Inter-State lease of machinery escapes local sales tax where goods move across States under the arrangement.

Lease transactions involving the transfer of the right to use machinery were treated as inter-State where the goods moved from one State to another in pursuance of the arrangement. Applying the constitutional principle that a State cannot levy sales tax on a deemed sale taking place outside the State or in the course of inter-State trade or commerce, the place where the agreement was executed was held not to control taxability. The transactions were therefore outside the reach of section 3-A of the Tamil Nadu General Sales Tax Act, 1959 and not liable to tax under that provision.

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Issues: Whether the lease transactions of machinery, involving movement of goods from one State to another, were inter-State in nature and, if so, whether the Tamil Nadu authorities could levy tax under section 3-A of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: The transactions concerned transfer of the right to use machinery and the goods moved from one State to another in pursuance of the arrangement. The governing principle was taken from the Supreme Court's ruling that a State is not competent under entry 54 of List II read with article 366(29A)(d) of the Constitution of India to levy sales tax on a deemed sale if the sale takes place outside the State or in the course of inter-State trade or commerce. Once the movement of goods from one State to another was established, the place where the agreement was executed did not control the taxability under section 3-A of the Tamil Nadu General Sales Tax Act, 1959.

Conclusion: The lease transactions were inter-State in nature and were not liable to tax under section 3-A of the Tamil Nadu General Sales Tax Act, 1959.

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