Inter-State deemed sales from right-to-use contracts cannot be taxed by the State when contract-driven movement crosses State borders.

A transfer of the right to use equipment was treated as a deemed sale under article 366(29A)(d), but its taxability remained subject to article 286 and the Central Sales Tax Act, 1956. The lease agreements and purchase orders formed one integrated arrangement, and the movement of goods from outside the State was occasioned by that contract, satisfying section 3 of the Central Sales Tax Act. The situs could not be fixed merely by the place where the goods were used within the State. The authorities also erred by relying on the minority view in 20th Century Finance Corpn. Ltd., because the majority view controls and excludes inter-State deemed sales from State tax under section 3F of the Uttar Pradesh Trade Tax Act, 1948.

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Issues: Whether the contracts for transfer of the right to use equipment, together with the purchase orders placed to procure non-existent goods, constituted inter-State sales so as to fall outside the State's taxing power; whether the situs of the deemed sale was determined by the place of use or by the place where the contract and movement of goods originated; and whether the State authorities erred in relying on the minority view in 20th Century Finance Corpn. Ltd. while levying tax under section 3F of the Uttar Pradesh Trade Tax Act, 1948.

Issue: Whether the contracts for transfer of the right to use equipment, together with the purchase orders placed to procure non-existent goods, constituted inter-State sales so as to fall outside the State's taxing power.

Analysis: A contract for transfer of the right to use goods is a deemed sale under article 366(29A)(d) of the Constitution of India, but its taxability remains subject to article 286 and the Central Sales Tax Act, 1956. On the facts, the lease agreements and the subsequent purchase orders were not independent transactions; they were integrally connected and formed one composite arrangement. The purchase of equipment was made only to fulfil the prior lease commitments, and the movement of goods from outside the State to the assessee's customers was occasioned by those lease contracts. Since the movement of goods from one State to another was the direct result of the transaction, the ingredients of section 3 of the Central Sales Tax Act, 1956 were satisfied.

Conclusion: The deemed sales were inter-State sales and were not liable to tax under section 3F of the Uttar Pradesh Trade Tax Act, 1948.

Issue: Whether the situs of the deemed sale was determined by the place of use or by the place where the contract and movement of goods originated.

Analysis: The governing principle is that, in the absence of a statutory fiction fixing situs, the relevant inquiry is where the transfer of the right to use is completed and where the movement of goods is occasioned by the contract. Mere location or use of the goods within the State is not decisive where the contract itself sets in motion the inter-State movement. Here, the goods were procured outside the State pursuant to the lease arrangement and delivered to the lessees in the State as part of the same transaction.

Conclusion: The situs could not be fixed merely by the place of use within the State, and the transaction remained an inter-State sale.

Issue: Whether the State authorities erred in relying on the minority view in 20th Century Finance Corpn. Ltd. while levying tax under section 3F of the Uttar Pradesh Trade Tax Act, 1948.

Analysis: The majority view in 20th Century Finance Corpn. Ltd. was treated as the declared law, and it upheld State levy only subject to the constitutional limitation that outside sales and inter-State sales are outside State taxing power. The authorities proceeded on the minority view, whereas the majority view, read with the facts of the present case, required exclusion of inter-State deemed sales from State tax.

Conclusion: The authorities erred in law in sustaining the levy on the basis of the minority view.

Final Conclusion: The tax demand and the concurrent orders of the authorities were unsustainable because the transactions were inter-State deemed sales beyond the State's competence to tax.

Ratio Decidendi: Where a transfer of the right to use goods is carried out through an integrated contractual arrangement that occasions movement of goods from one State to another, the transaction is an inter-State sale under section 3 of the Central Sales Tax Act, 1956 and cannot be taxed by the State under section 3F of the Uttar Pradesh Trade Tax Act, 1948.

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