Inter-State sale test turns on movement of goods, not passing of title; local purchase tax and penalty failed.

A purchase falls within inter-State trade when the transaction occasions movement of goods from one State to another, and the passing of title is not decisive. Applying that test, the Bombay High Court treated watch movements bought at auction for use in a Daman factory, and actually moved there for manufacture, as inter-State purchases under the Central Sales Tax Act. As a result, purchase tax under the Bombay Sales Tax Act did not apply because the provision covered only local purchases from unregistered dealers, and the connected penalty could not survive once the underlying tax liability failed.

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Issues: (i) Whether the purchases of watch movements in the Bombay auction were purchases in the course of inter-State trade under section 3(a) of the Central Sales Tax Act, 1956; (ii) whether purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was leviable on such purchases; and (iii) whether the penalty under section 36(2)(c) of the Bombay Sales Tax Act, 1959 read with Explanation (1) was sustainable.

Issue (i): Whether the purchases of watch movements in the Bombay auction were purchases in the course of inter-State trade under section 3(a) of the Central Sales Tax Act, 1956.

Analysis: A sale or purchase falls within section 3(a) when it occasions the movement of goods from one State to another. The decisive test is whether there is a direct nexus between the transaction and the inter-State movement, so that the movement is an incident of, or is necessitated by, the contract of sale. The place where property in the goods passes is not determinative. On the facts, the auction was confined to actual users, the goods were purchased for use in the factory at Daman, and the goods were in fact moved there and consumed in manufacture.

Conclusion: The purchases were inter-State purchases within section 3(a) of the Central Sales Tax Act, 1956, in favour of the assessee.

Issue (ii): Whether purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was leviable on such purchases.

Analysis: Section 13 applies only to purchases made within the State from unregistered dealers. Since the transactions were held to be inter-State purchases, they fell outside the scope of section 13 and no purchase tax could be imposed on them.

Conclusion: Purchase tax under section 13 of the Bombay Sales Tax Act, 1959 was not leviable, in favour of the assessee.

Issue (iii): Whether the penalty under section 36(2)(c) of the Bombay Sales Tax Act, 1959 read with Explanation (1) was sustainable.

Analysis: The penalty rested on the same tax liability that was founded on the erroneous characterisation of the purchases as intra-State purchases. Once the purchase tax demand failed, the foundation for the penalty also disappeared.

Conclusion: The penalty was not sustainable, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the disputed purchases were inter-State purchases, purchase tax was not exigible, and the penalty could not survive.

Ratio Decidendi: A sale or purchase is inter-State when it occasions the movement of goods from one State to another, and the place where title passes does not determine the character of the transaction.

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