By TIOL News Service

NEW DELHI, JUNE 06, 2015: THE issue before the Bench is - Whether it is the burden of the selling dealer to ascertain the genunity of the declaration in form No. ST-1 submitted by the purchasing dealer. NO is the answer.

Facts of the case

The assessee is a dealer in electrical goods, registered for purposes of sales tax. It was the claim of the assessee that the sales were effected against purchase order made by the purchasing dealer. The assessee relied on form ST-35 issued by the purchasing dealer. The assessing authority proceeded under Section 23(3) of Delhi Sales Tax Act and, disallowed exemption claim with regard to the transaction represented by the ST-35 form, raising a demand of sales tax along with interest on such account. On appeal, the first appellate authority remanded the matter with directions that the matter be re-considered with the reasons for which the claim founded on the ST-35 form was being rejected.

The assessing authority passed a fresh remand order reiterating the rejection of the ST-35 form and, thus, disallowed the exemption to the assessee noting that the substance of the verification report regarding doubtful activities of the purchasing dealer and the fact that, in the original assessment proceedings, there was no reference to the purchase order or to the specific ST-35 form. Crucially, the ST-35 form was found to be inadmissible for the reason it had been issued to the purchasing dealer and had been taken by the assessee without it being dated and with impermissible endorsement made in hand on the top converting into a form. The assessing authority also noted that the sale invoice issued by the assessee relating to the transaction in question also did not contain any information with regard to the purchase order. It found it to be unusual that the purchase order was valid for a period of three and half months and on that basis treated it as a case of collusion. It also noted that the purchasing dealer had not submitted utilization certificate with regard to the goods thus sold to it by the assessee against the ST-35 form to its own assessing authority. The assessee appealed against the order but unsuccessfully. The order of the first appellate authority was carried in appeal to the Tribunal which rejected the contentions of the assessee and upheld the assessment.

Having heard the parties, the High Court held that,

++ it is not the burden of the selling dealer to show that the declaration in form No. ST-1 submitted by the purchasing dealer were not spurious or were genuine or that the conditions subject to which the forms were issued to the purchasing dealer by the Sales tax department were complied with;

++ whilst we do not find any impropriety in the approach of the Tribunal in relying upon the circular issued by the GNCTD for regulating the issuance of the statutory forms (which include form ST-35), we do not approve use of the verification report concerning the purchasing dealer, may be reflecting "doubtful activities" on his part, in the manner done. Unless there is some material available to show complicity between the purchasing dealer and the selling dealer vis-à-vis the alleged "doubtful" activities of the former, inferences adverse to the interest of the latter are impermissible. The default on the part of the purchasing dealer in submitting a proper utilization certificate respecting the goods purchased under the cover of the ST-35 form may lead to consequences for him but not for the selling dealer. In this context, the third proviso to Section 4(2)(a) of the Sales Tax Act quoted earlier only needs to be applied. It makes it clear that the benefit of deduction continues to inure for the benefit of selling dealer even if the purchasing dealer is found to have indulged in misutilisation;

++ the assessee explained in the proceedings under Section 23(3) of Delhi Sales Tax Act that the sale transactions herein were relatable to purchase order dated 27.06.2000. It is not the case of the Revenue that the ST-35 form is a fabricated document. Concededly, it was issued by the sales tax department of GNCTD to the purchasing dealer who is registered for such purposes with the concerned authorities. There is nothing to show that the selling dealer (the assessee) could have known as to for which assessment year the specific form had been issued by the department. For his purposes, the endorsement on the top showing it to be a form pertaining to AY 2000-01 was sufficient. The mere fact that the form when handed over did not bear a specific date is inconsequential and from this complicity of the assessee cannot be inferred.

(See 2015-TIOL-1410-HC-DEL-VAT)