Genuine sales to registered dealers support deduction despite purchaser's later use of goods contrary to declaration.

Sales of cotton seeds to registered dealers against declarations in Form S.T. XXII were deductible from taxable turnover where the sales were bona fide and the declarations were not shown to be false or collusive. The assessing authority could examine the purchaser's capacity, business, and subsequent use of the goods only when the genuineness of the sale itself was in doubt. In the absence of any finding that the sales were not genuine, deduction could not be denied merely because the purchaser may have used the goods for manufacture rather than resale; any remedy lay against the purchasing dealer.

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Issues: Whether sales of cotton seeds made to registered dealers against declarations in Form S.T. XXII were deductible from the taxable turnover, and whether the assessing authority could deny the deduction merely by enquiring into the subsequent use of the goods in the absence of any finding that the sales were not genuine.

Analysis: The deduction was available when the selling dealer sold the goods to registered dealers and the requisite declaration forms were furnished. The record showed that the assessing authority had accepted the sales as genuine and had not found the declarations to be false or collusive. The power to enquire into the financial position, capacity to purchase, nature and extent of business, and subsequent disposal of goods was held to be relevant only where there was doubt about the genuineness of the sale itself. In the absence of any finding of non-genuineness or collusion between the selling dealer and the purchasers, the deduction could not be denied on the footing that the purchasers might have used the cotton seeds for manufacture instead of resale.

Conclusion: The sales of cotton seeds to registered dealers on furnishing declarations in Form S.T. XXII were deductible from the taxable turnover, and the question referred was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: Where a selling dealer has made bona fide sales to registered dealers against the prescribed declaration and the sales are found to be genuine, the deduction cannot be disallowed merely because the purchaser may have used the goods contrary to the declaration; any action lies against the purchasing dealer.

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