Sales tax deduction on ST-1 declarations requires no proof of purchaser's truthfulness absent collusion; penalty needs knowledge of falsity.

Under the Delhi Sales Tax Act, a selling dealer claiming deduction on sales supported by ST-1 declarations is required only to verify that the purchaser is a registered dealer and that the goods fall within the registration certificate; the dealer is not required to prove the truthfulness of the purchaser's declaration or the end-use of the goods unless collusion or forgery is shown. On that basis, deduction could not be denied on mere suspicion or discrepancies in the forms. Penalty for false declarations likewise required proof that the dealer knew, or had reason to believe, the forms were false; mere possession of suspect forms without evidence of procurement, participation, or connivance was insufficient. The denial of deduction and penalty were both set aside.

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Issues: (i) Whether the burden lay on the selling dealer to prove the genuineness of ST-1 declarations furnished by the purchasing dealers and to establish compliance with the conditions for deduction under Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975; (ii) Whether penalty could be sustained under Section 50(1)(a) read with Section 56(2) of the Delhi Sales Tax Act, 1975 in the absence of proof that the selling dealer knew or had reason to believe that the ST-1 forms were false.

Issue (i): Whether the burden lay on the selling dealer to prove the genuineness of ST-1 declarations furnished by the purchasing dealers and to establish compliance with the conditions for deduction under Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975.

Analysis: The statutory scheme allowed deduction on production of a duly filled and signed declaration in the prescribed form. The selling dealer's duty was to satisfy itself that the purchaser was a registered dealer and that the goods were covered by the registration certificate. The authorities could examine whether the declarations were forged or whether there was collusion, but the seller was not required to prove the truthfulness of the purchaser's declarations or the end-use of the goods. No material showed collusion or connivance between the appellant and the purchasing dealers, and suspicion arising from discrepancies in forms or payment modes was insufficient to displace the statutory entitlement to deduction.

Conclusion: The burden was wrongly placed on the assessee, and refusal of deduction was not sustainable. The issue is decided in favour of the assessee.

Issue (ii): Whether penalty could be sustained under Section 50(1)(a) read with Section 56(2) of the Delhi Sales Tax Act, 1975 in the absence of proof that the selling dealer knew or had reason to believe that the ST-1 forms were false.

Analysis: Penalty under the Act required proof that the dealer held, gave, produced, or accepted a declaration knowing or having reason to believe it to be false. The burden lay on the revenue to establish such culpable knowledge. Mere possession of allegedly fake forms in the dealer's premises, without evidence of procurement, participation, or collusion, did not establish the statutory ingredient. The record did not show that the appellant was involved in obtaining false declarations, and the earlier final findings also did not support such a conclusion.

Conclusion: The essential element of knowledge or reason to believe was not proved, so the penalty could not be sustained. The issue is decided in favour of the assessee.

Final Conclusion: The denial of deduction and the sustained penalty were both set aside, and the appeals succeeded in full.

Ratio Decidendi: In sales-tax cases involving declarations issued by registered purchasers, the selling dealer is not liable to prove the genuineness or ultimate use of the forms unless the revenue establishes collusion or knowledge of falsity; penalty for false declarations requires proof of conscious possession or use with knowledge, not mere possession of the forms.

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