1986 (6) TMI 235 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of section 2(r)(ii) of the Madhya Pradesh General Sales Tax Act, 1958 regarding deduction of sale of bardana from taxable turnover when the registration certificate of the selling dealer was cancelled with retrospective effect.

Analysis:
The case involved a dispute regarding the deduction of the sale price of bardana from the taxable turnover under section 2(r)(ii) of the Madhya Pradesh General Sales Tax Act, 1958. The dealer, M/s. Roshanlal Gulshanlal, claimed exemption for the sale of old bardanas purchased from a registered dealer, Jagdish Prasad Mool Shanker. However, it was found during assessment that the registration certificate of the selling dealer had been revoked from its inception, leading to the imposition of sales tax on the dealer. The Board of Revenue allowed the dealer's appeal, stating that the cancellation of the registration certificate did not justify rejecting the claim for exemption under section 2(r)(ii).

The court analyzed the provisions of section 2(r)(ii) and emphasized that the benefit of deduction could be granted if the goods were purchased from a registered dealer, not involved in inter-State trade, and the sales were taxable under the Act. In this case, it was established that the bardana was taxable, not purchased through inter-State trade, and not falling under specific categories mentioned in the clause. The only contention was whether the bardana was purchased from a registered dealer. The court noted that at the time of purchase, the selling dealer was registered, and the dealer had no reason to doubt the registration's validity. The court stressed that the law only required the selling dealer to be registered at the time of purchase, without any indication of fraudulent registration or involvement by the dealer.

The court further clarified that the subsequent cancellation of the registration, even from its inception, did not negate the dealer's entitlement to the deduction under section 2(r)(ii). It emphasized that the crucial factor was the selling dealer's registration status at the time of purchase, and the cancellation did not hinder the dealer's claim for exemption. The court distinguished a previous case where the selling dealer was found to be bogus and involved in fraudulent activities, unlike the present scenario where the dealer had legitimately purchased bardana from a registered dealer.

In conclusion, the court answered the referred question in the affirmative, favoring the dealer and rejecting the Revenue's argument. The dealer, M/s. Roshanlal Gulshanlal, was entitled to the costs of the reference, including counsel fees. The judgment upheld the dealer's right to deduct the sale price of bardana from the taxable turnover under section 2(r)(ii) despite the retrospective cancellation of the selling dealer's registration certificate.