Second sale exemption requires proof of an earlier taxable sale; fictitious bills and non-existent sellers defeat the claim and support penalty.

Second sale exemption under the Tamil Nadu General Sales Tax Act depends on the dealer proving an anterior taxable sale; purchase bills alone are insufficient where the alleged sellers are bogus or non-existent and the registration details do not tally. The burden to show that a transaction is not liable to tax remains on the claimant, and the Revenue need not prove actual payment of tax by the first seller. Where the exemption claim fails and the purchase documents are found to be fictitious, suppression of taxable turnover and failure to file the return can justify penalty under Section 12(5)(iii).

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Issues: (i) Whether the claim of second sale exemption was sustainable when the alleged sellers were found to be non-existent and the assessee failed to prove an anterior taxable sale. (ii) Whether penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was rightly deleted.

Issue (i): Whether the claim of second sale exemption was sustainable when the alleged sellers were found to be non-existent and the assessee failed to prove an anterior taxable sale.

Analysis: The claim for exemption was founded only on purchase bills said to have been issued by five dealers. On verification, the authorities found that the purported sellers were bogus or non-existent, the registration numbers in the bills were not traceable to the named dealers, and no material beyond the bills was produced to establish a genuine first sale. Under Section 10 of the Tamil Nadu General Sales Tax Act, 1959, the burden to prove that a transaction is not liable to tax lies on the dealer claiming the exemption. A claim of second sale exemption succeeds only when the assessee proves the factum of an earlier taxable sale; proof of actual payment of tax by the first seller is not necessary, but proof of the first sale itself is essential. The Tribunal wrongly shifted that burden to the Revenue.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (ii): Whether penalty under Section 12(5)(iii) of the Tamil Nadu General Sales Tax Act, 1959 was rightly deleted.

Analysis: The deletion of penalty rested on the Tribunal's acceptance of the second sale claim. Once that claim failed, the assessee remained liable to tax and had not filed the return for the assessment year in question. The finding that the purchase documents were fictitious and the taxable turnover had been suppressed supported the levy of penalty for failure to comply with the return obligation.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: The assessment as confirmed by the appellate authority was restored, and the Revenue's challenge succeeded on both questions.

Ratio Decidendi: A dealer claiming second sale exemption must prove the factum of an anterior taxable sale, and where that burden is not discharged, the claim fails and consequential penalty for suppressed taxable turnover may be sustained.

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