Statutory exemption cannot be denied merely for breach of private contract; exemption turns on the tax law's own conditions.

Entitlement to statutory exemption must be tested strictly against the exemption conditions in the relevant tax law, and a breach of private contractual terms cannot by itself defeat that exemption. A transfer by endorsement during transit could not be treated as contrary to public policy merely because it allegedly violated contractual stipulations between private parties. Section 23 of the Indian Contract Act, 1872 and section 34 of the U.P. Trade Tax Act, 1948 were held inapplicable on the facts, and the exemption claim under section 6(2) of the Central Sales Tax Act, 1956 required fresh examination on the existing record.

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Issues: Whether breach of a private contract and reliance on public policy could justify denial of exemption under the trade tax law, and whether the Tribunal was right in invoking section 23 of the Indian Contract Act, 1872 and section 34 of the U.P. Trade Tax Act, 1948 while deciding the assessee's entitlement to exemption.

Analysis: Entitlement to exemption had to be tested only on the statutory conditions governing the exemption provision. A breach of contractual terms between private parties may give rise to civil consequences, but it cannot by itself defeat a statutory exemption if the statutory requirements are otherwise satisfied. On the facts, the transfer by endorsement during transit could not be treated as opposed to public policy merely because it was said to violate private contractual stipulations. Section 34 of the U.P. Trade Tax Act, 1948 was also found inapplicable in the present context.

Conclusion: The Tribunal's reliance on section 23 of the Indian Contract Act, 1872 and section 34 of the U.P. Trade Tax Act, 1948 was unsustainable, and the question of exemption under section 6(2) of the Central Sales Tax Act, 1956 required fresh examination on the existing record.

Ratio Decidendi: A breach of a private contract cannot, by itself, override or defeat a statutory exemption; the exemption must be decided strictly on fulfilment of the statutory conditions governing it.

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