Selling dealer justified in accepting Form IV declarations under Entry 48 of List C; liability on purchasing dealer per Section 5(1) proviso 5

The HC held that the selling dealer was justified in accepting Form IV declarations from purchasing dealers without investigating their correctness, as the declarations complied with Entry 48 (now Entry 81) of List C of the Rate Chart under the OST Act. The Department failed to show any instructions prohibiting acceptance of such declarations. The court clarified that any contravention of the 5th proviso to Section 5(1) by the purchasing dealer must be pursued against the purchasing dealer, not the selling dealer. Consequently, the rejection of the declarations furnished by the purchasing dealers and the consequent liability imposed on the selling dealer was erroneous. The revision petition was allowed, and the declarations were upheld.

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Issues:
1. Rejection of declarations in Form-IV by the Tribunal.
2. Alleged contravention of the 5th proviso to Section 5(1) of the OST Act and Entry 48 of List 'C' of the Rate Chart.

Analysis:

Issue 1: Rejection of Form-IV Declarations
The petitioner, a dealer in timber and related products, faced an extra tax demand due to the disallowance of sales at a concessional rate by the Sales Tax Officer (STO). The STO contended that the saw mill owners purchasing logs from the petitioner were not engaged in manufacturing activities, thus not eligible for the concessional tax rate. The petitioner argued that it was not obligated to verify the manufacturing activities of the purchasers as per legal precedents. The court held that the selling dealer cannot be burdened with verifying the utilization of purchased goods by the buyers. The court referred to previous judgments to support this stance. It was concluded that the STO should have conducted an inquiry into the manufacturing activities of the purchasers rather than penalizing the selling dealer for accepting Form-IV declarations.

Issue 2: Alleged Contravention of Provisions
Regarding the alleged contravention of the 5th proviso to Section 5(1) of the OST Act and Entry 48 of List 'C' of the Rate Chart, the court clarified that if there was any violation by the purchasing dealer in using the goods for purposes outside Odisha, the responsibility lies with the purchasing dealer to pay the difference in tax. The court emphasized that the department should pursue the purchasing dealer for any such violations and not hold the selling dealer accountable. The court ruled in favor of the petitioner, stating that no contravention had occurred during the specified period. Consequently, the impugned orders were set aside, and any potential refund due to the petitioner would be processed promptly.

In conclusion, the High Court ruled in favor of the petitioner, highlighting the importance of proper investigation by tax authorities into the activities of purchasing dealers rather than penalizing the selling dealer for accepting Form-IV declarations. The judgment provides clarity on the responsibilities of selling and purchasing dealers under the relevant tax provisions, ensuring accountability and fair treatment in tax assessments.

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