1986 (3) TMI 297 - SC - VAT and Sales Tax

Supreme Court Reverses High Court Decision on Tax Certificates

Chunni Lal Parshadi Lal Versus Commissioner of Sales Tax, UP., Lucknow

The Supreme Court allowed the appeal, overturning the High Court's decision. It held that certificates in form III-A created a rebuttable presumption of ... Whether the dealer could be declared non-taxable on sales of yarn for ₹ 8,70,810 which he made against III-A forms though the purchaser instead of selling the said yarn in the same condition consumed the same? Whether certificate is 'farzi' or not, or if there was any collusion on the part of selling dealer? Held that:- Appeal allowed. The facts and circumstances of this case, the question posed is academic because it has not been found by the appellate authority that neither the goods have been consumed by the purchasing dealer and not sold to the consumer in terms of the registration certificates furnished by the purchasing dealer, nor that the certificates were forged or fabricated. It must be held that the Full Bench decision of the Allahabad High Court in Commissioner, Sales Tax, Uttar Pradesh v. Shankar Lal Chandra Prakash [1969 (7) TMI 106 - ALLAHABAD HIGH COURT] was not correctly decided. In the premises the question reframed above must be answered in the negative and in favour of the dealer. Issues Involved:1. Whether the dealer could be declared non-taxable on sales of yarn against III-A forms when the purchaser consumed the yarn instead of reselling it.2. Interpretation of Section 3-AA of the U.P. Sales Tax Act, 1948, and Rule 12-A of the U.P. Sales Tax Rules.3. Validity and effect of certificates in form III-A in proving non-consumption by the purchasing dealer.4. Whether the certificate in form III-A raises an irrebuttable presumption in favor of the selling dealer.Detailed Analysis:Issue 1: Non-Taxability on Sales of Yarn Against III-A FormsThe core question was whether the dealer could be declared non-taxable on sales of yarn amounting to Rs. 8,70,810 made against III-A forms, even though the purchaser consumed the yarn instead of reselling it. The High Court of Allahabad had ruled against the dealer, stating that the certificate in form III-A was only prima facie evidence and not conclusive. The department could go behind the certificate and levy tax if it found that the yarn had been consumed.Issue 2: Interpretation of Section 3-AA and Rule 12-ASection 3-AA of the U.P. Sales Tax Act, 1948, imposes tax only at the point of sale to the consumer. Rule 12-A states that a sale of any goods specified in section 3-AA shall be deemed to be a sale to the consumer unless it is to a dealer who furnishes a certificate in form III-A, indicating that the goods are for resale in the same condition.Issue 3: Validity and Effect of Certificates in Form III-AThe assessee argued that he had fulfilled all conditions under section 3-AA and Rule 12-A by selling the yarn to registered dealers and obtaining certificates of resale in form III-A. The Sales Tax Officer, however, contended that the dealer had not proven beyond doubt that the yarn was sold to consumers, despite the certificates. The appellate authority and the revising authority later reversed this finding, stating that the certificates were genuine and the dealer had no control over the subsequent use of the yarn by the purchaser.Issue 4: Irrebuttable Presumption of Form III-A CertificatesThe Supreme Court reframed the question to determine whether the sale of yarn against certificates in form III-A was liable to tax. The Court examined whether furnishing the certificate in form III-A created an irrebuttable presumption that the goods were not sold to the consumer. The Court held that the rule provided a convenient mode of proving that the goods were not sold to the consumer but did not preclude other methods of proof. The rule raised a presumption but was not the only method to prove non-consumption.The Court referred to previous judgments, notably the Full Bench decisions of the Allahabad High Court in J.K. Manufacturers Ltd. v. Sales Tax Officer and Commissioner, Sales Tax, Uttar Pradesh v. Shankar Lal Chandra Prakash. The Court concluded that the correct position was that the certificate in form III-A raised a rebuttable presumption, not an irrebuttable one. The genuineness of the certificate could be examined, but not the correctness of the statements within it.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's judgment. It held that the Full Bench decision in Commissioner, Sales Tax, Uttar Pradesh v. Shankar Lal Chandra Prakash was incorrectly decided. The question was answered in favor of the dealer, confirming that the certificates in form III-A provided sufficient proof for non-taxability unless proven otherwise by the department. The appellant was entitled to the costs of the appeal.