Binding contractual arrangement can make cross-state movement an inter-State sale despite delivery and invoicing formalities.

A binding contractual arrangement made under statutory control can make the movement of goods from one State to another an inter-State sale when that movement is the result of the covenant or incident of the contract. The form of delivery, storage, or invoicing does not change the essential character of the transaction if the goods were moved pursuant to that binding arrangement. On that reasoning, the turnover was treated as inter-State sales rather than local purchases, and the State levy did not apply.

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Issues: Whether the purchase of cotton from Bombay, arranged by the holding company for the subsidiary textile undertaking, was an inter-State sale or a local sale; and whether the agreement entered into by the holding company bound the subsidiary company so as to attract section 3 of the Central Sales Tax Act, 1956.

Analysis: The majority held that the statutory scheme under the Sick Textile Undertakings (Nationalisation) Act, 1974 created a binding relationship between the holding company and the subsidiary company. The holding company was empowered to exercise superintendence, direction, control and management over the sick textile undertaking, and the allotment of cotton to the subsidiary was made pursuant to that arrangement. The movement of cotton from Maharashtra to Tamil Nadu was therefore occasioned by the contractual arrangement with the holding company, and the manner in which the goods were carried, stored, and invoiced did not alter the essential character of the transaction. Applying the principle that a sale is inter-State where the movement of goods from one State to another is the result of a covenant or incident of the contract, the majority concluded that the transaction satisfied section 3 of the Central Sales Tax Act, 1956.

Conclusion: The agreement entered into by the holding company was binding on the subsidiary company, and the impugned turnover represented inter-State sales, not local purchases liable to tax under the Tamil Nadu General Sales Tax Act, 1959.

Concurring/Dissenting Opinion: One member held that the holding company and subsidiary were distinct legal entities, treated the transaction as a stock transfer/local purchase within the State, and would have dismissed the revision.

Final Conclusion: By majority, the revision was allowed and the turnover in dispute was held not exigible to tax as a local purchase under the State enactment.

Ratio Decidendi: Where the movement of goods from one State to another is brought about by a binding contractual arrangement made under a statutory control structure, the transaction is an inter-State sale under section 3 of the Central Sales Tax Act, 1956, notwithstanding the form of delivery, storage, or transit documentation.

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