1996 INSC 0260
                                  State of Maharashtra Through the Secretary

                                                           Vs

                                             Suresh Trading Company

                                          Civil Appeal No. 1506 of 1982

                                                      07.02.1996

                                                        ORDER

In CA No. 1506 of 1982

1. Mr. V. B. Joshi states that he has filed his appearance for the respondents. It shall be taken on
record.

2. The respondents were registered dealers under the Bombay Sales Tax Act, 1959. During the
period 1-1-1967 to 31-12-1967 they purchased goods from M/s Sulekha Enterprises Corporation
(hereinafter referred to as "Sulekha Enterprises"). Sulekha Enterprises were also registered dealers
under the said Act and the bills given to the respondents contained a certificate to the effect that the
registration of Sulekha Enterprises was in force on the date of the sales. The respondents thereaffer
resold within the State of Maharashtra the goods purchased by them from Sulekha Enterprises. They
claimed to deduct from their turnover of sales for the relevant accounting year the resales of the
goods purchased from Sulekha Enterprises.

3. The Sales Tax Officer disallowed the respondents' said claim for deduction upon the ground that
the registration of Sulekha Enterprises had been cancelled on 20-8-1967, with effect from 1 - - 1967,
and that, therefore, on the dates on which the respondents had purchased the goods from a Sulekha
Enterprises, Sulekha Enterprises could not be said to be a registered dealer. The Sales Tax Officer
also imposed a penalty upon the respondents. The appeal by the respondents to the Commissioner of
Sales Tax was dismissed. They went up to the Maharashtra Sales Tax Tribunal. It upheld the
disallowance but ordered deletion of the penalty. On the application of the respondents. it stated the
following question of law to the High Court :

                  "Whether on the facts and in the circumstances of the case, the Tribunal was correct
                  in law in holding that the Sales Tax authorities were justified in treating the
                  purchases of the applicants made from Sulekha Enterprises as from an unregistered
                  dealer on the ground that even though the registration certificate of Sulekha
                  Enterprises was cancelled on 25-8-1967, the cancellation thereof was operative with
                  effect from January 1967 insofar as the purchases of the applicants effected from the
                  said party prior to 25-8-1967 were concerned ?"

4. The High Court answered the question in the negative and in favour of the respondents. The High
Court noted that the effect of disallowing the deductions claimed by the respondents was, in
substance, to tax transactions which were otherwise not taxable. The condition precedent for
becoming entitled to make a tax-free resale was the purchase of the goods which were resold from a
registered dealer and the obtaining from that registered dealer of a certificate in this behalf. This
condition having been fulfilled, the right of the purchasing dealer to make a tax-free sale accrued to
him. Thereafter to hold, by reason of something that had happened subsequent to the date of the
purchase, namely, the cancellation of the selling dealer's registration with retrospective effect, that
the tax-free resales had become liable to tax, would be tantamount to levying tax on the resales with
retrospective effect.

5. In our view, the High Court was right. A purchasing daler 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 current. The argument
on behalf of the department that it was the duty of persons dealing with registered dealers to find out
whether a state of facts exists which would justify the cancellation of registration must be rejected.
To accept it would be to nullify the provisions of the statute which entitle persons dealing with
registered dealers to act upon the strength of registration certificates.

6. It must also be noted that the learned Advocate General, appearing for the department before the
High Court, stated that the genuineness of the transactions between the registered dealer and the
respondents was not in doubt and not disputed. This being so, it is difficult to see how there could
have been a cancellation of registration with effect from a date that preceded the dates of the
transactions and how, accordingly, the respondents could be made liable to pay tax.

7. In the result, the appeal is dismissed with no order as to costs. a Civil Appeals Nos. 150 of 1982,
1469 & 4594-95 of 1990

8. For the reasons aforestated, these appeals are also dismissed with no order as to costs.