1. The controversy raised in this writ petition is whether a dealer who has got himself registered under the Delhi Sales Tax Act, 1975, and had been issued forms ST-1 for effecting purchases without the payment of sales tax can be deprived of his unqualified right to obtain further such forms on the allegations that certain irregularities had been found in the sales which the dealer committed, though they are denied by the dealer and are subject-matter of appeals
2. The brief background is that the petitioner-firm got itself registered under the Delhi Sales Tax Act, w.e.f. 21st September, 1978. The Sales Tax Officer was then satisfied that the firm had effected purchases of Rs. 1,547 up to that date, and had sold goods worth Rs. 1,054. The dealer had then filed surety for Rs. 10,000 each under the local and Central Acts from another registered dealer in order to secure the revenue (sic). A number of ST-1 forms were then obtained by the petitioner from the sales tax department, and they enabled it to effect purchases without the payment of sales tax. To the extent, the purchases were so effected, there is no controversy. However, for the assessment year 1980-81, the sales tax authorities noticed a number of irregularities in the purported sales effected by the petitioner. A raid had also been organized at its premises, and some documents seized and impounded on 28th March, 1984. The assessment proceedings revealed that the petitioner had effected large sales to a number of other dealers on obtaining ST-1 forms from them which entitled them to effect purchases without the payment of sales tax. However, enquiries from those dealers as well as the scrutiny of these ST-1 forms revealed that either those dealers had not purchased the goods from the petitioner, or the purchases effected were of small amounts which had been converted into far larger amounts going up to lacs in those forms. Thus the concern Chaudhary Sales Corporation to whom the petitioner claimed to have sold goods worth Rs. 4,43,107.75 denied that any such purchases were effected. Another concern Bhagwati Trading Company stated that goods worth Rs. 1,390.80 were purchased from M/s. Deluxe Motors, and the ST-1 form issued to the latter had been converted by the petitioner in its favor of sales worth Rs. 2,65,193. The petitioner had further shown sales worth Rs. 4,67,224 to M/s. Raj Automobiles (P.) Ltd., while the registration of that concern had already been cancelled. Again M/s. Durga Enterprises claimed to have effected purchases of goods worth Rs. 21,519 from M/s. Shyam Bros., but the ST-1 form thereof had been converted by the petitioner in its favor for Rs. 6,77,208. There were some other instances mentioned in the order of the Sales Tax Officer, and he, thereforee, proceeded to frame the assessment on best judgment basis, and enhanced the sales by rupees one lac per quarter under the local Act, and made the same taxable at the rate of 10 per cent. This was on 28th March, 1985. The petitioner's appeal against the same is pending.
3. Before this assessment, the petitioner moved an application before the sales tax authorities for issue of ST-1 forms on 7th January, 1985. The Sales Tax Officer made a note on this application that the file was with S.I.B. branch, and the petitioner should come again. The application was returned with these remarks. The petitioner later sent another letter dated 1st February, 1985, to the Sales Tax Officer by registered post in which it was mentioned that he had appeared a number of times with valid application for issuance of ST-1 forms. It was next mentioned that the selling dealers were pressing hard for old ST-1 forms, and they were not releasing goods without them. The petitioner, thereforee, sought that 50 ST-1 forms should be issued in reasonable time as all the formalities had been completed on its part. Having not received any reply, the present writ petition was moved in the 1st week of March, 1985, for relief that the sales tax authorities be directed to perform their statutory duty of issuing ST-1 forms. Notice to show cause on the same was issued on 5th March, 1985. On 14th March, 1985, when the respondents made appearance, the court noted the contention of the petitioner that the matter was urgent as in the absence of ST-1 forms the petitioner was suffering tremendous financial loss and difficulties. The court, thereforee, adjourned the matter to 21st March, 1985, with the observation that it was hoped that some ST-1 forms would be issued to the petitioner in the meantime. On the adjourned date, the court noted that it appeared that the earlier application for ST-1 forms was returned, and in the circumstances it would be convenient if the petitioner moved the application again before the Sales Tax Officer, and also produced an account of the utilisation of the previous forms, as per requirements of ST-2 register. The Sales Tax Officer was then required to issue the forms or refuse the application or pass any other order as he thought fit. It was directed that the matter should be dealt with next day. The petition was adjourned to 26th March, 1985.
