Inter-State sale characterization defeats state tax deduction where contract itself occasions movement of goods across State borders.

A contract that required supply and stacking of river boulders from Arunachal Pradesh to sites in Assam was treated as occasioning movement of goods between States; on that basis, the transactions fell within inter-State trade under Section 3 of the Central Sales Tax Act, 1956 and outside Assam's taxing power. As the sales were not taxable under the Assam General Sales Tax Act, 1993, deduction of tax at source from contractors' bills under Section 27 lacked a statutory basis and the works contract characterisation under Section 2(38) was rejected. The impugned deduction actions were set aside with consequential refund relief.

---

---

Issues: (i) Whether the supply of river boulders under the contracts amounted to inter-State sales outside the taxing power of the State. (ii) Whether deduction of tax at source from the contractors' bills under the Assam General Sales Tax Act, 1993 was legally sustainable.

Issue (i): Whether the supply of river boulders under the contracts amounted to inter-State sales outside the taxing power of the State.

Analysis: The contracts were read as agreements for supply and stacking of river boulders from quarries in Arunachal Pradesh to specified sites in Assam. The movement of goods from one State to another was held to be occasioned by the contracts and therefore to be an incident of the sale. Applying the constitutional scheme and Section 3 of the Central Sales Tax Act, 1956, such transactions were treated as sales in the course of inter-State trade and commerce, beyond the State's taxing power.

Conclusion: The transactions were held to be inter-State sales and not liable to tax under the Assam General Sales Tax Act, 1993.

Issue (ii): Whether deduction of tax at source from the contractors' bills under the Assam General Sales Tax Act, 1993 was legally sustainable.

Analysis: Since the sales were held to fall outside the scope of the Assam General Sales Tax Act, 1993, the statutory basis for deduction of tax at source under Section 27 of that Act was absent. The court also rejected the State's attempt to treat the contracts as works contracts for this purpose, holding that Section 2(38) did not assist the revenue on the facts found.

Conclusion: The deduction and proposed deduction of tax at source were held to be unconstitutional and ultra vires.

Final Conclusion: The writ petitions succeeded, and the impugned tax deduction actions were set aside with consequential relief including refund where tax had already been deducted.

Ratio Decidendi: Where a contract itself occasions the movement of goods from one State to another, the sale is an inter-State sale under Section 3 of the Central Sales Tax Act, 1956 and is beyond the State's power to tax.

---