Inter-State sales from branch transfers can be inferred from prior contracts and delivery nexus, while disclosed turnover cannot attract penalty.

Branch movements were treated as inter-State sales where the surrounding evidence, including endorsements, branch requisitions and confirmed arrangements, showed a prior contract and direct nexus between movement of goods and delivery to buyers in other States. The authority therefore sustained tax only on the proved inter-State turnover and required recomputation for the balance, which could not be mechanically classified as inter-State sales. Penalty was set aside because the entire turnover had been disclosed in the returns and documents, a wrong claim of stock transfer did not amount to wilful non-disclosure, and the ingredients of the applicable penalty provision were not satisfied.

---

---

Issues: (i) Whether the disputed turnover represented inter-State sales or only stock transfers exempt under section 6A of the Central Sales Tax Act, 1956; (ii) whether the levy of penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959.

Issue (i): Whether the disputed turnover represented inter-State sales or only stock transfers exempt under section 6A of the Central Sales Tax Act, 1956.

Analysis: The existence of a mere branch movement does not by itself make a transaction an inter-State sale, but the surrounding materials may establish a direct link between movement of goods and antecedent contracts with buyers in other States. The authority found that, for part of the turnover, the unexplained endorsements such as "party on" with date and time, the requisitioning pattern from the branches, and the movement of goods in pursuance of confirmed arrangements justified the inference of prior contracts. The finding relating to all transactions with Hatsun Milk Foods Ltd. was not fully supported in broad terms, but the materials did justify treating the transactions with that dealer as inter-State sales to the extent ascertainable by the assessing authority. The plea based on acceptance of F forms in the original assessment was not accepted on the factual position that the forms had not been produced at that stage.

Conclusion: The turnover covered by the proved inter-State transactions was taxable under the Central Sales Tax Act, 1956, while the balance could not be mechanically treated as inter-State sales and required recomputation.

Issue (ii): Whether the levy of penalty was sustainable under the Tamil Nadu General Sales Tax Act, 1959.

Analysis: Penalty under section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 is attracted only when there is wilful non-disclosure of turnover. Here, the entire turnover had been disclosed in the returns and accompanying documents; the dispute was only about the legal character of part of that disclosed turnover. A wrong claim that some turnover was stock transfer did not amount to suppression of turnover. The penalty was also traced to an incorrect provision in the reassessment order, and the ingredients of the applicable penalty provision were not satisfied.

Conclusion: The penalty was unsustainable and was set aside.

Final Conclusion: The appeal succeeded in part: the reassessment was sustained only to the extent of the taxable inter-State sale turnover as found on the evidence, while the penalty was wholly annulled and the assessing authority was directed to recompute the demand accordingly.

Ratio Decidendi: For sales-tax purposes, branch transfers can be treated as inter-State sales when the evidence shows prior contracts and a direct nexus between the movement of goods and delivery to identified buyers in another State, but penalty for escaped turnover requires wilful non-disclosure and cannot rest merely on a rejected legal claim regarding disclosed turnover.

---