Selling dealer deduction protected despite defective declaration form and purchaser default absent proof of collusion

Deduction under the Delhi Sales Tax Act could not be denied to a selling dealer merely because declaration form ST-35 was defective, related to another year, or because the purchasing dealer later defaulted in using the goods or submitting a utilisation certificate. The court reasoned that the seller's obligation was limited to obtaining a true declaration from a registered dealer; it was not required to police the purchaser's subsequent conduct. In the absence of material showing collusion or complicity by the seller, minor irregularities such as a missing date or year endorsement did not justify treating the transaction as fabricated. The deduction was therefore allowed and the disallowance set aside.

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Issues: Whether deduction under section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 could be denied to the selling dealer on the ground that the declaration form ST-35 was defective, was issued for another year, or that the purchasing dealer was found to have doubtful activities or failed to submit utilization certificate.

Analysis: The deduction scheme under section 4(2)(a)(v) and the third proviso to section 4(2)(a) shows that the selling dealer is required to obtain a true declaration in the prescribed form from a registered dealer, but is not made responsible for policing the subsequent use of the goods by the purchaser. Once the purchaser is registered and the form is otherwise issued by the department, any misutilisation or default by the purchasing dealer in furnishing utilization certificate has consequences for that dealer and not for the selling dealer, unless there is material showing collusion. The court also held that the mere absence of a date on the form and the endorsement indicating the relevant assessment year were insufficient to infer fabrication or complicity, and the purchasing order duration by itself did not render the transaction suspect.

Conclusion: The disallowance of deduction was unjustified and the issue was decided in favour of the assessee.

Final Conclusion: The assessment and appellate orders rejecting the exemption claim were set aside and the appeal was allowed.

Ratio Decidendi: A selling dealer cannot be denied deduction for a sale to a registered dealer merely because the purchaser later misuses the goods or defaults in reporting, absent proof of collusion or other material showing that the selling dealer was complicit in the defect in the declaration form.

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