M/S. National Aluminium Co. Ltd. vs Commissioner Of Sales Tax, Delhi
2014 Latest Caselaw 6689 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI
                                   Judgment reserved on November 19, 2014
                                  Judgment delivered on December 11, 2014
+                              ST. REF. NO. 17/2002
M/S. NATIONAL ALUMINIUM CO. LTD.           ..... Petitioner
              Through:     Mr.Debashish Mohapatra,
                           Advocate

                      versus

COMMISSIONER OF SALES TAX, DELHI            ..... Respondent
             Through:      Mr.Sushil Dutt Salwan,
                           Advocate
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V.KAMESWAR RAO
V.KAMESWAR RAO, J.

1. The present reference has been made by the Appellate Tribunal,

Sales Tax, Delhi on the following questions:

1. Whether on the facts and in the circumstances of the case, the Tribunal was right in disallowing the claim of deduction under Section 4(2)(a)(v) in respect of form No. 02AA-996226 for Rs.30,23,582/- on the ground that the dealer did not exercise the ordinary business prudence and the transactions cannot be said to be in a normal course of business without recording a finding as to positive connivance or collusion of the dealer?

2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in distinguishing the ratio of the Delhi High Court's judgment in the case of CST Vs. Hari Ram Oil Co. 87 STC 493 where the purchasing dealer had returned his registration certificate prior to the date of transaction with the

selling dealer?

2. The brief facts are, the petitioner is a Central Public Sector

Undertaking under the administrative control of the Ministry of Mines.

The year of assessment is 1994-95.

3. The petitioner received goods from its factory situated outside

Delhi and for the Financial Year 1994-95, the petitioner submitted 321

ST-35 Forms in support of the exemption for sale to local registered

dealers. The Sales Tax Authorities rejected four ST-35 Forms. This

reference relates to the following two forms:

Form No.                  Purchasing Dealer     Amount
02AA-996226               KPS Industries        INR 30,23,582/-
01AA-147012               Capital Automobiles   INR 8,63,848/-

4. The Assessing Authority insofar as the aforesaid two forms are

concerned, was of the following view:

1- Form No. 02AA-996226 amount Rs. 30,23,582.

This form has been issued by registered dealer Ward No. 92 M/s. K.P.S. Industries, 160, Okhla Industrial Complex. But as per the verification report, the dealer in his utilisation account has shown this form as given to M/s. MMTC of India Ltd. for Rs.366031.65.

2- Form No. 01AA-147012-amount Rs. 83,63,848/-

This form has been issued by registered dealer of Ward No. 85 M/s. Capital Automobiles, 91, Shop No. 6, Sarai Kale Khan, Nizamuddin, New Delhi. As per the report received from the concerned Ward, the registration certificate of this dealer has been cancelled with effect from 2.4.1990 and the file of the dealer has been sent to the Vigilance Department."

5. That apart, he imposed an interest @ 7% of the total amount of

Rs.1,79,12,318/-. On appeal, the Appellate Authority-I confirmed the

order of the Assessing Authority. Before the Appellate Tribunal, Sales

Tax, Delhi, it was the contention of the petitioner that; (1) it had made

regular sales to M/s K.P.S. Industries and that it did not have any reason

to doubt the bona fides of the dealer, more so, when the earlier details

filled in it were corrected and had been authenticated; (2) it had asked a

copy of the registration certificate, which was supplied by M/s. Capital

Automobiles, no gazette notification for cancellation of registration

certificate was issued till at least 1995. The fact that the purchasing

dealer had a statutory form was indicative of the registration. According

to the petitioner, there was no reason to doubt the authenticity. The

petitioner relied upon the judgment in the case of Commercial Officer,

Sales Tax Vs. Hari Ram Oil Company, [1992] 87 STC 493

6. The Appellate Tribunal, on the aforesaid contentions was of the

view that even if it is agreed that there was a chance that a form 02AA-

996226 could be re-used even after cutting and it was authenticated, the

fact that the said form was originally issued three years earlier, should

have put the petitioner on guard. The Tribunal, additionally held that as a

part of ordinary business procedure, the appellant should have enquired

as to the genuineness of the form, from the Ward Officer. The Tribunal

held, the sales tax was thus payable.

7. Insofar as form No. 01AA-147012 issued to the purchasing dealer

M/s. Capital Automobile, the Tribunal records that the form has been

used by the purchasing dealer on 2.6.1988 against a bill from M/s. Nath

Traders. The Tribunal disbelieved; the petitioner's stand, that the

registration certificate was seen. It also rejected, the stand of the

petitioner that gazette notification regarding cancellation of registration

certificate was not issued. The Tribunal ultimately, in its order dated 02

November, 2001 held that the action of the petitioner fell short of the

requirement of the good faith since it had not cared to verify the RC and

as such held the sales tax as payable. We may state here that the

Tribunal has deleted the interest imposed on the petitioner.

