3. WHEN IS A SALE OR PURCHASE OF GOODS SAID TO TAKE PLACE IN THE COURSE OF INTER-STATE TRADE OR COMMERCE. –
A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase, –
(a) occasions the movement of goods from one State to another; or
(b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation 1 : Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause
(b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2 : Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.
Where although the contract of sale of cement did not itself contain any covenant that the supply had to be made from any particular factory, as the contract was subject to the terms of the permit which provided that the supply had to be made from one or other factory situated outside Mysore State, the contract must be deemed to have contained a covenant that the cement would be supplied in Mysore from a place situated outside its borders and sale under such a contract would clearly be an inter-State sale as defined in clause (a) of section 3 of the Act; The State Trading Corporation of India v. State of Mysore, (1963) 14 STC 188 (SC).
Clauses (a) and (b) of section 3 are mutually exclusive, and clause (a) covers sales in which the movement of goods from one State to another is the result of a covenant or incident of the contract of sale and property in the goods passes in either State; Tata Iron and Steel Co. Ltd. v. S.R. Sarkar, (1960) 11 STC 655 (SC).