4. However, on 22nd March, 1985, the sales tax authorities made an order, requiring the petitioner to furnish securities to the extent of Rs. 3,50,000 under the local Act, and Rs. 50,000 under the Central Act, and then only his application for issue of ST-1 forms would be considered. The court then noted on 27th March, 1985, that there were five parties from whom the petitioner had effected substantial purchases and ST-1 forms should be issued to the petitioner for utilising against those purchases from the five parties and the necessary forms should be filled in in the presence of the Sales Tax Officer. At the same time it was directed that in order to safeguard the revenue, a surety to the extent of Rs. 2,12,000 should be furnished by the petitioner to the Sales Tax Officer, and immediately after the acceptance of the surety, the forms would be issued. The acceptance was further required to be done as quickly as possible before 31st March, 1985. In case, however, the order of the Sales Tax Officer requiring the furnishing of the sureties was appealed against and set aside in appeal or modified, the sureties were to be either enhanced or reduced in accordance with the modified order.
5. Admittedly the surety as directed by the court in the order dated 27th March, 1985, was not furnished.
6. The petitioner's case is that not only the order dated 22nd March, 1985 of the Sales Tax Officer demanding sureties was mala fide as the court had already expressed a hope on 14th March, 1985, that some ST-1 forms would be issued to the petitioner, but under the law as well as no sureties could be demanded. It is stated that this order on 22nd March, 1985, was made by the Sales Tax Officer when the petitioner had already moved on that day a fresh application for the issuance of ST-1 forms in terms of the directions of the court made on 21st March, 1985. The haste shown in this regard was further reflected when notice to show cause why the sureties be not required to be furnished was itself issued by the Sales Tax Officer afterwards on 23rd March, 1985, with direction to make appearance on 25th March, 1985. All this it is urged was mala fide done in order to bypass the requirements of law that securities could be required to be furnished if the order in that regard existed at the time of the making of the application for issue of ST-1 forms. In this manner the order was made so as to coincide with the moving of the application for issue of those forms in terms of the direction of the court. Moreover it is pleaded that the application moved on 22nd March, 1985, had to be treated in continuance of the one moved earlier on 7th January, 1985, and, in any case, of the letter sent on 1st February, 1985, by registered post. Along with them the statements in ST-2 form with regard to the utilisation of the earlier ST-1 form were enclosed.
7. Sales Tax is a single point levy in Delhi. In order to facilitate this, persons who are purchasing goods in Delhi not for their personal use, but in order to resell them or utilise them in the course of their manufacturing activity or for purpose of packing of goods can get themselves registered as 'dealers' under the Delhi Sales Tax Act. Before however, they can purchase goods for any of these purposes free from payment of sales tax, they are required to obtain ST-1 forms from the sales tax authorities. In such forms there are columns which require the filling in of bill numbers, nature of goods purchased and the price thereof. The dealer, thereafter while effecting purchases, hands over ST-1 form after duly filling that up to the seller which enables him to not charge sales tax on the goods so sold. To this extent the purchaser of the goods is exempt from payment of the sales tax. In the same manner when he again sells goods, either in the form they were purchased or after converting them through the manufacturing process which he carries on, he can do so without charging sales tax provided the purchaser in turn hand him over ST-1 form. This process of non-charging of sales tax continues till finally the goods reach the consumer from whom the sales tax is charged or the goods are transferred outside Delhi in which case Central sales tax as provided for by the Central Sales Tax Act is charged or they are exported. In the present case, so far as the purchases which the petitioner effected, the effected, the sales tax authorities have not questioned them or doubted the proper utilisation of the ST-1 forms issued to it earlier though, of course, it is alleged that the account thereof has not been furnished in ST-2 form. It is, however, with regard to the sales which the petitioner has effected and about which ST-1 forms obtained from the purchasers are claimed to be possessed that the disputes have arisen.
8. Mr. Sharma, appearing for the petitioner, has vehemently contended that one part of the business activity of the petitioner is to effect purchases and since no cloud has been cast over that, the sales tax authorities cannot decline the issue of fresh ST-1 forms which have sole reference to such purchases. Their non-issue has resulted in the business of the petitioner almost coming to a stand-still inasmuch as it would not be able to compete in open market in case purchases are perforce effected on payment of sales tax in the absence of those forms. The alleged irregularities, as per department's version, it is pointed out are with regard to the sales and they pertain to second stage of the petitioner's business activity. For that ample power is available with the sales tax authorities to enhance the turnover of sales or launching prosecution under section 50. In fact, the Sales Tax Officer now has already substantially raised the taxable turnover of the petitioner and its propriety would receive due adjudication in the appeals which may be filed against the assessment. Having done so, it is urged that the sales tax Officer cannot put the petitioner to a double loss at the stage of purchases as well by depriving it of ST-1 forms.
