Import nexus for leased machinery limits CST exemption; pre-clearance rentals deductible, post-clearance rentals remain taxable.

Transfer of the right to use imported machinery under operating lease agreements was treated as a deemed sale, but exemption under Section 5(2) of the CST Act applied only if the transaction itself occasioned import or was completed through transfer of documents of title before the goods crossed customs frontiers. As the machinery was imported in the petitioner's name, with Bills of Lading and Bills of Entry standing in its name and effective control retained until clearance, the lease arrangements executed before clearance did not convert the whole transaction into a sale in the course of import. Lease rentals received up to actual clearance and transfer of effective control were deductible, while rentals for the post-clearance period remained taxable under the Tamil Nadu General Sales Tax Act.

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Issues: Whether the transfer of right to use imported machinery under operating lease agreements executed in Chennai before clearance of the goods from customs barriers was a sale in the course of import exempt under Section 5(2) of the Central Sales Tax Act, 1956 and therefore outside levy under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959, and whether the petitioner was entitled to deduction for lease rentals received before actual delivery and transfer of effective control.

Analysis: The transaction involved transfer of the right to use goods, but the decisive question was whether the deemed sale occurred in the course of import. The constitutional scheme under Article 286 and the statutory scheme under Section 5(2) of the Central Sales Tax Act, 1956 were applied to hold that only a sale that occasions import or is effected by transfer of documents of title before the goods cross the customs frontiers qualifies for exemption. The Court relied on the principles governing deemed sales and transfer of right to use goods, holding that actual delivery is not always necessary, but the goods must be available, deliverable, and the transfer must still satisfy the import nexus. On the facts, the import was undertaken in the petitioner's own name, the Bills of Lading and Bills of Entry stood in its name, and effective possession and control remained with the petitioner until later delivery. The operating lease agreements executed before clearance did not by themselves make the entire transaction one in the course of import. At the same time, lease rentals received up to the date of actual clearance and transfer of effective control were treated as eligible for deduction, while rentals thereafter remained taxable under Section 3-A of the Tamil Nadu General Sales Tax Act, 1959.

Conclusion: The petitioner was not entitled to blanket exemption under Section 5(2) of the Central Sales Tax Act, 1956, but was entitled to deduction for lease rentals received up to the date of import and clearance, with tax leviable on rentals for the post-clearance period.

Ratio Decidendi: A transfer of right to use imported goods is exempt as a sale in the course of import only when the statutory import nexus is satisfied, and where the owner retains possession and effective control until clearance, exemption cannot extend to the entire lease transaction.

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