Inter-State sales require contractual movement of goods; penalty fails without wilful suppression, but reduced penalty for later year stands.

Sales are inter-State only when the movement of goods is pursuant to, and an incident of, the contract of sale; on the facts, there was no material showing that dispatch from Chennai to Andaman was contractually required, so the turnover was properly treated as local sales under the Tamil Nadu General Sales Tax Act. Penalty under Section 16(2) could not be sustained for the assessment years 1988-89 and 1989-90 because the turnover had been disclosed in the books and there was no finding of wilful suppression or mala fide intention, so the penalty was deleted. For 1990-91, the reduced penalty at 50% was upheld because the difference between assessed and returned turnover justified interference to that limited extent only.

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Issues: (i) Whether the sales effected were local sales or inter-State sales under Section 3(a) of the Central Sales Tax Act; (ii) Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act was leviable for the assessment years 1988-89 and 1989-90; (iii) Whether the levy of penalty at 50% for the assessment year 1990-91 was liable to be interfered with.

Issue (i): Whether the sales effected were local sales or inter-State sales under Section 3(a) of the Central Sales Tax Act.

Analysis: The determining factor was whether the movement of goods from Chennai to Andaman was pursuant to the contract of sale and formed an incident of the sale. On the materials found, there was no agreement showing that the goods had to move to Andaman as a result of the sale, and the documents indicated delivery at Chennai to persons who were not shown to be agents of the Andaman buyers. In the absence of material proving an inter-State movement linked to the sale, the turnover was treated as assessable under the Tamil Nadu General Sales Tax Act.

Conclusion: The sales were rightly held to be local sales and not inter-State sales.

Issue (ii): Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act was leviable for the assessment years 1988-89 and 1989-90.

Analysis: Penalty under Section 16(2) required wilful non-disclosure or mala fide conduct. The turnover had been reflected in the books of account and disclosed for assessment under the Central Sales Tax Act, and the finding recorded was that there was no mala fide intention. On those facts, the foundation for penalty was absent.

Conclusion: The penalty was not leviable for the assessment years 1988-89 and 1989-90 and was deleted.

Issue (iii): Whether the levy of penalty at 50% for the assessment year 1990-91 was liable to be interfered with.

Analysis: For the assessment year 1990-91, there was a difference between the assessed turnover and the turnover returned under the Tamil Nadu General Sales Tax Act. The existence of entries in the accounts did not by itself furnish a sufficient ground to unsettle the reduced penalty fixed at 50%.

Conclusion: The levy of penalty at 50% for the assessment year 1990-91 was upheld.

Final Conclusion: The revisions succeeded only to the limited extent of deleting penalty for the assessment years 1988-89 and 1989-90, while the assessment as local sales and the penalty for 1990-91 were maintained.

Ratio Decidendi: A sale is inter-State only when the movement of goods is pursuant to and an incident of the contract of sale, and penalty for non-disclosure cannot be sustained without wilful suppression or mala fide intention.

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