Transit document penalty unsustainable where inter-State goods movement showed no tax liability in Karnataka.

Penalty for failure to produce transit documents at a check-post was held unsustainable where goods were moving in inter-State transit from Maharashtra to Tamil Nadu and the records matched the invoice, lorry receipt and goods carried. A discrepancy in the invoice between the first and second inter-State sellers could, at most, affect exemption on the subsequent sale under the Central Sales Tax Act, but it did not show evasion of tax payable in Karnataka. Because no tax liability under the Karnataka Sales Tax Act was established, the ingredients for a penalty for attempted evasion were not satisfied.

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Issues: Whether penalty imposed for failure to tender transit documents at the entry check-post was sustainable when the goods were in inter-State transit and there was no liability to pay tax under the Karnataka Sales Tax Act.

Analysis: The goods were found to be in transit from Maharashtra to Tamil Nadu through Karnataka, and the record showed no discrepancy between the invoice, lorry receipt, and the goods carried. The only discrepancy related to the invoice between the first and second inter-State sellers, which could at best affect the claim of exemption on the subsequent sale under the Central Sales Tax Act, but did not establish any evasion of tax payable to Karnataka. In the absence of any tax liability under the Karnataka Sales Tax Act, the ingredients for sustaining a penalty for attempted evasion were not made out.

Conclusion: The penalty was not sustainable and the challenge to the Tribunal's order failed.

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