Deemed inter-State sale in works contracts sustains turnover deduction where outside goods are moved for contract execution.

Goods brought from outside the State for use in a pre-existing works contract were treated as a deemed inter-State sale when the movement was occasioned by that contract and the goods were applied only in its execution. The absence of direct privity between the contractee and the outside seller did not defeat the deduction claimed from taxable turnover, because the decisive test was the contractual purpose of movement and actual use in the works contract. On that reasoning, the exemption and deduction claim under the U.P. VAT framework was sustained in favour of the assessee and against the revenue.

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Issues: Whether the assessee was entitled to deduction of taxable turnover in respect of goods brought from outside the State and used in execution of a works contract, and whether the exemption claimed under the U.P. Value Added Tax Act and Rules was sustainable.

Analysis: The Court held that the controversy stood covered by its earlier decision in which it was ruled that, where goods are moved from outside the State solely because of a pre-existing works contract and are used only in execution of that contract, the transaction answers the description of a deemed inter-State sale. The absence of privity between the contractee and the actual seller does not defeat the deduction, and the decisive consideration is whether the movement of goods was occasioned by the works contract and whether the goods were applied to that contract.

Conclusion: The questions of law were answered in favour of the assessee and against the revenue; the revision was dismissed.

Ratio Decidendi: In a works contract, goods moved from outside the State pursuant to the contract and used in its execution constitute a deemed inter-State sale, and the assessee is entitled to the corresponding deduction notwithstanding the absence of direct privity with the outside seller.

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