Inter-State movement of goods for a pre-existing works contract qualifies for deduction from net turnover under trade tax law.

Goods moved from an assessee's out-of-State office into Uttar Pradesh for use in an already existing works contract fall within the deeming scope of inter-State sale under section 3 of the Central Sales Tax Act, 1956, because the movement from one State to another is occasioned by the contract. On that basis, their value is deductible while computing net turnover under section 3F(2)(b)(i) of the U.P. Trade Tax Act, 1948, which allows deduction for goods covered by sections 3, 4 and 5 of the Central Sales Tax Act. The contrary distinction, where goods were merely stocked before any contract existed, does not apply on these facts.

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Issues: Whether goods transferred from an assessee's out-of-State office to Uttar Pradesh for use in a pre-existing works contract constitute goods covered by section 3 of the Central Sales Tax Act, 1956, so as to be deductible under section 3F(2)(b)(i) of the U.P. Trade Tax Act, 1948.

Analysis: Section 3F of the U.P. Trade Tax Act, 1948 permits deduction, while computing net turnover in works contract cases, of the sale value of goods covered by sections 3, 4 and 5 of the Central Sales Tax Act, 1956. Section 3 of the Central Sales Tax Act, 1956 is a deeming provision and treats a sale or purchase as taking place in the course of inter-State trade or commerce where it occasions movement of goods from one State to another. On the undisputed facts, the goods were moved from outside Uttar Pradesh into the State and were consumed in executing a works contract already in existence. That factual setting brings the transaction within inter-State movement of goods. The distinction drawn in the contrary case law was that there the material had merely been stocked in the State before any works contract existed, whereas here the movement was for execution of an existing contract.

Conclusion: The goods transferred from outside Uttar Pradesh and used in execution of the pre-existing works contract were covered by section 3 of the Central Sales Tax Act, 1956, and their value was deductible under section 3F(2)(b)(i) of the U.P. Trade Tax Act, 1948. The issue is decided in favour of the assessee and against the Revenue.

Ratio Decidendi: Goods moved from one State to another for execution of a pre-existing works contract are treated as inter-State transactions and their value is deductible where the charging provision expressly allows deduction of goods covered by section 3 of the Central Sales Tax Act, 1956.

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