Penalty under sales tax law failed where the record supported an inter-State sale and no material showed tax evasion.

Penalty under section 29A of the Kerala General Sales Tax Act could be sustained only if the record showed a real and material basis to infer an attempt to evade tax. The purchase order indicated supply of goods to Cochin Shipyard Ltd. with delivery at its stores and charge of Central sales tax, supporting an inter-State sale rather than a taxable local transaction. Mere absence of registration under the State Act did not establish deliberate evasion. Even if the document had some features of a works contract, the State could not levy tax on transfer of property in goods occurring in the course of an inter-State sale. The penalty proceedings were therefore not sustainable.

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Issues: Whether penalty proceedings under section 29A of the Kerala General Sales Tax Act, 1963 could be sustained on the basis of the material on record, and whether the transaction evidenced by the purchase order amounted to a works contract or an inter-State sale.

Analysis: The statutory pre-condition for sustaining penalty under section 29A was a real and material basis for concluding that there had been an attempt to evade tax due under the Act. The only contemporaneous document showed a purchase order for supply of goods to Cochin Shipyard Ltd. with delivery at its stores and charging of Central sales tax, which supported the conclusion that the transaction was an inter-State sale. The record did not contain material from which a deliberate attempt to evade tax could be inferred merely because registration under the State Act was absent. Even on the alternative assumption that the document had elements resembling a works contract, transfer of property in goods in the course of inter-State sale could not be taxed by the State.

Conclusion: The penalty proceedings were not sustainable and were liable to be cancelled; the transaction could not justify the levy sought to be imposed under the State Act.

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