8. Mr.Debhashish Mohapatra, Advocate appearing for the petitioner

would submit that the respondents have clearly erred in rejecting the

claim of the petitioner by directing it to pay the sales tax as due even

though there is no fault of the petitioner in the transactions concerned.

9. On the other hand, Mr.Sushil Salwan, counsel appearing for the

respondent would support the order of the Authorities and seek the

dismissal of the reference.

10. Having heard the learned counsel for the parties, insofar as

question No. 1 is concerned, the same relates to the form at Serial No. 1

above. In fact, a perusal of the form would show that the name of the

MMTC was written on the form. Subsequently, the name of MMTC was

scored off and the name of the petitioner was mentioned by putting

initials. It has also come on record that MMTC in its communication to

the petitioner had confirmed that no sale was made by them to M/s. KPS

Industries against the subject form and the said form had not been

utilized by MMTC. The form was issued to the petitioner on 24.11.1994

and to the purchasing dealer somewhere in 1991 as the form bears the

date of 25.11.1991, which is the date on which, it was supposed to have

been issued to MMTC. If the facts are seen from businessman

perspective, it is noted that the words 'MMTC' after being scored off

were properly initialled; there was no bar to use the form after three

years nor such a case has been advanced by the revenue. Later, the

petitioner got confirmation from MMTC that it did not utilize the form.

If in the utilization account, the dealer has shown his form as given to

MMTC, it was clearly a mistake of the dealer and not of the petitioner.

It was for the dealer to clarify that he could not correct the error crept in

the utilization account. There was no fault on the part of the petitioner in

accepting the said form from the purchasing dealer. We are conscious of

our limitation as a Court of Appeal. The Tribunal, has, in a very

perfunctory manner, disallowed the claim of the petitioner overlooking

the above. We deem it appropriate to remand the matter back to the

Tribunal on issue No. 1. It would look the issue afresh and the facts

which are on record, and after ascertaining that there was no duplication

and/or misuse, conclude whether, petitioner would be entitled to the

benefit of the form in question. We may add here, it is impractical for

the dealer to check every time the authenticity of the form.

11. Insofar as the question No. 2 is concerned, the same relates to the

form at Serial No. 2 above, wherein the value of goods involved was Rs.

8,63,848/-. It has come on record that the registration certificate of the

dealer was cancelled w.e.f. 02.04.1990, that too, on his own asking. It

has also come on record that the said form was given to the petitioner by

the dealer in the year 1995. It has come on record that the purchasing

dealer has used the said form on June 02, 1988 against some bill for Rs.

31,500/- from M/s. Nath Traders. The case of the petitioner was that it

has seen the Registration Certificate of the purchasing dealer in the year

1994, has not been accepted by the Tribunal, rightly so, when the

registration was cancelled, in the year 1990, there was no occasion to see

it in 1994. Moreover, a copy of the certificate was not placed on record.

The ground urged by the petitioner apart from being incorrect also does

not inspire confidence. It was also not the case of the petitioner because

of very close business relationship with the dealer, the authenticity of the

form could not be doubted. We agree with the conclusion of the

Tribunal that the petitioner was complacent with the transaction without

caring to see whether purchasing dealer was registered or not and

whether the purchasing dealer was authorized to purchase goods against

the statutory form. The findings of the Tribunal are also factual, based on

examination of factual allegations. The said findings are cogent and

reasonable.

