Harbans Singh, C.J.
1. This appeal under Clause 10 of the Letters Patent is directed against the order of the learned single Judge, dismissing Civil Writ No. 915 of 1972, by which the order of the Assessing Authority under the Punjab General Sales Tax Act, 1948 (hereinafter referred to as the Act) was challenged.
2. The admitted facts are that during the years 1966-1972 sales worth several lacs of rupees, as detailed in the order of the Assessing Authority, annexure C, were made by the appellant-firm (hereinafter referred to as the assessee) to a dealer Messrs. S.L. Satish Kumar, Ludhiana, holding registration certificate No. LUD-III-14011. It is the case of the department that the registration certificate of the aforesaid dealer stood cancelled, vide Assessing Authority's order dated 4th February, 1966. In a writ petition filed by the dealer a stay order was granted, but it is stated that this stay was granted on furnishing security which was not so furnished. In any case, this is not material. That writ petition was finally dismissed on 17th July, 1969.
3. A notice, annexure A, was issued under Section 7(4) of the Act to the assessee alleging that he has made huge sales to the aforesaid dealer of Ludhiana whose registration certificate stood cancelled and that the assessee was thus misusing his registration certificate and evading the tax due. The assessee was asked to show cause why his registration certificate should not be cancelled under Section 7(4) of the Act for misusing the same. An explanation was furnished by the assessee. Inter alia, it was stated that the assessee was in possession of an affidavit dated 5th October, 1967, of the proprietor of the dealer of Ludhiana admitting the purchases made by the dealer and further stating that he held registration certificate No. LUD-III-14011, which was in force and that it appeared that the registration certificate had been cancelled retrospectively. In any case, it was urged that even if the registration certificate had been cancelled, that is hardly a ground for taking action under Section 7(4) of the Act and that-
This is a matter to be determined during the course of assessment proceedings while determining the deduction regarding sales made to registered dealers under Section 5(2)(a)(ii) of the Act. I am in possession of declaration forms under Section 5(2)(a)(ii) of the Act. I am in possession of declaration forms in accordance with law from this party.
4. It was further mentioned that the assessee came to know of the cancellation order, the writ proceedings taken by the dealer and the disposal of the writ petition only after making enquiries after the receipt of the notice from the department.
5. The Assessing Authority, however, cancelled the registration certificate of the assessee by his order dated 6th March, 1972 (annexure C). The main reason given by the Assessing Authority was that the registration certificate of the dealer had been cancelled and, in fact, the whereabouts of the firm were also unknown and, therefore, the sales were fictitious. This is what was observed:
His contention that the question of genuineness of the sales made to Messrs. S.L. Satish Kumar, Ludhiana, be taken up at the time of assessment cannot be admitted on the ground that he is making sales against the cancelled registration certificate and deliberately not producing his account books for the purpose of verification of transactions before the Assessing Authorities, Amritsar and other districts.
* * *Thus the sales made by Messrs. Amir Chand Sethi and Sons, Bazar Sabunian, Amritsar, (the assessce) to this aforesaid firm are false and fictitious.
* * *The defunct firm of Messrs. S.L. Satish Kumar (dealer) thus is not functioning at Ludhiana since long. The only inference which can be drawn from the aforesaid judgment of the High Court dated 17th July, 1969, is that Messrs. S.L. Satish Kumar is not a genuine dealer engaged in the normal course of business.
6. The purpose of the Punjab General Sales Tax Act is to impose a liability on registered dealers to pay sales tax on the sales made to the consumers. Out of the gross turnover a registered dealer is allowed deductions according to the provisions of the Act. One of the deductions allowed, vide Sub-clause (ii) of Clause (a) of Section 5(2), is in respect of sales to a registered dealer of goods, etc., 'provided that in case of such sales, a declaration duly filled up and signed by the registered dealer to whom the goods are sold and containing prescribed particulars on a prescribed form...is furnished by the dealer who sells the goods'. It is, therefore, clear that in case a registered dealer, like the assessee, purports to sell goods to another registered dealer and, in fact, the person to whom the goods are sold is not a registered dealer because his registration certificate has been cancelled or if the assessee is not in a position to furnish the declaration required under the aforesaid provision from the purchaser, who is alleged to be a registered dealer, the assessee will not be given deductions in respect of these sales and would be liable to pay sales tax irrespective of the fact whether he has charged sales tax or not from such a dealer. The result would be the same if he shows sales to a registered dealer who happens to be a fictitious person. The purchaser being a fictitious person, the; assessee will not be able to establish that the sales were made to a registered dealer. Nor would he be able to produce the requisite declaration. One cannot, however, understand how sales to a person whose registration certificate has been cancelled, but the sales have been wrongly shown as having been made to a registered dealer, would amount to a 'misuse' of the registration certificate by the seller, i.e., the assessee. Similarly, if an assessee does not show his account books or the correctness of the account books is not believed by the department concerned, then the department would be entitled to make assessment on the best judgment basis under Section 10 of the Act. The mere fact that a registered dealer is not maintaining all the account books or is not maintaining them properly or is not coming forward to show the same to the department would not amount to 'misuse' of the registration certificate, as contemplated under Section 7(4)(c) of the Act, which runs as under :
(4) The Commissioner may from time to time, by order, amend or cancel any certificate of registration on-
(a) * * *(b) * * *(c)any other sufficient cause including misuse of the certificate...
7. In the present case, the certificate of registration has been cancelled only on the ground of misuse of the same. The learned counsel appearing for the department could not indicate how non-production of accounts or sale of goods to a dealer whose registration certificate has been cancelled, can fall in the category of 'misuse of the registration certificate'. The assessee may be liable to other penalties or he may not be able to seek deductions for such sales and for non-production of accounts he may be assessed on the basis of the best judgment according to the information available with the department under Section 10 of the Act, but the department has certainly no jurisdiction whatever to cancel his registration certificate on the alleged ground of 'misuse of the registration certificate' on the above-mentioned facts.
8. For the reasons given above, therefore, we accept this appeal, set aside the order of the learned single Judge and quash the impugned order of the Assessing Authority, cancelling the registration certificate of the appellant. The costs of this appeal as well as of the writ petition will be borne by the respondents.