Statutory deduction for sales to registered dealers cannot be denied because the buyer later changes the goods' use.

Sales of paper to registered manufacturing dealers against Form IA declarations under the Orissa Sales Tax Act were not treated as a contravention of Section 5(2)(A)(a)(ii). The Court read Section 4(1) as the charging provision and Section 5(2)(A)(a)(ii) as governing deductions for sales to registered dealers for resale subject to tax, holding that Sections 6 and 7 do not create a fresh tax liability on the selling dealer merely because the buyer later uses the goods differently. Misuse or altered use by the purchasing dealer does not, by itself, defeat the seller's statutory deduction. The issue was answered in the negative.

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Issues: Whether sales of paper made to registered manufacturing dealers against declarations in Form IA, out of paper purchased on Form 34 within the State of Odisha, could be treated as being in contravention of Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947.

Analysis: Section 4(1) is the charging provision under the Orissa Sales Tax Act, 1947, while Section 5(2)(A)(a)(ii) deals with deductions in computing taxable turnover for sales to registered dealers for resale subject to tax. Section 6 permits tax-free notifications and Section 7 enables exemption of dealers, but neither creates a fresh charging liability on the selling dealer merely because the purchasing dealer later uses the goods in a manner attracting different tax consequences. The declaration in Form 34 is to be read with the statutory scheme and the binding effect of the Supreme Court decisions on the distinction between levy and collection, and on the principle that misuse by the purchasing dealer does not by itself fasten liability on the selling dealer. The Court held that the later use of the goods by the purchasing dealer cannot convert the selling dealer's Form IA sales into a contravention of the proviso to Section 5(2)(A)(a)(ii).

Conclusion: The issue was answered in the negative. The sales were not in contravention of Section 5(2)(A)(a)(ii), and the assessee succeeded on the sole contested question.

Ratio Decidendi: Where a sale is made to a registered dealer against the prescribed declaration for resale subject to tax, the selling dealer is entitled to the statutory deduction and cannot be denied relief merely because the purchasing dealer later changes the use of the goods.

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