1972 (3) TMI 74 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Deductibility of disputed sales from the petitioner's taxable turnover.
2. Legality of the assessing authority's use of material collected behind the assessee's back.
3. Compliance with Section 5(2)(a)(ii) and related rules by the assessee.

Detailed Analysis:

1. Deductibility of Disputed Sales:
The core issue was whether the sales made to M/s. Gurdial Singh Sohan Singh, a registered dealer, amounting to Rs. 35,019-7-0, were deductible from the petitioner's taxable turnover under Section 5(2)(a)(ii) of the Punjab General Sales Tax Act. The assessing authority rejected these deductions, asserting that the sales were not genuine. The appellate authority upheld this decision, noting that the firm had ceased operations and the transactions were fictitious. The Financial Commissioner and the Tribunal also supported this view, citing evidence that the purchasing firm was non-operational during the relevant period.

2. Legality of Material Collected Behind Assessee's Back:
The assessee contended that the assessing authority used material collected behind its back without disclosing it, thus violating principles of natural justice. The court noted that the assessing authority had relied on confidential departmental enquiries and statements from third parties without giving the assessee an opportunity to rebut this evidence. Citing precedents from the Supreme Court and other High Courts, the judgment emphasized that any material used against the assessee must be disclosed and an opportunity to cross-examine witnesses must be provided. The court held that the use of undisclosed material was illegal and vitiated the finding of fact.

3. Compliance with Section 5(2)(a)(ii) and Related Rules:
The court examined whether the assessee had complied with Section 5(2)(a)(ii) and Rule 26 of the Punjab General Sales Tax Rules, which require that sales to a registered dealer must be supported by a declaration in Form S.T. XXII. The court found that the assessee had indeed complied with these provisions, as there was no finding that the required forms were not filled or that the goods remained with the assessee. The court further noted that the liability for any misuse of the declaration forms should fall on the purchasing dealer, not the seller, especially when the seller had followed all legal requirements.

Conclusion:
The court concluded that the assessing authority's decision to disallow the deductions was legally unjustified. The use of undisclosed material collected behind the assessee's back violated principles of natural justice. The assessee had complied with all statutory requirements for making sales to a registered dealer. Therefore, the answer to the referred question was in the affirmative, in favor of the assessee. The reference was answered in the affirmative, with no order as to costs.