Composite leasing of computer systems taxable under Kerala sales tax law, as no completed inter-State or outside sale was shown.

Rental receipts from leasing computer systems were held taxable under the Kerala General Sales Tax Act, 1963, because the arrangement was a composite and contingent agreement for supply, installation and later hiring, not a completed transfer of the right to use goods on execution of the contract. The equipment was to be delivered and installed in Kerala, with rent becoming payable only after installation, and there was no concluded inter-State sale or movement of goods as an incident of sale from one State to another. Explanation (3B) to section 2(xxi) was applied only within its proper scope, and the transaction did not fall within any protected category such as an outside sale, inter-State sale, or sale in the course of import or export.

---

---

Issues: Whether rental charges received from leasing computer systems were liable to sales tax under the Kerala General Sales Tax Act, 1963, and whether the transaction was saved from tax as an inter-State sale or an outside sale.

Analysis: The contract showed that the equipment was to be supplied, delivered and installed at the customers' premises in Kerala, with rental becoming payable only after installation. The arrangement was found to be a composite and contingent agreement for supply, installation and subsequent hiring, and not a completed transfer of the right to use goods in praesenti on execution of the agreement. In the absence of a concluded inter-State contract of sale, there was no movement of goods as an incident of sale from one State to another. The Court applied the principle that Explanation (3B) to section 2(xxi) of the Act does not extend to transactions which are outside sales, inter-State sales, or sales in the course of import or export, but held that the facts here did not bring the transaction within any of those protected categories.

Conclusion: The rental receipts from leasing the computer systems were taxable under the Kerala General Sales Tax Act, 1963, and the assessee's challenge failed.

---