1990 (11) TMI 362 - HC - VAT and Sales Tax

Issues Involved
1. Disallowance of exemption on turnover related to the sale of pepper and betel-nuts.
2. Validity of retrospective cancellation of registration certificates of purchasing dealers.
3. Burden of proof for claiming tax exemption.
4. Legal effect of form No. 25 declarations.
5. Interpretation of relevant statutory provisions and rules under the Kerala General Sales Tax Act, 1963.

Detailed Analysis

1. Disallowance of Exemption on Turnover Related to the Sale of Pepper and Betel-nuts
The assessing authority disallowed the exemption on the turnover of Rs. 14,25,172.78 related to the sale of pepper and betel-nuts to four registered dealers in Mattancherry. The goods were taxable at the last purchase point. The assessee claimed exemption, arguing that the goods were sold to registered dealers within the State, making the assessee not the last purchaser liable to tax. The assessing authority, however, denied the exemption, asserting that the local purchasers were merely namelenders with bogus registrations, which were canceled retrospectively in 1989.

2. Validity of Retrospective Cancellation of Registration Certificates of Purchasing Dealers
The assessee contended that the Revenue had no authority to cancel the registration certificates of the purchasing dealers with retrospective effect and that such cancellation should not affect the exemption claimed. The Sales Tax Appellate Tribunal found that the purchasing dealers had valid registrations when the disputed sales were made, and there was no evidence of any proceedings against them at that time. The Tribunal held that the subsequent cancellation of registrations could not prejudice the assessee, who had acted bona fide based on valid declarations at the time of transactions.

3. Burden of Proof for Claiming Tax Exemption
The Revenue argued that the burden of proof to claim exemption lies on the assessee. If it is evident at the time of assessment that the declarations in form No. 25 were given by bogus dealers, the assessee is not entitled to the exemption. The Tribunal, however, found that the assessee had produced the required form No. 25 declarations, and there was no evidence of collusion between the assessee and the purchasing dealers. The Tribunal concluded that the exemption could not be denied solely based on the retrospective cancellation of the purchasing dealers' registrations.

4. Legal Effect of Form No. 25 Declarations
The Tribunal emphasized that the only requirement under the Kerala General Sales Tax Act and Rules for a seller to obtain an exemption is the production of form No. 25 declarations issued by the purchasing dealers. The Tribunal found that the assessee had fulfilled this requirement and that the declarations were valid at the time of the transactions. The Tribunal referenced previous judgments, which supported the view that registration is the best evidence of a dealer's liability to pay tax and that form No. 25 is the surest means of establishing the seller's claim to exemption.

5. Interpretation of Relevant Statutory Provisions and Rules Under the Kerala General Sales Tax Act, 1963
The Court reviewed the relevant statutory provisions, including Section 14 and Rule 5 of the Kerala General Sales Tax Act, 1963, which outline the procedure for registration and the issuance of certificates. The Court noted that certificates are granted after necessary inquiries and are not issued mechanically. Once granted, these certificates confer certain privileges, including the ability to issue form No. 25 declarations. The Court held that the cancellation of registration certificates could only take effect prospectively and could not affect past bona fide transactions. This interpretation was supported by several precedents, including decisions from other High Courts.

Conclusion
The High Court concurred with the majority decision of the Sales Tax Appellate Tribunal, finding no error of law in its order. The Court held that the assessee was entitled to the claimed exemption based on valid form No. 25 declarations issued by purchasing dealers who had valid registration certificates at the time of the transactions. The tax revision case filed by the Revenue was dismissed in limine.

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