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2004 (11) TMI 518 - KARNATAKA HIGH COURTTaxability of inter-State works contracts under the Karnataka Sales Tax Act - Principles for determining inter-State trade or commerce under the Central Sales Tax Act - Contract entered into by the customer with the branch office for supply, erection and commissioning of the lifts and elevators - HELD THAT:- From the record, it is clear that for the purpose of section 3(a) of the Central Sales Tax Act, it is not necessary that the contract of sale must itself provide for and cause the movement of goods or that the movement of goods must be occasioned specifically in accordance with the terms of the contract of sale. It does not itself provide the movement of goods from one State to another where such movement is the result of a covenant in the contract of sale or is an incident of that contract. Therefore, the test is movement of goods from one State to another in the course of inter-State trade or commerce. The transfer of property in the State in which works contract is executed does not determine the situs of the sale. In the present case, the respondent-company had been engaged in the execution of works contract at the premises of the contractee, who placed purchase orders with the branch office of the respondent-company at Bangalore. The branch office in turn communicates such purchase orders to the principal office of the respondent company, which has its factory at Ghaziabad at U.P. The lifts and elevators were manufactured to the design and specification of the customers. The manufactured items were tested and thereafter dismantled and dispatched to the customers' place in the State by way of stock transfers. The branch office of the respondent-company executes the works contract by installing and commissioning of the lifts and elevators at the customers' place. Merely because the lifts and elevators are installed and commissioned in the State, it cannot be said that it is a local sale exigible to levy of tax u/s 5-B of the Act on the ground that the actual transfer of property used in the works contract took place in the State of Karnataka. In view of the law declared by the apex Court in Builders Association's case [1989 (3) TMI 356 - SUPREME COURT] and Gannon Dunkerley's case 1992 (11) TMI 254 - SUPREME COURT], it can be safely concluded that the principles for determining when a sale takes place in the course of inter-State trade or commerce laid down in section 3 of the CST Act would apply equally to transfer of property in goods involved in the execution of works contract. Alternatively, it could be said that a transaction to be of inter-State character, it is as to in which State the transfer of property in goods is effected. We respectfully agree with the conclusion reached by the Madras High Court in the case of Bombay Metal's case [1968 (1) TMI 46 - BOMBAY HIGH COURT], and that of Allahabad High Court in the case of Swastik Rubber Products Ltd.'s case [1988 (4) TMI 421 - ALLAHABAD HIGH COURT]. In conclusion, we are of the view that for determining whether a transaction constitutes inter-State sales or intra-State sales the test that requires to be applied is whether the contract occasioned the movement of goods from one State to another. Thus, in our opinion, the Tribunal has not decided erroneously the question of law raised before it and therefore, interference with the impugned order is not called for. Accordingly, the revision petitions filed by the State Government fails and they are rejected. In the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly. Petitions dismissed.
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