Retrospective cancellation of dealer registration cannot invalidate exemption claims based on declarations made while certificates were valid.

Declarations obtained from registered dealers remained valid where the statutory scheme treated the registration certificate as the basis for the declaration, and the declaration was not false on its face merely because the dealer was later found to have acted fraudulently. Later cancellation of the purchasing dealers' registration could not operate retrospectively to invalidate transactions completed while the certificates were still in force, and there was no finding of collusion or knowledge of fraud by the assessee. The exemption could therefore not be disallowed on the basis of retrospective cancellation, and the matter required fresh assessment.

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Issues: Whether sales made to dealers holding registration certificates continued to qualify for exemption when those certificates were cancelled later with retrospective effect, and whether declarations obtained from such dealers could be treated as invalid merely because the dealers were later found to have acted fraudulently.

Analysis: The statutory scheme for registration and cancellation under section 8 and rule 14 made the registration certificate the basis for the declarations contemplated by section 2(j)(a)(ii) and rule 26(2)(ii). The declaration required by the rule meant a declaration that was false on its face as to the purchase, the intended resale, or the holding of registration, and not a declaration which became suspect only because the issuing dealer was later found to have evaded tax or obtained registration by misrepresentation. The authorities also recorded no finding that the assessee colluded in, or had knowledge of, any fraud by the purchasing dealers. Further, the cancellation orders could operate only from the date of communication under rule 14, and not retrospectively so as to invalidate transactions completed while the certificates were still in force.

Conclusion: The assessee was entitled to rely on the declarations issued by the registered dealers, and the disallowance of exemption on the basis of later retrospective cancellation was not sustainable. The orders of the authorities below were therefore set aside and the matters were sent back for fresh assessments.

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