Import-linked sale to a factory is outside taxability where foreign movement is directly caused by the supply contract.

Sale of tyres and tubes to a government factory was treated as a sale in the course of import because the foreign movement of the goods was directly occasioned by the supply contract and there was no scope for diversion to another purpose. The transaction was examined under section 5(2) of the Central Sales Tax Act and article 286(1)(b) of the Constitution, with the decisive test being whether the import movement was integrally connected to the sale. On the facts recorded, the goods were imported pursuant to the contract, so the sale fell outside taxability and was exempt from tax.

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Issues: Whether the sale of tyres and tubes to the Gun Carriage Factory was in the course of import into India and therefore not liable to tax.

Analysis: The transaction was examined under section 5(2) of the Central Sales Tax Act and article 286(1)(b) of the Constitution of India. The decisive question was whether the movement of goods from the foreign country to India was occasioned by the contract of sale and whether there was any scope for diversion of the goods for another purpose. On the material found by the Tribunal, the goods were imported pursuant to the contract for supply to the Gun Carriage Factory, and there was nothing to show a separate foreign sale inconsistent with the assessee's case. The condition laid down in the governing precedent was thus satisfied.

Conclusion: The sale was in the course of import and was exempt from tax, in favour of the assessee.

Ratio Decidendi: Where the movement of goods from a foreign country to India is directly occasioned by the contract of sale and the goods are intended for delivery under that contract without scope for diversion, the sale is in the course of import and falls outside taxability under article 286(1)(b).

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