Inter-State sale principle: contractual requirement to move goods outside the State makes the transaction liable to Central sales tax.

A sale is an inter-State sale where the contract of sale itself, or its necessary incident, requires movement of goods from one State to another. The decisive factor is not the place of delivery alone, but whether the bargain obliges the goods to move outside the State of delivery. On the facts, ex-works sales from Delhi to dealers under territorial restrictions, with contractual consequences for breach and contemplation of freight and Central sales tax on out-of-Delhi movement, made such movement a necessary incident of the contract. The sales were therefore treated as inter-State sales and were liable to Central sales tax.

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Issues: Whether sales made ex-works in Delhi to dealers, under contracts requiring the goods to be transported outside Delhi for sale in specified territories, were sales in the course of inter-State trade or commerce liable to Central sales tax.

Analysis: A sale becomes an inter-State sale when the contract of sale itself, or its necessary incident, requires the movement of goods from one State to another. The decisive factor is not merely where delivery takes place, but whether the contractual arrangement obliges the goods to move outside the State in which delivery is given. Here, the agreement fixed the territories in which the dealers could sell, required local delivery on ex-works basis, and contemplated freight and Central sales tax if the goods were transported outside Delhi. Breach of the arrangement attracted contractual consequences. On these terms, the movement of goods outside Delhi was a necessary incidence of the bargain and was occasioned by the contract of sale.

Conclusion: The sales were inter-State sales and were liable to Central sales tax. The answer was in favour of the Revenue and against the assessee.

Ratio Decidendi: Where the contract of sale itself requires, as a necessary incident, that the goods be moved from the State of delivery to another State, the sale is one in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act, 1956.

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