9. The mala fide conduct of the sales tax authorities is further, according to the petitioner, brought out from the cancellation of its registration as a dealer by an order dated 16th May, 1985. That would, it is stated, naturally be appealed against by the petitioner and appropriate relief obtained in accordance with the law. However, during the period when ST-1 forms were applied for, the petitioner stood registered as a dealer and had also entered into a number of transactions with established business concerns and, thereforee, should be made entitled to ST-1 forms for that period.
10. The third proviso to section 4(2) provides that where any goods are purchased by a registered dealer for any of the purposes mentioned in sub-clause (v), but are not so utilised by him, the price of the goods so purchased shall be included in the taxable turnover of the purchasing dealer.
11. Section 18 of the Delhi Sales Tax Act empowers the Commissioner to require the furnishing of security by a dealer that appears to be necessary for the proper realisation of tax and for proper custody and use of forms. Security can also be demanded as a condition of the grant of certificate of registration or its continuance. However, before doing so, an opportunity of being heard has to be provided to the dealer.
12. Rule 8 of the Delhi Sales Tax Rules next makes provision for the issue of ST-1 forms and enjoins that the declaration ST-1 forms can be issued to a dealer only after he has rendered a satisfactory account of the forms. If any, issued. Sun-rule (4), which is of considerable relevance in the present case, may be reproduced here :
'(4)(a) If for reasons to be recorded in writing, the appropriate assessing authority is satisfied that the declaration forms have been used bona fide by the applicant or that he does not require such forms bona fide, the appropriate assessing authority may reject the application or it may issue such lesser number of forms as it may consider necessary.
(b) If the applicant for declaration forms has, at the time of making the application, failed to comply with an order demanding security from him under sub-section (1) of section 18, the appropriate assessing authority shall reject the application.
(c) If the applicant for declaration form ST-1 has at the time of making the application -
(i) defaulted in furnishing any return or returns together with (a) such other documents and statements required to be furnished along with the return and (b) the receipted challan or challans showing payment of tax due from him according to such return or returns, for the furnishing of which the prescribed date or dates or the extended date or dates, if any, have already expired; and
(ii) some adverse material has been found by an officer appointed under sub-section (2) of section 9 suggesting any concealment of sale or purchase or of furnishing inaccurate particulars in the returns;
the appropriate assessing authority shall withhold for reasons to be recorded in writing the issue of declaration form ST-1 to him and shall make a report to the Commissioner about such withholding within a period of three days :
Provided that in a case falling under this clause the appropriate assessing authority may, instead of withholding declaration form ST-1, issue with the previous approval of the Assistant Commissioner, such forms in such numbers and subject to such conditions and restrictions as it may consider reasonable to an applicant, if, in its opinion, it is desirable in the interest of the collection of sales tax to grant time to the applicant to pay up the arrears in one lump sum or by Installments :
Provided further that notwithstanding the provisions of any other rule, the issue of declaration form ST-1 to a dealer to whom a certificate of registration under the Act has been granted for the first time shall be withheld by the appropriate assessing authority until such time as all the returns for the return period commencing from the date of validity of the certificate of registration are furnished and all arrears of tax according to such returns are paid by him.
(d) Where the appropriate assessing authority does not proceed under clause (a), clause (b) or clause (c) it shall issue the requisite number of declaration forms to the applicant.'
13. Sub-rule (8) requires every registered dealer to maintain register in form ST-1 containing a true and complete account of every declaration form received from the appropriate assessing authority.
14. We are not inclined to accept that purchases and sales have to be looked at in isolation and independent watertight compartments. They are integral part of the overall business activity of the dealer. The totally of the business affairs has to be viewed in its overall conspectus. The petitioner in the present case is not a manufacturer. Its entire activity is trading. It has been in the past availing ST-1 forms of enable effecting of purchases free of sales tax. However, in case the authorities are able to lay hand on some material which shows that the purchases so effected, are being disposed of neither to a registered dealer on obtaining ST-1 forms or to a consumer on charging sales tax and further are not shown to be subject-matter of inter-State transactions, can they be obliged to continue issuing ST-1 forms to be petitioner. In other words, can any clandestine disposal of goods to the detriment of sales tax collections be entirely overlooked and no preventive steps to protect the interest of the revenue taken As is apparent from the narration of facts above, the petitioner had got itself registered as a dealer on extremely small quantities of sales and purchases. Nominal securities were obtained at the time of registration. The dealer thereafter started having substantial purchases, and sales represented were also quite large. The sales tax authorities, however, found that the purchased goods had not been sold to the dealers from whom purported ST-1 forms were claimed to have been obtained. They were either found forged or interpolated to highly inflated figures shown therein. This course of dealing had tendency to bring out that the goods actually purchased were not being sold to the persons to whom they were represented to be, but otherwise. In this state of affairs when the authorities are permitting the continuance of the registration of the petitioner, they can demand security. This is clearly permissible under section 18 of the Act. Of course, they should have provided an opportunity to the petitioner of being heard before demanding the additional security as done in the present case. However, they have belatedly issued show cause notice, and the petitioner must be heard on the same. The right to demand security under section 18 for continuance of registration certificate is clearly there.
