Second sale exemption fails where the supposed seller is only a bill trader; penalty also follows on the false claim.

Second sale exemption was unavailable where the purported seller was shown, on departmental records and his own admission, to be only a bill trader issuing invoices for commission without any real sale of goods. On that factual basis, the purchases could not be treated as exempt first sales, so the taxable turnover was restored in favour of the Revenue. Because the exemption claim was found to be false, the penalty under section 12(3) was also sustained, there being no material to displace the departmental finding. The appeal therefore failed and the tax and penalty orders were affirmed.

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Issues: (i) whether the assessee was entitled to second sale exemption on purchases made from the alleged seller who was found to be only a bill trader; (ii) whether the penalty levied under section 12(3) was sustainable.

Issue (i): whether the assessee was entitled to second sale exemption on purchases made from the alleged seller who was found to be only a bill trader.

Analysis: The materials on record showed that the alleged seller had been treated by the department as a bill trader in several other matters relating to the same period and adjacent assessment years. The record also contained an admission by the alleged seller that he issued only bills for commission and dealt with amounts only in cash, together with a supporting affidavit. The same factual finding had been accepted in the cases of other dealers who claimed identical exemption on purchases from the same person. On that basis, the alleged seller was not shown to have effected any real sale of goods, so the assessee could not claim exemption on the footing of a genuine first sale by that person.

Conclusion: The claim to second sale exemption was rejected and the taxable turnover was correctly restored in favour of the Revenue.

Issue (ii): whether the penalty levied under section 12(3) was sustainable.

Analysis: The rejection of the exemption claim meant that the assessee had put forward a false claim to avoid local tax payable on the turnover. In the circumstances found, the restoration of penalty followed from the unsustainable exemption claim and there was no material to displace the departmental finding.

Conclusion: The penalty under section 12(3) was upheld in favour of the Revenue.

Final Conclusion: The appeal failed, and the order restoring the tax and penalty was affirmed.

Ratio Decidendi: A dealer is not entitled to second sale exemption where the purported seller is proved to be only a bill trader with no real sale of goods, and a false exemption claim on that basis can justify penalty under the taxing statute.

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