2015 (9) TMI 314 - HC - VAT and Sales Tax

Sale against ST-1 Form - DVAT - correctness of ST-1 - denial of deduction - The Assessing Authority (hereafter AA ) had found that the relevant account (ST-2 account) filed by certain dealers ( hereafter referred to as purchasing dealers ) who were stated to have purchased goods from the Appellant against the ST-1 Forms - Held that - it is well established that a selling dealer would have no duty to examine the correctness of the Form ST-1 submitted; the selling dealer would also not be responsible for any misapplication of goods by the purchasing dealer or failure on the part of the purchasing dealer to maintain the correct records. Clearly, the Assessee could not be held responsible for any discrepancy in the ST-2 Account furnished by the purchasing dealer to the Sales Tax Authorities. Assessee had produced documents for the sale of goods and the duly receipted invoices along with original ST-1 Forms coupled with receipt of consideration through bank drafts and cheques that would clearly establish the transactions claimed by the Assessee. The AA was unduly influenced by the ST-2 Account filed by the purchasing dealer and the fact that the purchasing dealers were not found in existence at the time of making the remand assessment order. We find it difficult to sustain the denial of deduction claimed by the Assessee for the sales made against ST-1 Forms. - Decided in favor of assessee.

Summary

Issues Involved:
1. Denial of deduction for sales made against ST-1 Forms.
2. Genuineness of sales transactions.
3. Obligations of selling dealers under the Delhi Sales Tax Act, 1975 and associated rules.
4. Responsibilities of purchasing dealers and the impact of their discrepancies on selling dealers.
5. Evaluation of evidence produced by the Assessee.

Detailed Analysis:

1. Denial of Deduction for Sales Made Against ST-1 Forms:
The Assessee appealed against the denial of deduction for sales made to registered dealers against ST-1 Forms. The Assessing Authority (AA) found discrepancies in the ST-1 Forms and concluded that the Assessee had colluded with purchasing dealers to arrange the forms, thus disallowing the exemption claimed. The Assessee argued that it had discharged its burden of proof for claiming the deduction and that the AA had wrongly disallowed it.

2. Genuineness of Sales Transactions:
The AA, during both the initial and remand assessments, and the Tribunal questioned the genuineness of the sales transactions. The AA's investigation revealed that some ST-1 Forms did not reconcile with the purchasing dealers' ST-2 Accounts. Despite the Assessee producing books of accounts, ledger accounts, and other documents, the AA and Tribunal concluded that the sales were not genuine, primarily because the Assessee could not produce the purchasing dealers or their books of accounts.

3. Obligations of Selling Dealers Under the Delhi Sales Tax Act, 1975 and Associated Rules:
The legal framework under the Delhi Sales Tax Act, 1975, and associated rules was examined. The Act and rules specify the conditions under which a dealer can claim deductions for sales made to registered dealers. The Supreme Court's precedent in State of Madras v. M/s. Radio and Electricals Ltd. clarified that a selling dealer's obligation is limited to verifying the purchasing dealer's registration and the goods specified in their certificate. The selling dealer is not responsible for the purchasing dealer's subsequent actions.

4. Responsibilities of Purchasing Dealers and the Impact of Their Discrepancies on Selling Dealers:
The Assessee argued that it should not be held responsible for discrepancies in the ST-2 Accounts filed by purchasing dealers. The court agreed, stating that the Assessee had produced the original ST-1 Forms, which were genuine and issued by the Sales Tax Department. The Assessee could not be penalized for any discrepancies or misuse by the purchasing dealers, as it had fulfilled its obligations by providing the necessary documentation.

5. Evaluation of Evidence Produced by the Assessee:
The Assessee produced various documents, including ST-1 Forms, deposit slips, bank statements, ledger accounts, and duly receipted invoices, to substantiate the sales transactions. The Tribunal rejected this evidence, citing discrepancies in payment dates and amounts. However, the court found that the Tribunal's conclusions were based on assumptions without supporting material. The court held that the Assessee had adequately established the transactions and that the AA and Tribunal had erred in their assessment.

Conclusion:
The court concluded that the Assessee had met the conditions prescribed under Rule 7(1) of the Delhi Sales Tax Rules, 1975, by producing the necessary documents. The denial of deduction for sales made against ST-1 Forms was not sustainable. The court set aside the orders of the FAA and the Tribunal, allowing the Assessee's appeal and granting the claimed deduction. The remand assessment order was also set aside to the extent it denied the deduction and raised a consequential demand. The appeal was allowed with no order as to costs.