Inter-State works contract deduction allowed where outside-State goods were used solely for contract execution, supplier details being irrelevant.

Deduction under Rule 9(1)(e) of the Uttar Pradesh VAT Rules, 2008 was treated as admissible where goods were purchased from outside the State solely for execution of pre-existing indivisible works contracts and were actually used in performing those contracts. The court reasoned that, on those facts, the movement of goods was occasioned by the contract and the transfer of property fell within the inter-State field under Section 3 of the CST Act, so the State could not deny the deduction on the footing of a taxable deemed sale. The absence of privity with the supplier, or failure to name the supplier in the contract, was held irrelevant.

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Issues: Whether deduction under Rule 9(1)(e) of the Uttar Pradesh Value Added Tax Rules, 2008 was admissible where goods were purchased from outside the State for execution of pre-existing works contracts and the contract document did not specify the supplier.

Analysis: The assessee executed indivisible works contracts and the Tribunal found that the goods were imported only for those contracts and were actually applied in their execution. On that factual basis, the movement of goods from outside the State was occasioned by the pre-existing works contracts and the transfer of property in those goods arose in the course of a transaction covered by Section 3 of the Central Sales Tax Act, 1956. The phrase in Rule 9(1)(e) referring to a sale in the course of inter-State trade or commerce could not be read narrowly so as to exclude such transactions, since the State could not tax deemed sales that fell within the inter-State field under the constitutional scheme. The absence of privity between the contractee and the actual supplier, or the omission to name the source of goods in the works contract, was held to be irrelevant once the goods were shown to have been procured solely for execution of the contract.

Conclusion: Deduction under Rule 9(1)(e) was admissible, and the assessee's claim could not be denied on the ground adopted by the Tribunal.

Final Conclusion: The revisions succeeded, the Tribunal's contrary view was set aside, and the assessee was held entitled to the tax deduction on the value of goods used in execution of the works contracts.

Ratio Decidendi: Where goods are purchased from outside the State solely for execution of a pre-existing works contract and are in fact applied to that contract, the resulting transfer of property in those goods falls within the inter-State sale field for purposes of Rule 9(1)(e), and the deduction cannot be denied merely because the supplier was not specified in the contract document.

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