Inter-State sale by appropriation before movement bars transit-sale treatment under the Central Sales Tax Act

Supply of capacitor banks to a power utility was treated as an inter-State sale because the contract itself occasioned movement from Chennai to Karnataka and the goods were unconditionally appropriated to the contract before transit began. Applying section 23 of the Sale of Goods Act, 1930, the court treated property in the unascertained goods as passing on appropriation, so the transaction fell within section 3(a) of the Central Sales Tax Act, 1956. It was not a subsequent sale in transit under section 3(b) or section 6(2). As the sale was an inter-State sale, the State from which movement commenced was the appropriate State for levy and collection under section 9(1).

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Issues: Whether the supply of capacitor banks to the Karnataka Power Transmission Corporation Ltd. constituted an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956, or a subsequent sale in transit under section 3(b) read with section 6(2) of that Act, and consequently whether the State of Karnataka was the appropriate State competent to levy tax under section 9(1) of the Central Sales Tax Act, 1956.

Analysis: The contract and the accompanying transport documents showed that the goods were manufactured to specification and were appropriated to the contract before the commencement of movement from Chennai to Karnataka. On those facts, the movement of goods was occasioned by the contract itself, which brought the transaction within section 3(a) of the Central Sales Tax Act, 1956. Section 23 of the Sale of Goods Act, 1930 was applied to hold that property in unascertained goods passed upon unconditional appropriation. The sale was therefore not a subsequent sale during movement falling under section 3(b) or section 6(2). Once the sale was treated as an inter-State sale under section 3(a), the proviso to section 9(1) governed the levy and the State from which the movement commenced was the appropriate State for collection of tax and penalty consequences followed accordingly.

Conclusion: The transaction was rightly treated as an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956, section 6(2) did not apply, and Karnataka was the appropriate State to levy and collect the tax. The decision was in favour of the Revenue.

Ratio Decidendi: Where goods are unconditionally appropriated to the contract before movement begins and the contract itself occasions the movement from one State to another, the sale is an inter-State sale under section 3(a) of the Central Sales Tax Act, 1956 and not a transit sale under section 3(b) or section 6(2) of that Act.

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