Inter-State works contract principle applied to goods moved from Karnataka to Kerala, excluding Kerala VAT liability and TDS.

A contract for procuring materials from Karnataka and using them at Kozhikode was treated as an inter-State works contract because the materials were moved from one State to another for execution of the work. Applying the principle that an inter-State sale or trade arises where there is an express or implied obligation to move goods across State borders, the Kerala High Court found the contrary view unsustainable. The transaction was therefore held to fall within the Central Sales Tax framework and outside the Kerala Value Added Tax Act, so liability under the Kerala Act, registration under that Act, and tax deduction at source under it were all inapplicable.

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Issues: Whether the contract for procuring materials from Karnataka and using them at Kozhikode for the work constituted an inter-State works contract exigible only under the Central Sales Tax regime and not under the Kerala Value Added Tax Act, and whether tax deduction at source and registration under the Kerala Value Added Tax Act were therefore inapplicable.

Analysis: The contract and surrounding facts showed that the materials were procured from Karnataka and brought into Kerala for execution of the work. Applying the principle that an inter-State sale or trade arises where there is an obligation, express or implied, to move goods from one State to another, the transaction was linked to inter-State movement of goods. On that basis, the view that the transaction was not an inter-State works contract was held to be unsustainable, and the statutory consequences under the Kerala Value Added Tax Act could not be fastened on the appellant.

Conclusion: The transaction was held to be outside the Kerala Value Added Tax Act and within the Central Sales Tax framework, so the appellant was not liable for tax under the Kerala Value Added Tax Act, was not required to take registration under that Act, and no tax deduction at source could be made under it.

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