State taxing power cannot be expanded by rule to treat inter-State branch transfers as sales under exemption recovery rules.

The Explanation to rule 28A of the Haryana General Sales Tax Rules could not expand the State's taxing power to treat inter-State branch transfers or consignment transfers as sales for recovery of tax under the exemption scheme. Sale remained confined to transfers for cash, deferred payment or other valuable consideration, and the constitutional limits in articles 265 and 286, read with the Union entries on inter-State trade, barred State levy on transactions outside its legislative field. The assessment orders treating such transfers as taxable sales were therefore unsustainable.

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Issues: Whether the State could, by the Explanation to rule 28A of the Haryana General Sales Tax Rules, 1975, treat inter-State branch transfers or consignment transfers as sales for the purpose of recovering tax under the exemption scheme and sustain the impugned assessment orders.

Analysis: The governing Act defined sale as a transfer for cash, deferred payment or other valuable consideration, and section 12 barred State levy on sales or purchases taking place outside the State or in the course of inter-State trade or commerce. The constitutional scheme under articles 265 and 286, read with entries 92A and 92B of List I, reserved such taxation to the competent authority and prohibited a State from imposing tax on transactions beyond its legislative field. The Explanation to rule 28A operated only to prescribe the manner in which exemption or deferment liability was to be worked out; it could not enlarge the State's taxing power or authorise recovery of tax on transactions which were not taxable under the Act.

Conclusion: The State was not competent to levy tax on inter-State branch transfers or consignment transfers by resorting to the Explanation to rule 28A, and the assessment orders treating such transactions as taxable sales could not stand.

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