Inter-State sale requires proof that the sale contract occasioned movement of goods; mere out-of-State billing is not enough.

A sale is an inter-State sale only when a contract of sale occasions the movement of goods from one State to another, and that movement is proved by material on record; mere billing in the name of out-of-State purchasers is insufficient. On the facts, the record showed only stray sales at the assessee's premises and no satisfactory proof that goods were transported from Chennai to Kerala, Karnataka or Andhra Pradesh pursuant to any sale contract, so Central sales tax could not be levied. Penalty also failed because the assessment foundation collapsed and there was no material of deliberate tax evasion, so the consequential levy could not stand.

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Issues: (i) whether the disputed transactions were inter-State sales liable to tax under the Central Sales Tax Act, 1956; (ii) whether penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959.

Issue (i): whether the disputed transactions were inter-State sales liable to tax under the Central Sales Tax Act, 1956.

Analysis: A sale falls within the course of inter-State trade only when there is a contract of sale, express or implied, which occasions movement of goods from one State to another, and the movement is the proximate result of that contract. Mere billing in the name of purchasers from other States does not by itself establish inter-State sale. The materials showed only stray sales at the assessee's business premises, with no satisfactory evidence that the assessee arranged or effected movement of goods from Chennai to Kerala, Karnataka or Andhra Pradesh. In the absence of proof that the goods were transported by or on behalf of the assessee pursuant to a contract of sale, the transactions could not be treated as inter-State sales.

Conclusion: The assessment treating the transactions as inter-State sales was unsustainable and was set aside in favour of the assessee.

Issue (ii): whether penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959.

Analysis: Penalty under the relevant provision is attracted only where the statutory conditions for best judgment assessment are satisfied and the incorrectness of the return justifies penal action. Here, the dispute turned on the character of the sales, and the assessee had produced the relevant records. There was no material showing any deliberate attempt to evade tax. Since the very foundation of the assessment failed, the consequential penalty also had no basis.

Conclusion: The levy of penalty was liable to be set aside in favour of the assessee.

Final Conclusion: The writ petition succeeded, the assessment treating the sales as inter-State transactions was quashed, and the consequential penalty did not survive.

Ratio Decidendi: A transaction is an inter-State sale only if the movement of goods from one State to another is occasioned by the contract of sale and is proved by material on record; absent such proof, merely selling to purchasers residing in other States does not attract Central sales tax, and consequential penalty cannot stand.

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