I think ‘smart’ is too hard a word to define. I know plenty of people who contribute a lot in class, have good ideas in discussions, know the content etc but struggle to apply that in exams or assessment. Some people excel at maths and the sciences but really struggle with English or creative subjects, and vice versa. Some people also excel in exams but lack common sense, or struggle to learn to drive etc. Plus some people benefit from private schooling, tutoring, help from academic parents/family etc which adds a whole other layer. I’m not sure then if assessments best define ‘smart’, but generally, I would say getting a C in one subject doesn’t mean you’re not smart; the problem is ‘smart’ is just too vague.
Also for reference, I wouldn’t say a C is necessarily a bad grade, but that’s completely contextual!