Inter-State works contract deduction depends on movement of goods under the contract, not on where the contract is executed.

The Tribunal misdirected itself by holding that Sections 3, 4 and 5 of the Central Sales Tax Act applied only when the works contract was executed outside Uttar Pradesh, which was contrary to the governing principle on movement of goods under a pre-existing works contract. Goods brought from outside the State for execution of electrical works contracts within Uttar Pradesh could still attract the statutory treatment relevant to inter-State transactions. Because the Tribunal proceeded on an incorrect legal basis, its order was unsustainable and the matter was remitted for fresh decision. The factual questions, including whether there were independent purchases or two sales, were left open on remand.

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Issues: Whether the Tribunal was correct in rejecting the assessee's claim for deduction under Section 3F(2)(b)(i) of the U.P. Trade Tax Act, 1948 on the premise that Sections 3, 4 and 5 of the Central Sales Tax Act, 1956 applied only where the works contract was executed outside the State.

Analysis: The assessee had imported goods from outside the State for execution of electrical works contracts within Uttar Pradesh and claimed deduction on the footing that the goods were brought in solely for those contracts. The Tribunal rejected the claim by applying a legal principle that confined the benefit of the Central Sales Tax provisions to contracts executed outside the State. The Court held that this was the exact opposite of the governing principle already recognised in earlier authority, under which the movement of goods occasioned by a pre-existing works contract and their use in execution of that contract could attract the statutory treatment relevant to inter-State transactions. Since the Tribunal proceeded on an incorrect legal basis, its order could not be sustained. The merits of the factual controversy, including whether there were independent purchases or two sales, were left open for reconsideration on remand.

Conclusion: The Tribunal's reasoning was unsustainable in law and the matter was remitted for fresh decision.

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