1968 (3) TMI 100 - HC - VAT and Sales Tax

Issues Involved:
1. Whether there is any material or evidence on the record to justify the presumption that goods never passed to the registered dealers.
2. Whether the Assessing Authority was required to disclose any material or evidence leading to suspicion or inference that the sales were not genuine.
3. Whether the department could go behind the declarations of sales to registered dealers and hold them as bogus in the absence of any legal evidence.

Detailed Analysis:

Issue 1: Material or Evidence to Justify Presumption
The petitioner-firm, a registered dealer, filed returns for the assessment year 1954-55, declaring a gross turnover of Rs. 9,12,341-6-6 and claimed deductions for sales to registered dealers and exports. The Assessing Authority disallowed deductions for sales to five registered dealers, suspecting the transactions were not genuine due to the inability to verify the purchasers' sales and the fraudulent nature of their registration certificates. The petitioner appealed, but the Deputy Excise and Taxation Commissioner and the Excise and Taxation Commissioner upheld the disallowance. The Financial Commissioner also disallowed further revision, leading to the petition under section 22(2) of the Punjab General Sales Tax Act for a mandamus to refer the question of law to the High Court.

The High Court directed the Financial Commissioner to state and refer whether there is any evidence to justify the presumption that goods never passed to the registered dealers, Messrs. A.K. Jain & Co. and Messrs. D.N. Hosiery. The Financial Commissioner cited three pieces of evidence: the personal knowledge of the Assessing Authority and field staff reports indicating the vendees were men of straw, a statement by a partner of the petitioner-firm that transactions were for cash without recorded entries, and a precedent that mere filing of declarations is not conclusive evidence. The High Court found that the personal knowledge and suspicions did not constitute probative evidence and concluded that no evidence existed to justify the presumption that the goods sold never passed to the registered dealers.

Issue 2: Disclosure of Material or Evidence
The petitioner argued that the Assessing Authority relied on undisclosed material and evidence, such as the insolvency of Messrs. A.K. Jain & Co. and a statement by Puran Chand of Messrs. D.N. Hosiery, without providing an opportunity for the petitioner to rebut. The High Court agreed that the petitioner was not given a chance to rebut the materials, raising an important question of law. The Financial Commissioner was directed to refer this question to the High Court.

The High Court emphasized that the Assessing Authority should have disclosed any material or evidence leading to suspicion or inference that the sales were not genuine to the petitioner and provided an opportunity to rebut the same. The court found that the absence of such disclosure and opportunity constituted a failure in the assessment process.

Issue 3: Department's Authority to Question Declarations
The petitioner contended that the production of declarations from registered dealers should be conclusive proof of genuine sales, and the department should not go behind these declarations. The High Court referred to precedents, including decisions from the West Bengal Board of Revenue and the Andhra Pradesh Court, which held that the seller is not responsible for the movements of a purchaser and that mere suspicion is insufficient to disallow deductions. The court concluded that the department could not hold the sales as bogus without legal evidence, especially when the registration certificates of the dealers were in force and the declarations were duly obtained.

The High Court found that the department's reliance on suspicions and the personal knowledge of the Assessing Authority did not constitute legal evidence to disallow the deductions. The court held that no evidence existed to justify the conclusion that the sales were fictitious and answered the reference in favor of the assessee.

Conclusion:
The High Court concluded that there was no material or evidence on the record to justify the presumption that goods never passed to the registered dealers, and the department could not disallow deductions based on suspicions without providing the petitioner an opportunity to rebut the evidence. The reference was answered in favor of the assessee, with no order as to costs.

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