Situs of deemed sale controls taxability where machinery use inside the State does not itself create an intra-State sale.

Transfer of the right to use machines is treated as a taxable sale under the statutory scheme, but State taxing power is limited where the transaction is an outside-State sale or a sale in the course of import. The situs of the deemed sale is not fixed merely by the presence or use of goods within the State; absent a statutory fiction, the decisive factors are where the contract is concluded and where property in the goods passes. On the stated facts, the agreement and transfer occurred outside Uttar Pradesh, so use of the machines within the State did not create an intra-State taxable sale.

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Issues: Whether the transfer of right to use the machines was taxable within the State or whether the transaction was exempt as a transfer outside the State.

Analysis: The relevant statutory scheme treated transfer of the right to use goods as a taxable sale, but the constitutional limits on State taxing power prevented levy where the transaction was an outside-State sale or a sale in the course of import. The controlling principle applied was that, absent a statutory fiction fixing situs, the location of the goods or their delivery within the State does not by itself determine the situs of the deemed sale. The decisive factor is where the contract of transfer is concluded and where the property in goods passes. On the facts, the agreement and transfer were found to have taken place outside Uttar Pradesh, so the mere use of the machines within the State did not create a taxable intra-State sale.

Conclusion: The transaction was not taxable within the State and the dealer was entitled to succeed on the question raised.

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