Statutory control order sales to another State qualify as inter-State sales when the permit itself occasions delivery there.

Sales of cloth made under a statutory control order and permit requiring delivery to nominees in another State for consumption there were treated as inter-State sales. The control order and permit formed part of the contractual framework, the D class licensees acted only as handling agents, and they had no independent capacity to purchase the cloth. The decisive factor was that the movement of goods outside the State was occasioned by the statutory permit itself; physical despatch by the dealer and the place where title passed did not alter the legal character of the sale. Such transactions were therefore outside the State sales tax net under article 286(1)(a).

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Issues: Whether sales of cloth made under a statutory control order to D class nominees for delivery to A class licensees in another State constituted inter-State sales so as to be excluded from taxable turnover under article 286(1)(a) of the Constitution of India.

Analysis: The transaction was governed by the Cotton Textile (Control) Order, 1948, and the permit issued under it. In such a controlled transaction, the terms of the control order and the permit had to be read as part of the contract. The goods were earmarked for consumption in Orissa, the D class licensees were only handling agents of the Commissioner, and they had no legal capacity to purchase the cloth for themselves. The movement of goods outside the State was occasioned by the statutory permit itself, and the fact that the dealer did not personally despatch the goods did not alter the legal character of the sale. The passing of title was not ative; the decisive factor was that the sale directly resulted in delivery of the goods in another State for consumption there.

Conclusion: The transactions were inter-State sales and were not liable to tax under the State sales tax law. The reference was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: Where a sale under a statutory control order is made pursuant to a permit requiring delivery in another State for consumption there, the sale is an inter-State sale if the movement of goods is occasioned by the statutory terms, irrespective of where title passes or who physically despatches the goods.

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