H.R. Sodhi, J.
1. A Bench of this court by an order dated 15th April, 1968, directed the Financial Commissioner, Punjab, under Sub-section (3) of Section 22 of the Punjab General Sales Tax Act, 1948 (hereinafter called the Act), to state and refer to this court for decision the following question :
Whether there is any evidence, and if so what, to show that collusion exists between the petitioner-firm and the seven registered dealers.
2. Before answering the referred question, it is necessary to state a few facts.
3. M/s. Devinder Kumar Kewal Kumar deal in sugar and vegetable ghee on wholesale basis at Ludhiana, and are registered dealers under the Act. For the assessment year 1955-56, the assessing authority assessed the dealers to sales tax at Rs. 56,013-4-3 on enhancing the turnover of the assessee from the returned one of Rs. 18,84,573-0-9 to Rs. 24,00,000. Sales in favour of alleged registered dealers for which deductions were claimed by the assessee were disallowed holding that these transactions were not genuine and none of the concerns was in fact in existence at the relevant time. The following are the dealers to whom sales had been made against declaration in form S.T. XXII:
(1) M/s. Ganesh Dass Siri Ram, Ludhiana (Lud. III-7934). (2) M/s. Central Traders, Ludhiana (Lud. III-7982). (3) M/s. Arjan Dass Bhim Sen, Khanna (Lud. III-7879). (4) M/s. Kishan Chand Walaiti Ram, Ambala (Arab. 11-6051). (5) M/s. Danshi Ram Gulshan Rai, Gurgaon (Grg. III-4026). (6) M/s. Kailash Pati & Co., Hoshiarpur (Hos. III-3757). (7) M/s. Ishar Dass Manohar Lal, Moga (Per. III-5468).
4. The Tribunal has in the statement of the case referred to the following evidence against the genuineness of the alleged sales and the transfer of the goods to the registered dealers:-
(i) According to the assessing authority the lists submitted for the claim for deduction of Rs. 18,02,202-9-8 revealed that this sum included the sales made on cash payment to the seven firms. None of these concerns was in existence. The proprietors of these concerns were, as revealed by the enquiries, their own men who fraudulently obtained registered certificates under different names and at different places. The registration certificates obtained by M/s. Central Traders, M/s. Arjan Dass Bhim Sen and M/s. Kishan Chand Walaiti Ram had been cancelled by the Excise and Taxation Commissioner, Punjab, under Section 7(4) of the Act and information received from the Excise and Taxation Officers of the respective districts revealed that necessary steps for the cancellation of the registration certificates of others were under way.
(ii) The assessee had not been able to produce any proof regarding the transportation of the goods said to have been sold to the purchasing firms of Gurgaon, Ambala, Hoshiarpur and Moga or their disposal. Sales were shown to have been made to the above-mentioned alleged purchasers either on all days within a period or on alternate days and the frequency of the sales created grave doubts about the genuineness of these transactions. It was noticed by the assessing authority from the account books that the sales made to purchasers other than the above-mentioned parties were of smaller amount, whereas the sales shown against the names of the, afore-mentioned parties ran four or five figures and were made near about the close of the day.
(iii) The assessee had expressed his inability to produce these purchasers or their account books before the assessing authority.: He and his counsel had argued 'that the only obligation under the law was to substantiate their claim for deductions in respect of the above-mentioned sales by the production of the declarations required under the proviso to Section 5(2)(a)(ii) of the Act read with Rule 26 of the Rules framed thereunder which had been done. The alleged purchasers did not come forward and it was not possible for the assessing authority to verify the genuineness of the declarations. In the circumstances stated in the foregoing paragraphs the declarations had no probative value.
(iv) During the course of enquiries it transpired that the alleged purchasers were men of straw and had no means to make the huge purchases and much less on cash payment. This factor made the genuineness of .the sale transactions as also of the declarations questionable. A person who had .no means could not make purchases running into lakhs on cash payments. The inference was drawn that either these were bogus transactions, there being no purchaser at all or the real purchasers were some other persons and the signatures on the declarations were from the alleged purchasers on payment of some remuneration which became a source of their livelihood and beyond this they had no interest or connection with these transactions.
(v) The assessing authority allowed deductions of the aggregate amount of Rs. 6,07,575-11-3. The remaining claim amounting to Rs. 11,94,62.4-14-3 was disallowed. None of the concerns mentioned was traced ;and the opportunity offered to the petitioner by the assessing authority to produce or summon them through process of law was refused on the plea that their whereabouts were not known. At the time of hearing of the revision petition before (sic) the counsel for the State to summon the above seven dealers but that too was declined on the same plea, The learned counsel for the petitioner stated before the Financial Commissioner that the whereabouts of the owners of the concerns were not known and it was impossible to produce them directly or through process of law.
