Strict construction of exemption notifications denied sales tax relief, while penalty failed absent wilful non-disclosure.

Exemption notifications in sales tax law must be confined to their clear terms: inter se sales exemption for aluminium sole moulds and cutting dyes failed because the 1994 notification was limited to units within the Madras Export Processing Zone, and the 1997 notification covered only raw materials, packing materials and consumables actually used in manufacture. Items serving merely as aids or implements did not qualify as consumables. Penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act could not be sustained where all material facts were disclosed and the dispute turned only on interpretation of the notifications, so there was no wilful non-disclosure.

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Issues: (i) Whether the assessee was entitled to exemption on inter se sales of aluminium sole moulds and cutting dyes under the cited notifications, and whether those items could be treated as raw materials, packing materials or consumables; (ii) Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 was sustainable.

Issue (i): Whether the assessee was entitled to exemption on inter se sales of aluminium sole moulds and cutting dyes under the cited notifications, and whether those items could be treated as raw materials, packing materials or consumables.

Analysis: The claim under the 1994 notification failed because it was confined to inter-unit sales within the Madras Export Processing Zone, whereas the assessees were not located in that zone. The 1997 notification applied generally to sales of raw materials, packing materials and consumable goods to 100% export oriented units, but the items in question were not consumed in the manufacturing process; they were only aids or implements. The ordinary meaning of consumables, as reflected in the EXIM policy, supported the revenue's case, and the exemption notifications could not be stretched beyond their clear language.

Conclusion: The exemption claim was rejected and the issue was answered against the assessee and in favour of the revenue.

Issue (ii): Whether penalty under Section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 was sustainable.

Analysis: Penalty under Section 16(2) required proof of willful non-disclosure of assessable turnover. All material facts were already on record, and the dispute turned only on the legal interpretation of the notifications. In those circumstances, the statutory condition for penalty was not met.

Conclusion: The penalty was set aside and the issue was answered in favour of the assessee.

Final Conclusion: The tax exemption claim failed, but the penalty component was annulled, leaving the appeals successful only to that limited extent.

Ratio Decidendi: An exemption notification in a fiscal statute must be confined to its clear terms, and penalty for escapement cannot be sustained where the dispute is only one of legal interpretation and there is no willful non-disclosure.

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