Inter-State sale principles exclude contracted supply of milk to Jammu and Kashmir from local VAT and registration.

Supply of Tetra Pack Milk under orders placed by the Northern Command was treated as an inter-State sale because the contract required movement of goods from Gujarat and Rajasthan to specified destinations in Jammu and Kashmir, making transportation an integral part of the bargain. Applying section 47 of the Jammu and Kashmir Value Added Tax Act, 2005 and the inter-State sale principles in sections 3 to 5 of the Central Sales Tax Act, 1956, the analysis concluded that such supplies were outside the VAT net. The State therefore could not insist on VAT liability, dealer registration, or security for local tax for those transactions.

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Issues: Whether the supply of Tetra Pack Milk from manufacturers in Gujarat and Rajasthan to Army locations in Jammu and Kashmir was a sale in the course of inter-State trade, and consequently not liable to VAT under the Jammu and Kashmir Value Added Tax Act, 2005, with no requirement of registration under that Act.

Analysis: Section 47 of the Jammu and Kashmir Value Added Tax Act, 2005 excludes from VAT sales taking place outside the State, in the course of inter-State trade and commerce, or in the course of import or export, and sub-section (2) adopts the principles in sections 3, 4 and 5 of the Central Sales Tax Act, 1956. Section 3 of the Central Sales Tax Act, 1956 treats a sale as inter-State where the sale occasions movement of goods from one State to another. The governing test is whether the movement is incidental to and inseparable from the contract of sale, and whether the contract stipulates, expressly or impliedly, inter-State movement to the place of consumption. On the accepted facts, the supply orders were placed by the Northern Command, the goods were to be delivered at specified destinations in Jammu and Kashmir, and transportation to those destinations was an integral covenant of the bargain. The arrangement on FOR basis reinforced that movement to Jammu and Kashmir was pursuant to the sale and not a local sale within the State. In that setting, the State could not insist on VAT liability, dealer registration, or security for local tax.

Conclusion: The supply was an inter-State sale, not exigible to VAT under the Jammu and Kashmir Value Added Tax Act, 2005, and the petitioners were not liable to register as dealers in Jammu and Kashmir for those supplies.

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