Second sales exemption fails where purchases are traced to non-existent dealers with cancelled registrations and no supporting evidence

Second sales exemption was denied where the purchases were found to be from non-existent dealers whose registrations had already been cancelled before the transactions. The assessee had to prove both the genuineness of the purchases and that the selling dealers held valid registration on the relevant date; on the factual record, that burden was not discharged. Section 10 places the burden on the dealer to show that turnover is not taxable, but it does not cure purchases from dealers with no subsisting registration. The first appellate authority's attempt to exempt 50% of the turnover as second sale had no material basis and was inconsistent with the findings of fact.

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Issues: Whether the assessee was entitled to second sales exemption on 50% of the disputed turnover when the purchasing dealers were found to be non-existent and their registration had been cancelled before the purchases, and whether the burden under Section 10 could be used to sustain the exemption.

Analysis: The factual findings of the assessing authority and the first appellate authority established that the purchases were made from non-existing dealers whose registration stood cancelled prior to the date of purchase. In such circumstances, the assessee had to establish both that the purchases were genuine and that they were made from dealers whose registration was in force on the relevant date. Section 10 places the burden on the dealer to prove that a turnover is not liable to tax, but that burden does not assist an assessee where the materials show purchases from non-existent dealers and no valid registration on the date of sale. The presumption adopted by the first appellate authority to treat 50% of the turnover as second sale had no supporting material and was contrary to the factual record.

Conclusion: The assessee was not entitled to second sales exemption, and the Revenue's challenge succeeded.

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