12. Insofar as the judgment in Hari Ram Oil's case (supra) is

concerned, this Court was concerned with the case, where the dealer

made sale in favour of two parties namely M/s. Narender Kumar Krishan

Kumar and M/s. Sunrise Lubricants. In the case of Narender Kumar

Krishan Kumar, there were nine sales, totalling to Rs. 1,00,200/- while

the sale in favour of the latter concern, was of Rs. 23,000/-. The dealer

had obtained declarations from these purchasers and sought the benefit

of exemption from sales tax in his return. The Assessing Authority

however found that the registration certificate of M/s. Narender Kumar

Krishan Kumar has been cancelled w.e.f. 01st April, 1973, while the

registration certificate of M/s. Sunrise Lubricants has been cancelled

w.e.f. 15th October, 1973. The Assessing Authority came to the

conclusion that the dealer was not entitled to the benefit of the same

made to the said purchaser because the registration certificates have been

cancelled and the sales made could not be regarded as sales having been

made to the registered dealer. An appeal to the Asstt. Commissioner of

Sales Tax, resulted in a finding that the declarations issued by them were

invalid and deduction claimed by the dealer could not be allowed. In the

second appeal, it was contended that the publication of the cancellation

of the registration certificates of the two purchasers was effected only on

30th July, 1974 and therefore, the dealer was entitled to take advantage of

the declarations which have been issued. The Tribunal, relying upon two

judgments of the Andhra Pradesh High Court, reported as Arjan Radio

House Vs. Assessing Authority [1973] 31 STC 49 (Pandh) and

Yemmiganur Spinning Mills Limited Vs. State of Andhra Pradesh

[1976] 37 STC 314 (AP), has observed that when the department was

negligent in not publishing the cancellation, it could not invalidate the

declarations obtained in good faith by the dealer. On a reference by the

Tribunal, the High Court was of the view that the intention of the

legislature in promulgating Rule 12 which stipulates when the

registration certificate is cancelled, the order of cancellation as soon as

possible after the same has been made be published in the official

gazette, was that the factum of cancellation of registration must be

known to the whole world. The High Court was of the view that once

the factum of the cancellation of registration is published, no dealer can

plead that he was ignorant about the cancellation. The High Court also

held, if the selling dealer obtains a declaration and it is known to him

that the registration certificate of the purchaser has been cancelled and

that cancellation is not notified in the official gazette, the selling dealer is

entitled to the benefit under the Act. In the case in hand, it was the case

of the petitioner, that it had seen the registration certificate of the

purchasing dealer in the year 1994. As a fact, the registration certificate

of the dealer was cancelled on 02.04.1990. Even though, no gazette

notification was issued, the ground of having seen the certificate and no

gazette notification was issued are contradictory inasmuch as if the

registration certificate was seen, then the same was not cancelled and no

question of gazette notification having been issued arises. On facts, the

judgment of Hari Ram Oil's case (supra) would not be applicable. That

apart, Hari Ram Oil's case (supra) would also not be applicable to the

facts of this case as no declaration in the manner taken by the petitioner

in that case, was taken. We are of the view that the Tribunal has rightly

held that the ratio in the Hari Ram Oil's case (supra) would not be

applicable.

13. We note, this issue would be covered by the observations of the

judgment of this Court decided on July 12, 2012, reported as [2003] 131

STC 372 (Delhi) Prince Plastics & Chemical Industries & Ors. vs.

Commissioner of Sales Tax & Ors., wherein the Court was considering

one of the submissions made on behalf of the petitioners that the

purchasing dealers should be supplied with ST-1 Forms regardless of

whether such dealers have relinquished their registered status, or have

committed other infractions of the Act and Rules, held even if

purchasing dealers have applied for ST-1 Forms but have not received

them for any reason, the selling dealer is not automatically exonerated

from liability, nay the statutory duty to collect tax, since the ST-1 Form

is not forthcoming. Traders are apparently quite willing to run the risk of

one amongst many transactions going sour, so far as supply of these

forms is concerned. According to the Court, it is not uncommon for a

purchasing dealer to renege on its assurance to supply ST-1 Forms to the

selling dealer. The State does not thereupon forfeit its entitlement for

sales tax. Extending this a little further, there is likewise no reason for

the State to lose its revenue merely because the purchasing dealer is

unable to obtain such Forms because of this falling in arrears. It is

wholly illogical to place the State in such a position where it cannot

recover its sales tax dues at all. Although equity plays only a minuscule

role in fiscal matters, even if such considerations were to be applied,

there would still be no justification for an application adverse to the

interests of the State. The dealer who has chosen to trust the other dealer

must suffer and can take action against the party. In Prince Plastics &

Chemical Industries (supra), the court has observed that this is the risk

an assessee runs and if for any reason, including a subsequent decision of

the Sales Tax Department to withhold the supply of ST-1 Forms to a

purchasing dealer they are put in an uncomfortable position of having to

pay the tax and initiate appropriate legal action for recovering it from the

Purchasing Dealer, so be it. The State is entitled to its tax, where the

requisite ST-1 Form is unavailable for any reason.

14. We answer the question No. 1 of the reference accordingly in

favour of the petitioner by remanding the matter back to the Tribunal, in

terms of para 10 above. We direct the parties to appear before the

Tribunal on 12.01.2015, on which date, the Tribunal will fix a date of

hearing. Insofar as the question No. 2 is concerned, the same is

answered against the petitioner and in favour of the revenue. Suffice to

state, petitioner is not entitled to the deduction.

(V.KAMESWAR RAO) JUDGE

(SANJIV KHANNA) JUDGE

DECEMBER 11, 2014/akb