Inter-State sale versus works contract turns on actual contract terms; deeming provision cannot override the transaction's character.

Separate supply and service orders, distinct pricing, a preserved right of inspection before despatch, and transfer of title during movement were treated as factors pointing away from an indivisible works contract. The court held that a deeming provision could not, by itself, alter the character of an inter-State sale, and the transaction had to be examined on its actual contractual terms. Because the Tribunal had not analysed the matter in sufficient detail, the finding that the transaction was an indivisible contract was set aside and the assessing authority was directed to reconsider taxability after hearing the parties.

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Issues: Whether the turnover arising from the supply order constituted an inter-State sale exempt under section 6(2) of the Central Sales Tax Act, 1956, or whether the transaction was an indivisible works contract taxable under the Kerala General Sales Tax Act, 1963.

Analysis: The supply order and service order were separate, with separate pricing and a preserved right of inspection before despatch. The goods were manufactured to specification outside the State, insured, and the title was transferred during movement. The conclusion that the whole transaction was an indivisible contract was not accepted on the present record. The earlier view on Explanation 4(c) to section 2(xxi) of the Kerala General Sales Tax Act, 1963 also indicated that a deeming provision cannot alter the character of an inter-State sale. As the Tribunal had not examined the matter in sufficient detail, the assessing authority was required to reconsider the issue after hearing the parties.

Conclusion: The matter was remanded for fresh consideration and the finding that the transaction was an indivisible contract was set aside.

Final Conclusion: The assessee succeeded to the extent of obtaining a remand, but the claim of exemption was not finally decided and the assessing authority was directed to re-adjudicate the taxability of the transaction.

Ratio Decidendi: A transaction structured as separate supply and service orders, with transfer of title during movement, may not be treated as an indivisible works contract merely by a deeming provision, and its inter-State character must be examined on the actual contractual and transactional terms.

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