Inter-State sales under CST depend on movement arising from the sales contract, while inter-unit stock transfers remain outside the tax net.

Inter-State movement of goods is taxable under the Central Sales Tax Act when the movement is occasioned by, or incidental to, the contract of sale; direct despatches from the Hyderabad unit to customers in other States were therefore treated as inter-State sales taxable in the State from which movement commenced. By contrast, goods moved between units for assembly or incorporation into equipment, where the goods lost separate identity and no sale covenant governed that movement, were treated as inter-unit stock transfers outside the inter-State sales tax net. Prior payment of Central sales tax in another State did not displace the jurisdiction of the State from which the movement began to assess and collect tax.

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Issues: (i) whether goods directly despatched from the Hyderabad unit to customers in other States pursuant to the contract were inter-State sales liable to Central sales tax in Andhra Pradesh; (ii) whether goods sent from one BHEL unit to another for incorporation into equipment were only inter-unit stock transfers and not taxable as inter-State sales; (iii) whether payment of Central sales tax in another State by the executing unit barred levy and collection by the State from which the movement commenced.

Issue (i): whether goods directly despatched from the Hyderabad unit to customers in other States pursuant to the contract were inter-State sales liable to Central sales tax in Andhra Pradesh

Analysis: A sale falls within section 3(a) of the Central Sales Tax Act when the movement of goods from one State to another is the result of, or is incidental to, the contract of sale. The contracts were for tailor-made equipment and the goods were manufactured and despatched directly to the customer's site in other States in implementation of the contractual terms. The fact that invoices were raised by another unit or that the contract was administratively routed through the head office or executing unit did not alter the character of the movement.

Conclusion: Yes. The direct despatches were inter-State sales and were taxable under the Central Sales Tax Act in the State from which the movement commenced.

Issue (ii): whether goods sent from one BHEL unit to another for incorporation into equipment were only inter-unit stock transfers and not taxable as inter-State sales

Analysis: Where goods were moved from one unit to another for assembly or incorporation into a larger package and the goods lost their separate identity, the movement was not shown to be in pursuance of a covenant of sale with the customer. The transfer was treated as a movement between branches of the same legal entity for the purpose of executing the contract, and the necessary nexus between the movement and the sale was absent at that stage.

Conclusion: Yes. Such movements were inter-unit transfers not liable to Central sales tax as inter-State sales.

Issue (iii): whether payment of Central sales tax in another State by the executing unit barred levy and collection by the State from which the movement commenced

Analysis: Section 9(1) of the Central Sales Tax Act fastens the power to levy and collect tax on the State from which the movement of goods commences, and section 9(2) operates only as the machinery provision for that identified State. The existence of a collection in another State, even if made under a mistaken understanding, did not divest the movement State of its statutory jurisdiction. The contrary view was rejected as inconsistent with the scheme of the Act and the Supreme Court's exposition of section 9.

Conclusion: No. Prior payment in another State did not oust Andhra Pradesh's jurisdiction to assess and collect the tax on the direct inter-State despatches.

Final Conclusion: The tax revision cases failed. The Tribunal's view was sustained insofar as direct despatches to customers in other States were taxable in Andhra Pradesh, while inter-unit transfers remained outside the taxable net, and the revisions were dismissed.

Ratio Decidendi: For purposes of Central sales tax, the decisive test is whether the inter-State movement of goods is occasioned by, or is incidental to, the contract of sale; and tax is collectible only by the State from which that movement commences, even if tax was earlier paid in another State on the same transaction under a mistaken impression.

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