Inter-State sale in transit can arise in works contracts; escrow routing and invoicing alone do not create separate local sales.

An Open Book Estimate works contract can still involve an inter-State sale and a subsequent sale exemption under the Central Sales Tax Act where the contractor procures goods and transfers documents of title in transit. The mere use of an escrow account or invoices raised in the end user's name does not, by itself, prove two separate local sales. The Telangana High Court treated the assessment as based on an view of the statutory scheme governing inter-State sale, transit sale and works contracts, and found that Sections 3 and 6 of the CST Act can apply to such transactions. The assessment order was set aside.

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Issues: Whether the assessment order was sustainable where the contractor claimed that the goods used in the works contract moved in the course of inter-State trade and that the subsequent transfer of documents of title attracted exemption under the Central Sales Tax Act, including in a works contract executed on Open Book Estimate basis.

Analysis: The contract was treated by the assessing authority as a turnkey project, but the terms of the agreement showed an Open Book Estimate arrangement with reimbursable cost elements and procurement by the contractor. The Court held that the mere routing of payments through an escrow account, or the fact that invoices were drawn in the name of the end user, did not establish two independent local sales. Relying on the statutory scheme of inter-State sale and subsequent sale exemption, and the settled principle that even works contracts are subject to Sections 3 and 6 of the Central Sales Tax Act, 1956, the Court found that a sale in transit by transfer of documents of title could occur in such transactions. The assessing authority had proceeded on an erroneous view that a works contract could not involve an inter-State sale in transit and had misread the governing legal position.

Conclusion: The assessment order was unsustainable and was set aside; the writ petition was allowed in favour of the assessee.

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