Inter-State sale in works contracts: goods moved under contract terms were excluded from U. P. trade tax

Goods procured from outside the State for execution of a works contract were held to move in pursuance of the contract, because the contract required approved sourcing, site inspection, railway coding and dispatch under railway documentation. On those facts, the movement was inseparably connected with the transfer and fell within section 3 of the Central Sales Tax Act, 1956 as an inter-State sale. The situs of passing of title was treated as not decisive. As a result, the turnover of such goods was not liable to U. P. trade tax and was excluded from taxable turnover under section 3-F of the U. P. Trade Tax Act, 1948.

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Issues: Whether goods procured from outside the State for use in the execution of a works contract were covered by sections 3, 4 and 5 of the Central Sales Tax Act, 1956 so as to be excluded from the taxable turnover under section 3-F of the U. P. Trade Tax Act, 1948.

Analysis: The contract conditions showed that the goods were required to be sourced only from approved manufacturers, inspected at the manufacturer's site by the railway inspection agency, identified with railway codes, and dispatched under railway documentation for use in the works. On these facts, the movement of goods was found to be in pursuance of the contract and inseparably connected with the transfer, bringing the transaction within section 3 of the Central Sales Tax Act, 1956. The Court applied the settled principle that the situs of passing of title is not decisive and that a sale occasioning movement of goods from one State to another is an inter-State sale, even where the goods are ultimately used in a works contract.

Conclusion: The turnover representing such goods was not exigible to U. P. trade tax and was liable to exclusion under section 3-F of the U. P. Trade Tax Act, 1948.

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