Facts

The respondents who were registered dealer under the Bombay Sales Tax Act, 1959 (BST Act) purchased goods from one M/s Sulekha Enterprises who were also registered under the BST Act. The said supplier issued an invoice with a certificate that his RC was in force on the date of sale. The respondent effected resale of the same goods based on this certificate. The assessing officer disallowed  the claim of resale on the ground that RC of the supplier was cancelled from a retrospective date which was prior to the date of purchase. He also levied penalty. The first appellate authority and Tribunal upheld the disallowance but Tribunal deleted the penalty.

Issues

• Are the purchases from Sulekha Enterprises to be treated as from an unregistered dealer on the ground that their RC was cancelled on August 25, 1967, but operative with effect from January, 1967 and the said purchases were made prior toAugust, 25, 1967?
• Can the purchaser rely on the certificate issued by the seller to the effect that his RC was in force as on the date of sale?

View

The Supreme Court concurred with the  High Court decision that the  rights of the purchaser are not affected by subsequent cancellation of RC though with retrospective effect. A purchasing dealer is entitled by law to rely upon the certificate of registration of the selling dealer and to act upon it. Whatever may      be the effect of a retrospective cancellation upon the selling dealer, it can have      no effect upon any person who has acted upon the strength of a registration certificate when the registration was valid and in force.. The argument on behalf   of the department that it was the duty of persons dealing with registered dealers    to find out whethera state of facts exists which would justify the cancellation

of registration; must be rejected. Accepting such argument would only lead to modifying the provisions of law.

Held

The resale claim in the hands of the purchaser is allowable. Cancellation of RC      of the seller subsequently from an anterior date would not change the rights of    the purchaser. [CA No. 1506 of 1982 dt. 7.2.1996]

Editorial: The decision has not considered any equivalent provision like  sec. 48(5)  of the MVAT Act, 2002 wherein actual payment of tax into the Govt. treasury is quintessential to claim set off on the purchases. Mere certificate of the supplier whose RC is cancelled would not suffice. The case related to the claim of resale which was not liable to tax under section 8 of the BST Act.

Under CGST/SGST Act too, section 16(2)(c) stipulates that input tax credit (ITC)    is not admissible unless the tax charged on the inward supply is actually paid to the credit of appropriate Govt. either through cash or through eligible ITC. Ratio    of this judgement may be useful in cases where the supplier has not uploaded     the sale invoices in his return for outward supplies.

“An eye for an eye only ends up making the whole world blind.”

– Mahatma Gandhi