Strict proof of CST exemption failed where records showed local hire-purchase sales and inconsistent invoicing, sustaining tax and penalty.

Exemption under the Central Sales Tax Act depends on strict proof that the transaction satisfies the statutory conditions for a transit sale or high-seas sale; where the assessee's own invoices, bills of lading, import documents and hire-purchase records showed that goods were first received and then transferred under local hire-purchase arrangements, the exemption failed and the turnover was taxable as first sales under the Tamil Nadu General Sales Tax Act. Inconsistent invoicing for the same goods and unsupported exemption claims also justified the finding of suppression and an incorrect return, so the penalty was sustained. The court left the concurrent findings on tax liability and penalty undisturbed.

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Issues: (i) Whether the transactions claimed as transit sales and high-seas sales were exempt under the Central Sales Tax Act or were taxable as first sales under the Tamil Nadu General Sales Tax Act. (ii) Whether the levy of penalty for suppression and incorrect return was sustainable.

Issue (i): Whether the transactions claimed as transit sales and high-seas sales were exempt under the Central Sales Tax Act or were taxable as first sales under the Tamil Nadu General Sales Tax Act.

Analysis: The transactions were examined on the basis of the assessee's own invoices, bills of lading, import documents, delivery notes and hire-purchase agreements. The materials showed that the goods were first procured or received by the assessee and thereafter passed to customers under hire-purchase arrangements, with title retained until payment of dues. The Court found that two invoices were raised for the same goods, one treating the movement as a transit or high-seas sale and another showing local sale under the hire-purchase arrangement. On those facts, the movement of goods was not established to have occurred in the manner required for exemption under Section 6(2) or Section 5(2) of the Central Sales Tax Act, 1956. The constitutional restrictions in Article 286 and the scheme of Article 366(29A) did not assist the assessee because the factual foundation for exemption was not proved.

Conclusion: The claim of exemption failed, and the turnover was rightly brought to tax as first sales in favour of Revenue.

Issue (ii): Whether the levy of penalty for suppression and incorrect return was sustainable.

Analysis: The Court accepted the concurrent findings that the assessee had camouflaged the true nature of the transactions by raising inconsistent invoices and by claiming exemptions unsupported by the documentary record. The return was found to be incorrect and incomplete, and the factual findings justified the inference of suppression. In that context, the penalty was treated as a consequence of the deliberate attempt to claim exemption on transactions that were not proved to be exempt.

Conclusion: The penalty was sustained in favour of Revenue.

Final Conclusion: The revisions failed on merits because the assessee did not establish any legally valid exemption for the disputed transactions, and the concurrent findings on tax liability and penalty were left undisturbed.

Ratio Decidendi: Exemption under the CST Act depends on strict proof that the transaction satisfies the statutory conditions for interstate sale or import sale, and where the records show separate hire-purchase/local sale arrangements and inconsistent invoicing, the transaction may be taxed as a first sale with penalty for suppression.

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