Inter-State sale by inseparable subcontract movement made Karnataka competent to tax, with Delhi tax refund following consequentially.

Movement of goods from Bangalore to Delhi under a subcontract was treated as arising from the principal contract, because the two contracts were inseparable and the movement was an incident of the contractual obligation rather than an independent local sale. On that basis, the transaction was regarded as an inter-State sale taxable in Karnataka, and the tax paid under the Delhi sales tax regime was held refundable as a consequential relief against the same turnover.

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Issues: (i) Whether the movement of goods from Bangalore to Delhi under the subcontract was an inter-State sale occasioned by the main contract so as to attract tax in Karnataka; (ii) whether the amount paid under the Delhi sales tax regime was liable to be refunded in view of the Karnataka levy.

Issue (i): Whether the movement of goods from Bangalore to Delhi under the subcontract was an inter-State sale occasioned by the main contract so as to attract tax in Karnataka.

Analysis: The governing test is whether the movement of goods from one State to another was pursuant to a covenant in the contract or was an incident of the contract of sale. A sale is in the course of inter-State trade when the sale and movement form part of the same transaction and the movement is not independent of the contractual obligation. On the facts, the subcontract at Bangalore was entered into only to fulfil the obligations under the principal contract at Delhi, and the two contracts were found to be inseparable. The movement of goods from Bangalore to Delhi was therefore treated as occasioned by the main contract and not as an independent local transaction.

Conclusion: The transaction was held to be an inter-State sale and Karnataka was held competent to levy and collect tax.

Issue (ii): Whether the amount paid under the Delhi sales tax regime was liable to be refunded in view of the Karnataka levy.

Analysis: Since the tax liability was held to lie in Karnataka, the payment made to the Delhi authorities could not be retained for the same turnover. The direction for refund was treated as consequential to the finding on the situs and incidence of tax.

Conclusion: Refund from the Delhi sales tax authorities was directed to be made on claim by the appellant.

Final Conclusion: The appeal failed on the merits because the disputed movement of goods was treated as an inter-State sale taxable in Karnataka, while the appellant was granted only consequential refund relief against the Delhi authorities.

Ratio Decidendi: Where the movement of goods from one State to another is undertaken pursuant to, or as an incident of, the principal contract, and the related subcontract is inseparable from that contract, the transaction is an inter-State sale within the meaning of section 3(a) of the Central Sales Tax Act.

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