fresh sale; at most, it represented realization by forfeiture under the contract. Since the movement of goods was occasioned by the contract made before the movement, the transaction could not be treated as a local sale within the State.

Conclusion: The transaction was not liable to tax under the Tamil Nadu General Sales Tax Act, 1959, either as a loan transaction or as an inter-State sale, and the assessee succeeded.

Ratio Decidendi: Where the movement of goods is occasioned by a pre-existing contract and no subsequent sale agreement is established, the taxing character of the transaction is determined by the original contract and not by later forfeiture of the deposit.

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