Inter-State sale test and Central Sales Tax exemption apply only when movement and state exemption are integral to the contract

A sale is inter-State under section 3 of the Central Sales Tax Act only when movement of goods from one State to another is occasioned by, or inseparably connected with, the contract of sale; mere knowledge that the buyer may remove goods outside the State, or actual crossing of the border, is insufficient. On the facts described, delivery, payment, and transport arrangements occurred at the assessee's premises, so the sales were intra-State. Section 8(2A) applies only where the State law grants a general and unconditional exemption; notifications limited to small-scale units subject to conditions do not qualify. The stated result is that Central Sales Tax exemption was unavailable.

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Issues: (i) Whether the sales were sales in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act, or were intra-State sales. (ii) Whether the assessees were entitled to exemption from Central Sales Tax under section 8(2A) of the Central Sales Tax Act on the basis of the State notifications.

Issue (i): Whether the sales were sales in the course of inter-State trade or commerce under section 3 of the Central Sales Tax Act, or were intra-State sales.

Analysis: For a sale to fall within section 3(a) of the Central Sales Tax Act, the movement of goods from one State to another must be the result of, or an incident connected with, the contract of sale. Mere knowledge that the buyer may take the goods outside the State, or the fact that the goods in fact crossed the border, is not enough unless the movement is part of the bargain or a mutual understanding forming part of the transaction. Form XXVIII-B issued under the State law was treated as an anti-evasion document meant for movement within the State and not as evidence that the inter-State movement was occasioned by the contract of sale. On the facts, the purchasers bought the goods at the assessee's premises, paid the price, took delivery there, and arranged transport themselves.

Conclusion: The sales were intra-State sales and not sales in the course of inter-State trade or commerce.

Issue (ii): Whether the assessees were entitled to exemption from Central Sales Tax under section 8(2A) of the Central Sales Tax Act on the basis of the State notifications.

Analysis: Section 8(2A) applies only where the sale or purchase of the goods is exempt generally under the sales-tax law of the appropriate State. An exemption confined to specified circumstances or subject to conditions is not a general exemption within the meaning of the provision. The notifications relied upon granted relief to small scale industrial units subject to procedural conditions and, therefore, did not amount to a general exemption from tax.

Conclusion: The assessees were not entitled to exemption under section 8(2A) and were liable to Central Sales Tax.

Final Conclusion: The reference was answered against the assessees on both questions, holding that the sales were intra-State sales and that the statutory conditions for exemption from Central Sales Tax were not satisfied.

Ratio Decidendi: A sale is inter-State only when the movement of goods from one State to another is occasioned by, and inseparably connected with, the contract of sale, and exemption from Central Sales Tax under section 8(2A) is available only where the State law grants a general and unconditional exemption.

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