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Issues: (i) Whether the transaction for supply, erection and commissioning of machinery was an inter-State sale or a local sale exigible under the Tamil Nadu General Sales Tax Act. (ii) Whether levy of penalty under Section 3-B of the Tamil Nadu General Sales Tax Act was sustainable for the relevant assessment years.
Issue (i): Whether the transaction for supply, erection and commissioning of machinery was an inter-State sale or a local sale exigible under the Tamil Nadu General Sales Tax Act.
Analysis: The contract was entered into by the head office at Mumbai with the purchaser in Tamil Nadu and contemplated manufacture to specification, movement of goods from outside the State, separate pricing for supply and erection, and delivery at Neyveli. The Tribunal's finding that the Madras office was not a contracting party and that the goods moved pursuant to the supply contract was supported by the materials. The character of the movement satisfied Section 3 of the Central Sales Tax Act, and the insurance arrangement or post-delivery erection obligation did not alter the nature of the sale. The accretion theory could not override the statutory tests under Sections 3, 4 and 5 of the Central Sales Tax Act.
Conclusion: The transaction was an inter-State sale and was not assessable under the Tamil Nadu General Sales Tax Act.
Issue (ii): Whether levy of penalty under Section 3-B of the Tamil Nadu General Sales Tax Act was sustainable for the relevant assessment years.
Analysis: The relevant assessment years were 1988-89 to 1990-91, and the Court noted that even though Section 3-B had been inserted and later substituted, the charging provision was not available in the relevant period in the manner sought to be invoked by the Revenue. Once the transaction was held to be an inter-State sale, the local levy could not be sustained, and the ancillary penalty could not survive.
Conclusion: The levy of penalty under Section 3-B was not sustainable.
Final Conclusion: The revisions failed on the merits and the Tribunal's view that the disputed turnover was outside the local taxing power was left undisturbed; the assessment and penalty could not be sustained on the facts and law applied.
Ratio Decidendi: For a contract involving supply of goods manufactured to specification and moved from outside the State pursuant to the contract, the statutory tests of inter-State sale under the Central Sales Tax Act prevail, and local sales tax cannot be imposed by invoking the accretion theory or ancillary contractual features such as erection, insurance or staged payment.
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