1971 (7) TMI 130 - SC - VAT and Sales Tax

Whether on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the deduction of Rs. 1,06,306.08 from the gross turnover of the dealer on account of sales to various registered dealers? Whether a selling dealer is entitled to claim deductions from his taxable turnover of sales to purchasing registered dealers with respect to all the sales made until the date of the cancellation of the registration certificate of the purchasing dealers? Held that - Appeal allowed. Unable to see how the questions which were sought to be referred were only of fact and were not of law. All the orders of the departmental authorities including the Tribunal appear to show that prima facie the assessee had complied with the requirements of the statute and the rules for the purpose of claiming deductions. So long as the sales were to dealers who were registered under the relevant sales tax laws and who had supplied declarations to the assessee in respect of the sales, the duty which was cast on the assessee had been prima facie performed

Summary

Issues:
1. Disallowance of deductions claimed on account of sales to registered dealers.
2. Justification for disallowing deductions by the Tribunal.
3. Dismissal of petitions by the High Court in limine.

Analysis:
1. The appellant, a registered dealer under the Bihar Sales Tax Act, 1947, sought to deduct certain amounts for sales to registered dealers in the assessment orders for the years 1958-59 and 1959-60. The Additional Superintendent of Sales Tax disallowed deductions for sales to certain registered dealers, alleging they were bogus. The appellant argued that valid declarations were produced, but the assessing authority found the appellant had not exercised due diligence to verify the genuineness of the dealers, leading to disallowance based on rule 18 of the Bihar Sales Tax Rules, 1949.

2. The appellant appealed to the Appellate Commissioner of Sales Tax, who upheld the disallowance on grounds of lack of evidence regarding the appellant's diligence in verifying the dealers' authenticity. The penalty imposed was set aside. The matter was then taken to the Commercial Taxes Tribunal, where it was noted that although the law did not require the appellant to verify registration certificates, failure to do so risked losing deductions if dealers were found to be bogus. The Tribunal found the appellant had not exercised proper diligence, leading to the claim's failure.

3. The appellant sought High Court intervention, requesting two questions of law to be referred. The High Court dismissed the petitions, deeming the findings as factual. The Supreme Court disagreed, stating that the issue of whether deductions could be disallowed if dealers were later found to be bogus was a legal question. The Court held that as long as the appellant complied with statutory requirements and dealt with registered dealers in good faith, the benefit of deductions should not be denied. The Supreme Court allowed the appeals, directing the High Court to refer the questions sought by the appellant for further examination. The appellant was awarded costs.

In conclusion, the Supreme Court overturned the High Court's decision, emphasizing the legal nature of the questions raised by the appellant regarding the disallowance of deductions for sales to registered dealers. The Court highlighted the importance of good faith dealings with registered dealers and directed the High Court to reconsider the legal aspects of the case.