Second sale exemption requires proof of a genuine antecedent taxable sale; penalty needs stricter evidence and was cancelled.

A claim for second sale exemption on plastic granules failed because the assessee did not produce cogent material linking the alleged seller to the invoice-issuing concerns or proving a genuine antecedent taxable sale by an existing dealer; the assessment was therefore restored in favour of the Revenue. Penalty, however, required a stricter standard than assessment, and the available material was insufficient to sustain it; the penalty was cancelled in favour of the assessee.

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Issues: (i) whether the assessee was entitled to second sale exemption on the purchase of plastic granules; (ii) whether the levy of penalty could be sustained.

Issue (i): Whether the assessee was entitled to second sale exemption on the purchase of plastic granules.

Analysis: The assessee claimed exemption on the footing that the goods were purchased from an existing dealer, but the materials on record did not establish a reliable link between the alleged seller and the firms in whose names the invoices stood. The admissions regarding Brij Khandelwal, the invoices raised in the names of other concerns, the unexplained payments, and the bank materials showed that the assessee had not discharged the burden of proving an anterior taxable sale by an existing dealer resulting in transfer of property in goods.

Conclusion: The assessee was not entitled to second sale exemption, and the assessment was restored in favour of the Revenue.

Issue (ii): Whether the levy of penalty could be sustained.

Analysis: Although the assessment succeeded on the ground that the exemption claim failed, the standard for imposing penalty was higher than that for making the assessment. On the facts, the material was insufficient to justify the penalty, and the benefit of doubt operated in favour of the assessee on the penalty issue.

Conclusion: The penalty was not sustainable and was cancelled in favour of the assessee.

Final Conclusion: The revision succeeded on the assessment issue and failed on the penalty issue, resulting in restoration of the assessment while the cancellation of penalty was maintained.

Ratio Decidendi: A claim for second sale exemption must be proved by cogent material establishing a genuine antecedent taxable sale by an existing dealer, and penalty cannot be imposed unless the stricter standard of proof applicable thereto is satisfied.

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