Form III-A exemption survives later cancellation of buyer registration when the seller acted bona fide and the declaration was genuine.

Form III-A exemption under the U.P. Sales Tax Act is not lost merely because the purchasing dealer's registration was later cancelled, the purchaser was later found unregistered, or the declaration was subsequently shown to have been misused. The statutory burden lies mainly on the purchaser who issues a false declaration, while the selling dealer must act with ordinary care and may rely on a form accepted bona fide unless it is apparently fake, defective on its face, or tainted by collusion. Accordingly, exemption is sustained for transactions supported by genuine, bona fide forms and denied only where the forms themselves appear non-genuine.

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Issues: Whether a selling dealer claiming exemption on sales made against Form III-A under the U.P. Sales Tax Act loses the benefit merely because the purchasing dealer's registration was later cancelled, the purchasing dealer was found to be unregistered, or the form was subsequently found to be non-genuine; and whether, on the facts of the individual transactions, exemption was available.

Analysis: Section 3-AAA creates a deemed sale to the consumer, but the presumption is displaced when the selling dealer furnishes Form III-A in the prescribed manner. The statutory scheme places a specific burden and penalty on the purchaser who issues a false declaration under Section 3-B and Section 15-A(1), while the selling dealer is expected only to act with ordinary care and to verify obvious defects. The selling dealer is not required to investigate the purchaser's later conduct or to establish by independent enquiry that the declaration will not be misused, unless the form is apparently fake, defective on its face, or there is collusion. On the facts, sales supported by genuine forms issued through the department and accepted bona fide could not be denied exemption merely because the purchaser's registration had been cancelled or was later shown to be ineffective. Exemption was therefore upheld for most transactions, but it was rightly denied where the forms were not signed by a sales tax , bore a different pattern, or otherwise appeared non-genuine.

Conclusion: The selling dealer was entitled to exemption where Form III-A was genuine and accepted bona fide, and the department's remedy lay against the defaulting purchasing dealer; exemption was sustained for the transactions found to be supported by genuine forms and denied only for the transactions involving obviously non-genuine forms.

Ratio Decidendi: A selling dealer who accepts Form III-A in bona fide course of business is not liable to tax merely because the purchasing dealer's registration was later cancelled or the declaration was misused, unless the form was apparently fake, defective on its face, or there was collusion or lack of bona fides on the seller's part.

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