Sales declarations to registered dealers need cogent proof of falsity before deduction is denied or penalty imposed.

Declarations in form S.T. XXII were treated as prima facie evidence that sales were made to registered dealers, and they could be rejected only on cogent and reliable proof that they were false or forged. Conjectures about the nature of the purchasers, cash payments, or non-production of intermediaries were insufficient, and untested denials could not displace the declarations. On that basis, the deduction under section 5(2)(a)(ii) was upheld. The penalty under section 10(7) also failed because it rested on the same unproved allegation of incorrect declarations or returns, so the penalty foundation disappeared.

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Issues: (i) Whether sales supported by declarations in form S.T. XXII were entitled to deduction under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948; (ii) Whether the penalty imposed under section 10(7) of the Punjab General Sales Tax Act, 1948 could be sustained.

Issue (i): Whether sales supported by declarations in form S.T. XXII were entitled to deduction under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948.

Analysis: The declarations in form S.T. XXII furnished by the assessee were prima facie evidence that the sales were made to registered dealers. Such declarations could be rejected only on cogent and reliable evidence showing that they were not genuine or were forged. The authorities disallowed the deduction on conjectural grounds, such as the form not specifying the purpose of purchase, the alleged purchasers being men of straw, the transactions being cash transactions, and non-production of dalals. No reliable material was shown to establish that the declarations were false, and the alleged denial by two dealers was not put to the assessee or tested by cross-examination.

Conclusion: The deduction claim was wrongly rejected and the assessee was entitled to the deductions under section 5(2)(a)(ii).

Issue (ii): Whether the penalty imposed under section 10(7) of the Punjab General Sales Tax Act, 1948 could be sustained.

Analysis: The penalty rested on the same conclusion that the declarations or returns were incorrect or that incorrect information had been supplied. Once the declarations were not shown to be bogus or forged, the foundation for penalty disappeared. In the absence of dependable evidence against the assessee, the penalty could not survive.

Conclusion: The penalty under section 10(7) was not sustainable.

Final Conclusion: The assessment, appellate, and tribunal orders were set aside, the assessee's deduction claims were upheld, and the penalty was quashed.

Ratio Decidendi: A statutory declaration treating sales as made to registered dealers cannot be disbelieved unless the revenue produces cogent and reliable evidence of falsity or forgery; conjectures and untested denials are insufficient, and a penalty based on the same unproved allegation cannot stand.

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