Inter-State purchase test requires transaction-wise scrutiny of principal's direction, dispatch nexus, and timely movement of goods.

Purchases claimed to have been made for an ex-U.P. principal had to be tested transaction by transaction to determine whether they were made on the principal's direction and whether the goods were dispatched out of Uttar Pradesh in the shortest possible time, with a clear nexus between purchase and dispatch. The Tribunal's acceptance of the dealer's claim was found unsustainable because it did not examine each transaction individually and did not consider the assessing authority's reasons for rejecting the claim. The assessment was also not aligned with the legal test laid down by the apex court, so the Tribunal's order was vitiated and fresh assessment was required under the correct standard.

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Issues: Whether the Tribunal was justified in accepting the dealer's claim that the purchases were made for and on behalf of an ex-U.P. principal without examining each transaction in the light of the governing law on inter-State purchases and dispatches.

Analysis: The claim that purchases were made for an ex-U.P. principal could not be accepted unless each transaction was examined to see whether the purchases were made on the direction or instructions of the principal and whether the goods were dispatched of Uttar Pradesh in the shortest possible time with a clear co-relation between purchase and dispatch. The order of the Tribunal showed that it did not examine each transaction individually and also did not consider the reasons recorded by the assessing authority for rejecting the claim. The assessment also had not been made in accordance with the legal test laid down by the apex court.

Conclusion: The Tribunal's order was held to be vitiated, and the matter was required to be remanded for fresh assessment after examination of each transaction under the correct legal test.

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