2003 (10) TMI 625 - HC - VAT and Sales Tax

Revision u/s 11 of the U.P. Sales Tax Act, 1948 - Claim for exemption on the basis of form III-B -Genuineness of forms - Proper procedure for reassessment and enquiry u/s 21 of the U.P. Sales Tax Act, 1948 - HELD THAT - In the present case the assessing authority did not probe deep into the matter and has acted merely on the information that the forms in question were not issued by the sales tax department to the two purchasing dealers referred to above. What was further required to establish was that the present dealer acted in a manner lacking bona fides or that he was in collusion with the purchaser and knowingly accepted fictitious forms. A dealer acting bona fide may be cheated by a purchasing dealer by issue of forms that were not genuine for one reason or the other but merely because some one had cheated the selling dealer, the later cannot be subjected to liability for sales tax without showing that he acted in a manner that lacks the care and caution of a reasonable man. Nothing of this sort has been shown in the conduct of the revisionist. Learned Standing Counsel laid stress on an averment made by the assessing officer in the assessment order for assessment year 1981-82 that Sri Arun Kumar the owner of the business in the name of the revisionist had stated that he had been doing business with this party for the past several years and the forms were genuine and that he accepted the responsibility for any defect in the disputed form III-Kha. After the initiation of action u/s 21 no statement of Arun Kumar seems to have been recorded to extract from him any information which may indicate that while entering into the transactions of sale in question and accepting forms III-B, he knew that the said firm do not exist and the forms are forged and fictitious. No information has been gathered about the manner in which the transactions were executed. The payment for the sales were made and the goods were transported. Therefore, from the mere information that the forms in question were not issued by the sales tax department to the two parties referred to above without indicating to whom they were actually issued, the present revisionist cannot be assumed to have any guilty intention to avoid payment of tax by accepting the disputed forms. In my view therefore, the Tribunal's finding that the dealer was wrongly allowed exemption in the original assessment or that the transactions of sales purporting to have been made to the two parties against form III-B were liable to tax is legally erroneous. The sales in question were granted exemption in the original assessment and no good reason had been made out to withdraw that exemption and bring to tax the sales in question. In the result, revision is allowed and the order of Tribunal dated November 3, 1990 is set aside and the matter is remanded back to the Tribunal to pass appropriate order in the light of observations made above. Petition allowed.

Issues Involved:

1. Validity of exemption claims based on form III-B.
2. Responsibility of the selling dealer in verifying the genuineness of forms.
3. Proper procedure for reassessment and enquiry under section 21 of the U.P. Sales Tax Act, 1948.

Summary:

This revision u/s 11 of the U.P. Sales Tax Act, 1948, challenges the order of the Sales Tax Tribunal, Saharanpur, dated November 3, 1990, related to the assessment year 1984-85 arising out of proceedings u/s 21 of the Act.

Issue 1: Validity of exemption claims based on form III-B

The applicant, a manufacturer and dealer of papers, claimed exemptions during the assessment proceedings based on form III-B received from various purchasers. The assessing authority initially granted these exemptions but later received information indicating discrepancies, such as forms not issued to the dealer, cancellation of recognition certificates, and mismatched amounts. Consequently, the case was reopened u/s 21, and exemptions totaling Rs. 77,02,180 were disallowed, resulting in a tax levy of Rs. 4,85,237.35. The applicant's appeals to the Deputy Commissioner (Appeal) and the Tribunal were partially allowed and rejected, respectively.

Issue 2: Responsibility of the selling dealer in verifying the genuineness of forms

The applicant contended that they received the forms in good faith, believing them to be genuine as they were issued by the sales tax department. The applicant argued that it is not their responsibility to verify the forms beyond ensuring they are properly stamped and signed by the issuing dealer. The court referred to several precedents, including Indra Steels Private Ltd. v. Commissioner of Sales Tax, Gaurav Trader v. Commissioner of Trade Tax, and Bharat Iron Stores v. Commissioner of Sales Tax, which support the view that the selling dealer is only required to act as a prudent businessman and is not liable for verifying the authenticity of the forms beyond reasonable checks.

Issue 3: Proper procedure for reassessment and enquiry under section 21 of the U.P. Sales Tax Act, 1948

The court emphasized the need for proper enquiry and cross-examination before disallowing exemption claims. For instance, in the case of M/s. Kishore Enterprises, the court directed the assessing authority to verify the issuance of forms and provide the applicant an opportunity for cross-examination. Similarly, for other disputed forms, the court highlighted the necessity of thorough investigation to establish whether the forms were genuine and whether the applicant acted in good faith.

Conclusion:

The court set aside the Tribunal's order and remanded the matter back to the Tribunal to pass an appropriate order in light of the observations made, emphasizing the need for proper enquiry and adherence to legal principles in reassessment proceedings.

Petition allowed.

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