5. The sole question to, be determined, therefore, is whether the evidence, as pointed out by the Tribunal, can be considered to be legal evidence on which a reasonable conclusion to the effect that collusion Between the assessee and the seven registered dealers, who are alleged to have purchased the goods, has been established could be reached. When the case came up before us we directed the counsel for the department to produce relevant records relating to the cancellation of the registration certificates of the purchasing dealers. On a perusal of the records, it is agreed between the counsel that the registration certificates of Messrs. Central Traders, Ludhiana, and Messrs. Arjan Dass Bhim Sen, referred to above at serial Nos. (2) and (3) were cancelled on 7th January, 1956, and that of M/s. Ganesh Dass Siri Rain on 5th March, 1956. An order of cancellation in the case of Kishan Chand Walaiti Ram was passed on 16th April, 1956, but it was to have retrospective effect with effect from 10th October, 1955. Cancellation of the registration of Messrs. Danshi Ram Gulshan Rai at serial No. (5) took place on 6th September, 1956, whereas an order of cancellation in regard to Messrs. Kailash Pati and Company (serial No. 6) was passed on 30th January, 1961, but it was to take effect retrospectively from 2nd July, 1956. The records in the case of Ishar Dass Manohar Lal could not be produced by the counsel for the department. Another significant thing to notice is that dealers (1) to (4) were actually assessed on 7th May, 1960, and the same is true of Messrs. Kailash Pati & Company who were assessed in the year 1960. In order to claim a deduction all that is required under Section 5(2) of the Act is that the sale of goods must be to a registered dealer. It will be preposterous to suggest that the assessing authorities could deprive a dealer of the benefit of deductions by subsequently cancelling the registration certificate of a purchasing dealer after the period to which the deduction relates. Nor can by reason of such cancellation it be held that the dealers were not in existence at the time when the transactions in dispute took place, when we actually find that the purchasers were in possession of valid registration certificates. It is of course open to the assessing authority to come to a conclusion on proper evidence that the transactions were not genuine but no such finding can be reached from the circumstance of the cancellation of any registration certificate of a purchaser subsequent to the transaction in respect of which deduction is claimed. The situation as it exists during the period, to which turnover relates is alone to guide as to whether the purchaser is holding a certificate or not. There is thus no evidence to show that the concerns were not in existence when the sales were made to them and the piece of evidence relied upon by the Tribunal in this respect is of no assistance. A similar view was taken by a learned Judge of this court in A.D.M. Stores and Anr. v. Commissioner of Sales Tax, Delhi, and Ors.  18 S.T.C. 305. The remaining pieces of evidence, as referred to at serial Nos. (ii) to (v) are equally of no legal value and cannot lead to any reasonable inference that there was collusion between the assessee and the purchasing dealers. A Division Bench of this court had an occasion to consider similar type of evidence in Ram Pal Madan Gopal, Chaura Bazar, Ludhiana v. The Punjab State and Anr.  22 S.T.C. 79 wherein it was held that the production of the declaration under Section 5(2)(a)(ii) of the Act read with Rule 26 of the Punjab General Sales Tax Rules, 1949, is prima facie proof that the sales have been made to the registered dealers and the type of evidence on which the Tribunal relied in the present case was considered to be no evidence, justifying the conclusion that the transactions were genuine. There may be lurking suspicions in the mind of the assessing authority or finding may be based on the personal knowledge of such authority, but suspicions, however strong, cannot take the place of proof nor the personal knowledge of the assessing authority can be imported without the same being put to the assessee. It may be true that payments for such sales are usually made by bills of exchange or cheques but it cannot be laid down as a rule of law that sales could in no case be made on cash payment. It is equally difficult to hold that it is for the assessee to prove how goods were transported after purchase by the dealers. As Shamsher Bahadur, J., who delivered the judgment of the court in Ram Pal's case  22 S.T.C. 79 observed, 'the Act only requires that sales should be made to a registered dealer and that the goods must be specified in the purchasing dealer's certificate of registration as being intended for resale by him or for use by him in the manufacture of any goods for sale, etc.' These observations were rather borrowed by the learned Judge from a decision of the Calcutta High Court in Sriniwas Jiwanram v. State of West Bengal  3 S.T.C. 301. A seller in Sriniwas' case  3 S.T.C. 301 was held not to be responsible for the movement of a purchaser. Nor was it considered to be his responsibility to trace him (purchaser). These considerations have been held to be wholly irrelevant and not germane to the issue, namely, whether the transactions are proved to be genuine. An argument was advanced in Ram Pal's case  22 S.T.C. 79 that the purchasers were men of straw and this was a good piece of evidence, but the contention was repelled. In an over all assessment, we are satisfied that the present case is on all fours with the cases cited above and we must hold that there was no evidence on which the assessing authority or the appellate authority, acting under the Act, could find that the transactions in respect of which deduction was sought by the assessee were proved to be collusive and not genuine.
6. In the result, the reference is answered in the negative, namely, for the assessee and against the department. The parties are, however, left to bear their own costs.