Bona fide acceptance of declaration forms protects the selling dealer from tax liability when the purchaser misuses them.

A selling dealer who accepted Form 3-A bona fide and without any detectable defect could not be saddled with tax liability merely because the purchasing dealer allegedly misused the forms, one purchaser's registration was later cancelled, or another purchaser's transactions were not verifiable. The Court approved the view that where the forms were validly issued and there was no finding of forgery, missing signatures, or seller negligence, exemption could not be denied to the seller. Any liability in such cases lay against the defaulting purchasing dealer under the applicable provision. The disputed turnover was therefore not taxable in the hands of the seller.

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Issues: Whether the selling dealer could be fastened with tax liability where Form 3-A was accepted bona fide, although the purchasing dealer allegedly misused the forms, the registration of one purchaser had been cancelled, and another purchaser's transactions were stated to be not verifiable.

Analysis: The revision arose from reassessment under Section 21 of the Trade Tax Act after the authorities found that exemption had been wrongly granted on the strength of Form 3-A. The appellate authorities found that the selling dealer had accepted the forms bona fide, that there was no finding of forgery, apparent defect, or lack of signatures on the forms, and that there was no material showing negligence on the part of the seller. The Court approved the view that if a purchasing dealer wrongly used validly issued forms, or used forms after cancellation of registration, the proper action lay against that purchasing dealer under Section 3-B of the Trade Tax Act and not against the bona fide selling dealer. The Court also held that mere non-verifiability of the purchaser's accounts did not, by itself, justify taxing the seller.

Conclusion: The selling dealer was not liable for tax on the disputed turnover, and the revision failed.

Ratio Decidendi: A selling dealer who accepts declaration forms bona fide and without detectable defect cannot be denied exemption or saddled with tax liability merely because the purchasing dealer misused the forms or later became disentitled; liability, if any, lies against the defaulting purchasing dealer under the applicable provision.

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