Bogus sales to registered dealers can justify denial of deduction, with consequential interest following the sustained tax liability.

Deductions under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 may be refused where the authorities, on evidence, find that claimed sales to registered dealers were bogus or that the purchasing dealers were non-existent. The seller's general duty to verify registration does not protect transactions that are factually disproved before the assessing and appellate authorities, so the deduction claim fails. Where the underlying tax liability is sustained, interest under section 11D can also be levied as a consequential consequence, and the objection that it cannot run from a retrospective date does not survive.

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Issues: (i) Whether deductions claimed under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 could be declined in respect of sales to registered dealers on the basis of findings that the transactions were bogus or the purchasing dealers were non-existent. (ii) Whether interest under section 11D of the Punjab General Sales Tax Act, 1948 could be levied from a retrospective date and not from the date of assessment.

Issue (i): Whether deductions claimed under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 could be declined in respect of sales to registered dealers on the basis of findings that the transactions were bogus or the purchasing dealers were non-existent.

Analysis: The selling dealer's duty ends once it satisfies itself that the purchasing dealer is a registered dealer, but that principle does not assist where the fact-finding authorities record that the claimed sales were either bogus or made to non-existent purchasers. The Assessing Authority had confronted the dealer with material showing that several alleged purchasing dealers did not exist or denied the transactions, and those findings were accepted by the appellate authority and the Tribunal. In such circumstances, the denial of deduction was supported by evidence and could not be treated as unsupported by material.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Issue (ii): Whether interest under section 11D of the Punjab General Sales Tax Act, 1948 could be levied from a retrospective date and not from the date of assessment.

Analysis: This question was consequential to the rejection of the assessee's claim and the consequent tax liability upheld on the first issue. Since the substantive challenge to the disallowance of deduction failed, the consequential objection to the levy of interest also could not survive.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Final Conclusion: The reference was answered against the assessee on all decided questions, and the assessment additions and consequential interest levy were sustained.

Ratio Decidendi: A deduction claim for sales to registered dealers can be disallowed where the authorities, on evidence, find that the transactions were bogus or the purchasing dealers were non-existent; a consequential interest levy tied to the sustained tax liability will also stand.

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