CHUNNI LAL PARSHADI LAL versus COMMISSIONER OF SALES TAX, U.P., LUCKNOW

Citation: [1986] 1 S.C.R. 891 · Decided: 18-03-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Appeal(s) allowed

Judgment (excerpt)

r i 
CBIJNNl LAL PARSllAlll LAL 
v. 
<n!llISSIONER ()F SALES TAX, U.P., LUCKNOW 
MARCH 18, 1986 
[R. S. PATHAK AND SABYASACHI MUKl!ARJl, JJ. ) 
Uttar Pradesh Sales 
Tax Act, 1948; s.3AA and 
Uttar 
Pradesh Sales Tax Rules, 1948, Rule 12-A - Sale of goods by· 
dealer deemed to be a sale to the consumer -
Whether 
irrebuttable presumption raised -
Sales Tax Authorities can 
A 
B 
only examine certificate in Form III as 'Farzi' or not. 
c 
Interpretation of Statutes 
Interpretation which implements purpose of Act and makes 
effective provisions of Act to be preferred. 
The turnover of cotton yarn wlis taxable under a.3-AA of 
the U.P. Sales Tax Act, 1948 at the point ·of sale of the 
coosumers. The assessee, a dealer in cotton yarn, in. the 
assess,,..nt year 1960-1961 was 
granted exemption on the 
turnover of cotton yarn amounting to Rs. 8, 70,810 by the Sales 
D 
tax Officer on the basis of Form Il!A fil<!d 
by him. 
E 
Sllbsequently, on receipt of information by the Sales-tax 
Officer that the purchasing dealer of cotton yarn had not 
actually sold it but had coosumed it hi11Self, proceedings were 
taken against the assessee under s.21 to reopen the assessment 
for the assessment year 196o-61. A list of dealers to llhoJI 
sales were made was also obtained from the aasessee. In his 
F 
order under s. 21, the Sales-tax Officer had stated that on 
verification of the aforesaid list, it was learnt that two 
dealers had consumed the entire cotton yarn in mawfacturlag 
handlooms cloth and another dealer had consumed the yarn of 
Rs. 44,676.12 only out of the amount of Rs. 55,991.87; that 
dealer No. 4 in the list had adaitted the purchases of yarn 
G 
and had also paid sales tax on the sale of yarn so purchased 
but the dealer at seri&l No. S in the list had deposed tbat he 
had coosumed the entire cotton yarn in mawfacturing coarse 
handlooa cloth. The order under s. 21 further stated that 
cotton yarn worth Rs. 8,17,905.39 was sold to dealers who did 
not resell the s- but actually coosumed the same and so the 
11 
aasesaee vas liable to pay sales tax on this turnover. 
A 
B 
c 
D 
892 
SUPREME COURT REPORTS 
[ 1986] 1 S, C. R, 
On behalf of the assessee it was contended that he 
was not liable to pay sales tax as he had fulfilled all the 
conditions laid down in s. 3AA of the Act read with Rule 12A of 
the U,P. Sales Tax Rules inasmch as he had sold the cotton 
yarn to registered dealers and had also obtained certificates 
of resale on Form 111-A and that it was not possible to find 
out what the purchasers subsequently did because it had no 
control over purchasers of the yarn. 
· 
Rejecting this plea of the assessee the Sales Tax 
Officer held that the assessee had not proved beyond shadow of 
doubt that sale of cotton yarn was llllde to the consumers, that 
the mere fact that the purchasers were registered dealers and 
they t.ad furnished certificates for resale was not sufficient, 
that the declaration forms given by the purchaser-dealers were 
'farzi' , that the assessee was in collusion with them, that 
the documentary evidence on record showed that the purchasers 
though registered dealers did not resell the cotton yarn in 
the same condition in which they had purchased, rather they 
had themselves consumed cotton yarn and, therefore, the cotton 
yarn amounting to Rs. 8, 16, 905.39 was assessable to Sales 
Tax at 2%. 
In the appeal filed by the assessee, the Appellate 
E 
Authority Sales Tax, held that the assessee was not liable to 
tax. 
F 
The revision filed by the Department was dismissed and 
it was held that there was not a single bit of evidence for 
showing that Form Ill -A certificates were 'fan:i' in the sense 
that they did not bear any signature of the buyer nor there 
was any collusion between the buyer and the assessee; that the 
assessee had sold the goods and accepted the Forms in good 
faith and that the assessee had no control over the purchaser 
of the yarn. 
G 
In the reference under s .11 ( 5) of the U, P. Sales Tax 
H 
Act 1948, the High c.ourt affirmed the view taken by the Sales 
Tax Officer. 
Allowing the appeal of the assessee on the question 
whether the sale of yarn made by him against certificates in 
For11 111-A was liable to tax, 
! 
, 
CHUNNI LAL V• c.s.T. 
893 
HELD : 1. Under s.3AA of the U.P. Sales Tax Act, 1948, 
the cotton yarn is to be taxed at a single point i.e. when the 
sale takes place to the consumer. To ensure this the legis-
lature has enacted s.3-AA in the Act and t

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