Retrospective cancellation cannot defeat accrued sales tax deductions, while fair hearing requires access to adverse material and proper goods classification.

Retrospective cancellation of a buyer's registration, licence or authorisation under the Bombay Sales Tax Act does not defeat deductions already earned on sales made before the cancellation order; accrued third-party rights are not prejudiced by later retrospective invalidation. A dealer affected by such cancellation cannot ordinarily mount a collateral attack on the cancellation itself, but where the authority relies on that material adversely, fairness requires inspection of the record and an opportunity to rebut it. On classification, stainless steel surgical trays fall within the specific entry for stainless steel articles and utensils, and not the residuary entry.

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Issues: (i) Whether deductions under the Bombay Sales Tax Act, 1959 could be disallowed merely because the buyer's registration certificate, licence and authorization were later cancelled retrospectively; (ii) whether an assessee affected by such cancellation could challenge its correctness or, at least, inspect the relevant record before the authority relied on it; (iii) whether surgical trays of stainless steel fell within the specific entry for stainless steel articles and utensils or the residuary entry.

Issue (i): Whether deductions under the Bombay Sales Tax Act, 1959 could be disallowed merely because the buyer's registration certificate, licence and authorization were later cancelled retrospectively.

Analysis: The deduction provisions under section 10 treated sales to a registered authorised dealer against the prescribed certificate as deductible turnover. The cancellation of the buyer's registration and authorization was made effective from a date earlier than the sales, but the Court held that retrospective cancellation cannot prejudice rights that had already accrued to third parties during the period before the actual cancellation order. The conclusion was reinforced by the presumption that official acts are regularly performed and that valid registration and authorization are not granted to a non-existent dealer.

Conclusion: The disallowance was not justified. The issue was answered in favour of the assessees and against the department.

Issue (ii): Whether an assessee affected by such cancellation could challenge its correctness or, at least, inspect the relevant record before the authority relied on it.

Analysis: Since retrospective cancellation does not itself prejudice third parties, a stranger to the cancelled registration cannot ordinarily challenge the cancellation order as such. However, if the authority proposes to use that order, or material from the file, against another dealer, elementary fairness requires that the affected dealer be given access to the relevant record and an opportunity to controvert the material relied upon.

Conclusion: The tribunal was correct in not permitting a collateral challenge to the cancellation, but the affected dealer was entitled to inspection and rebuttal if the material was used against it. The issue was answered in favour of the department, with a limited modification in favour of the assessees.

Issue (iii): Whether surgical trays of stainless steel fell within the specific entry for stainless steel articles and utensils or the residuary entry.

Analysis: The expression in entry 20 covered stainless steel articles and utensils except articles used as parts of industrial machinery or plant. A surgical tray is neither a steel furniture article in ordinary understanding nor a surgical instrument in popular parlance or trade usage. It therefore answers the description of stainless steel articles and utensils and does not belong to the residuary entry.

Conclusion: The goods were correctly classified under entry 20 of Schedule E. The issue was answered in favour of the department and against the assessees.

Final Conclusion: The reference was disposed of by upholding the assessee's entitlement to deductions on the disputed sales, while confirming the limited position that a collateral challenge to cancellation is not permissible except to the extent of inspection and rebuttal when such material is used adversely, and by sustaining the classification of the goods under the specific entry.

Ratio Decidendi: A retrospective cancellation of a dealer's registration or authorization does not extinguish rights already accrued to third parties before the cancellation order, and official records may be relied upon adversely only consistently with the requirements of fair hearing and access to the material used.

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