Inter-State purchases for works contracts remain outside State tax where movement is incidental to the contract and taxable turnover excludes them.

Inter-State purchases of goods used in execution of a works contract were held outside the charging power under Section 5-B of the Karnataka Sales Tax Act, 1957, because the definition of taxable turnover excludes turnover arising from inter-State trade or commerce. Goods procured from outside the State with the purchaser's approval and delivered for the project site were treated as movement occasioned by and incidental to the contract. The Forty-sixth Amendment did not enlarge State taxing power beyond Article 286 and the Central Sales Tax Act scheme. The revisional order taxing the turnover was set aside and exemption restored.

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Issues: Whether the turnover relating to inter-State purchases of goods used in execution of the works contract was liable to tax under Section 5-B of the Karnataka Sales Tax Act, 1957, or was excluded as inter-State turnover.

Analysis: Section 5-B levies tax on the taxable turnover of transfer of property in goods involved in execution of works contracts, but the definition of taxable turnover excludes turnover of purchase or sale in the course of inter-State trade or commerce. The contract required procurement and approval of specified equipment for the project, and the goods were purchased from outside the State with the purchaser's approval and for delivery at the project site. The movement of goods was therefore treated as occasioned by and incidental to the contract. The legal fiction created by the Forty-sixth Amendment does not enlarge the State's taxing power beyond the constitutional limits imposed by Article 286 and the scheme of inter-State trade under the Central Sales Tax Act, 1956. A State cannot tax a deemed sale which is in the course of inter-State trade or commerce merely because the transfer of property in goods occurs in the State during execution of a works contract.

Conclusion: The turnover was not taxable under Section 5-B and was entitled to exemption as inter-State turnover.

Final Conclusion: The revisional order bringing the inter-State purchases to tax was set aside and the assessee's exemption was restored.

Ratio Decidendi: Goods purchased from another State for a works contract are outside the State's charging power under Section 5-B where their movement is pursuant to and incidental to the contract, because inter-State turnover is excluded from taxable turnover and constitutional limits prevent taxation of such inter-State deemed sales.

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