Second-sale exemption on declared goods cannot be denied on postal returns alone; best-judgment apportionment may apply where sourcing is uncertain

Returned postal endorsements and incomplete verification were held insufficient, by themselves, to establish that suppliers were fictitious and to deny second-sale exemption on declared goods. At the same time, dealers seeking that relief had to prove entitlement, and purchase bills alone did not automatically satisfy that burden. Where the exact source of purchases could not be traced with certainty and a mixed tax-paid or non-tax-paid source was likely, a reasonable best-judgment apportionment was applied. Accordingly, disputed turnover was split 50:50 between first sales and second sales except in matters where fictitious purchases were specifically proved.

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Issues: Whether the impugned turnovers could be denied second-sale exemption on the basis that the sellers were fictitious or not verifiable, and whether, in the circumstances of the batch appeals, the turnover should be apportioned between first sales and second sales on a 50:50 basis.

Analysis: The appeals arose out of revisions and original assessments under the Tamil Nadu General Sales Tax Act in respect of declared goods, chiefly iron and steel. The record showed that in several instances the assessing authorities relied mainly on returned registered letters, incomplete enquiries, or doubtful address verification to treat the suppliers as fictitious. The Tribunal held that such material, by itself, was not enough to conclusively establish that the sellers never existed. At the same time, the assessees were not entitled to automatic exemption merely because they produced purchase bills or bought notes, since the burden remained on them to prove entitlement to second-sale relief. The Tribunal distinguished the few cases where fictitious purchases had been properly established, and observed that in the remaining matters the factual position suggested a mixed possibility of tax-paid and non-tax-paid sources. In that setting, a best-judgment approach was considered appropriate, and the Tribunal followed prior decisions adopting an equitable allocation where the exact source of purchases could not be traced with certainty.

Conclusion: The Tribunal held that returned postal endorsements alone did not justify treating all disputed sellers as fictitious, and that in the batch appeals-except where fictitiousness was specifically proved-the disputed turnover should be split between first sales and second sales on a 50:50 basis. The appeals were therefore partly allowed, with one appeal dismissed.

Ratio Decidendi: In claims to second-sale exemption for declared goods, unverifiable purchase bills cannot be rejected solely on the basis of returned registered letters unless corroborated by other evidence, and where the source mix cannot be accurately determined, a reasonable best-judgment apportionment may be made.

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