Inter-State sale and recovery notice limits: destination delivery made the supply taxable under CST, while blanket withholding exceeded recovery power.

Goods moved from Rajasthan to Thrissur under a concluded contract requiring delivery at the destination were treated as an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956, with the Kerala presence of an office or agent not changing that character. The supply was therefore outside the Kerala General Sales Tax Act, 1963. A notice under section 25(1) of the Kerala Act read with rule 22 was said to be confined to quantified arrears and recovery; a blanket direction to withhold all payments to the assessee was beyond that power and could not stand once the sale was not taxable in Kerala.

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Issues: (i) whether the supply of marble tiles from Rajasthan to Thrissur was an inter-State sale taxable under the Central Sales Tax Act, 1956 and outside the Kerala General Sales Tax Act, 1963; (ii) whether the notice issued to the purchaser to withhold payment to the assessee under section 25(1) of the Kerala General Sales Tax Act, 1963 was within jurisdiction.

Issue (i): whether the supply of marble tiles from Rajasthan to Thrissur was an inter-State sale taxable under the Central Sales Tax Act, 1956 and outside the Kerala General Sales Tax Act, 1963.

Analysis: The contract required delivery at the building site in Thrissur, the price was fixed on that basis, and the goods moved from Rajasthan to Kerala in pursuance of the concluded contract. The presence of an office or agent in Kerala did not interrupt the movement of the goods or alter the nature of the transaction. Applying the settled tests for inter-State sale, the movement of the goods was an incident of the sale and the property passed at the destination of delivery.

Conclusion: The transaction was an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956 and was not exigible to tax under the Kerala General Sales Tax Act, 1963.

Issue (ii): whether the notice issued to the purchaser to withhold payment to the assessee under section 25(1) of the Kerala General Sales Tax Act, 1963 was within jurisdiction.

Analysis: A notice under section 25(1) read with rule 22 must specify the amount due from the assessee and operates only as a mode of recovery of quantified arrears. A blanket direction preventing all payments to the assessee until tax clearance was beyond the scope of the statutory power and could not be sustained once the underlying sale was not taxable in Kerala.

Conclusion: The notice was jurisdiction and illegal.

Final Conclusion: The tax demand and recovery steps taken by the assessing authority were quashed, and the assessee obtained complete relief.

Ratio Decidendi: Where goods move from one State to another pursuant to a concluded contract requiring delivery at the destination State, the sale is an inter-State sale, and a recovery notice under section 25(1) of the Kerala General Sales Tax Act, 1963 cannot be issued as an overbroad restraint without quantified arrears.

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