Import-linked leasing transactions fail for Section 5(2) exemption where import and lease are separate, with interest and penalty upheld.

Leasing transactions were held not to qualify as sales in the course of import under Section 5(2) of the Central Sales Tax Act, 1956 because the import and the lease were treated as separate steps, with no inseverable and direct causal link between the foreign purchase, customs clearance, acceptance, novation, and lease arrangement. The exemption was therefore unavailable. The Court also upheld interest and penalty on undisclosed taxable turnover, accepting that interest on delayed tax liability under the KVAT Act was mandatory and that penalty could be imposed where turnover was suppressed or not disclosed, without requiring proof of mens rea. The assessee remained liable to tax, interest, and penalty.

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Issues: (i) Whether the leasing transactions were sales in the course of import and therefore exempt under Section 5(2) of the Central Sales Tax Act, 1956. (ii) Whether the levy of interest and penalty on the undisclosed taxable turnover was sustainable.

Issue (i): Whether the leasing transactions were sales in the course of import and therefore exempt under Section 5(2) of the Central Sales Tax Act, 1956.

Analysis: The exemption under Section 5(2) applies only where the sale or purchase occasions the import or is effected by transfer of documents of title before the goods cross the customs frontiers. The transaction documents showed that the customer placed the purchase order on the foreign vendor, cleared the goods, obtained delivery, and only thereafter executed acceptance and novation documents followed by the lease schedule. On the facts, the import transaction and the leasing transaction were treated as two independent steps, without the required inextricable link or direct causal connection between the petitioner's lease arrangement and the import.

Conclusion: The transactions were not in the course of import and the exemption under Section 5(2) of the Central Sales Tax Act, 1956 was not available. The finding was against the assessee and in favour of the revenue.

Issue (ii): Whether the levy of interest and penalty on the undisclosed taxable turnover was sustainable.

Analysis: The turnover had not been disclosed in the returns for the relevant periods and was later paid only after periodic review. The Court accepted the view that interest under the KVAT Act was mandatory on the delayed tax liability and that penalty could be imposed without proof of mens rea where the taxable turnover was suppressed or not admitted.

Conclusion: The levy of interest and penalty was upheld and was against the assessee.

Final Conclusion: The petitions failed on the merits, the Tribunal's view was sustained, and the assessee remained liable to tax with consequential interest and penalty.

Ratio Decidendi: For Section 5(2) exemption, the import must be occasioned by the impugned sale itself and the import and subsequent domestic arrangement must form one inseverable, directly linked transaction; where the purchase order, import, acceptance, novation, and lease are sequential and independent, the exemption is unavailable.

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