15. Rule 8(4)(a) of the Delhi Sales Tax Rules speaks of the assessing authority being satisfied that the declaration forms have not been used bona fide or are not required as such. In that case the authority can reject the application for issue of fresh declaration forms or reduce their number. The emphasis on the bona fides cannot be treated as without purpose. It is to ensure that the declaration forms so obtained are used in good faith for effecting purchases and for legitimate course of business activity. Their co-relation and nexus is inherent, and cannot be relegated to a one-way traffic for facilitating purchases only without any reference to the sales which follow. After all the purchases are not an end by themselves. The repeat emphasis in rule 8(4)(c) on bona fides in the context of requirements of forms has also significance. Since forms have relevance to purchases, those purchases must also be for bona fide purpose and not for ulterior object. Thus a facility extended to the dealer to effect purchases without payment of sales tax has as well to be responded to with an equally bona fide conduct of not playing deception with the revenue or acting in a manner detrimental to the interest of this benefactor. The obligation is mutual. Existence of right must ensure adherence to the corresponding duty. If, thereforee, the overall conspectus of the business reveals that the declaration forms have been abused and the goods purchased have been disposed of in a manner other than the one as envisaged by law and to the detriment of revenue, the absence of bona fide would be deducible. One instance can be of having purchased goods on the basis of forms, they are utilised for personal benefit. Similarly their disposal by a mode not warranted by the Act can as well as treated as not bona fide. Furthermore the recourse to making substantial additions in the turnover of the dealer should not preclude exercise of preventive power available under the law, as he may turn out to be a man of straw or a mere figure-head on behalf of some other pulling the strings from behind, from whom no recoveries after the assessment can be possible.
16. Rule 8(4)(c) also permits the assessing authority to withhold the issue of ST-1 form for reasons to be recorded in writing, in case of default in furnishing any return or returns together with documents, etc. Discovery of adverse materials suggesting any concealment of sale or purchase or furnishing inadequate particulars in the return may also result in disentitlement of such forms. The contention of the petitioner, however, is that clauses (i) and (ii) of rule 8(4)(c) must conjunctively exist as the word used is 'and', and not 'or'. It has been urged that mere discovery of adverse material is not enough if the dealer has otherwise furnished return of returns. The default and the discovery must co-exist. The reason for this, it is stated, is obvious inasmuch as when the returns have been filed and some adverse materials is found to exist, the assessing authority is made competent to enhance the sales as already done in the present case. The petitioner, it is pointed out, did file the returns.
17. Normally the use of the word 'and' imports conjunctive implications. The language in this regard quite clear, recourse to substance and spirit of law is not permissible, and even if there be any doubt as to interpretation, it must be resolved in favor of the subject. [See in this regard Polestar Electronic (Pvt.) Ltd. v. Additional Commissioner, Sales Tax  41 STC 409 (SC)]. However, a perusal of rule 8(4)(c) tends to show that clause (i) thereof has reference to cases where default in furnishing any return or returns with such other documents, statements as may be required, and the challans showing payment of tax, has taken place. Clause (ii) on its part deals with discovery of adverse material suggesting any concealment of sale or purchase or furnishing inaccurate particulars in the returns. Normally concealment and inaccurate particulars would have reference to the returns filed. Thus the operation of each of these clauses may be said to be in different eventualities. Mr. Wazir Singh, on behalf of the revenue, has, thereforee, urged that it would not be stretching the language too far or violating its provision if the word 'and' in between clauses (i) and (ii) in rule 8(4)(c) is read as 'or'. That according to him, would alone bring in coherence and purpose to the different situations that these clauses purport to meet. There is no gainsaying that in certain circumstances, the word, 'or' can be read as 'and' and vice versa. The ordinary rule of construction is that a provision of a statute must be construed in accordance with the language used therein unless there are compelling reasons, such as, where a literal construction would reduce the provision to absurdity or prevent the manifest intention of the legislature from being carried out. At the same time in the case, State of Bihar v. S. K. Roy : 1966CriLJ1538 , the Supreme Court read the word 'or' occurring in section 2(b) of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, as 'and', as it found that any other interpretation would lead to anomalous and starling consequence. This had reference to the definition of the word 'coal mine'. In the case, State of Bombay v. R. M. D. Chamarbaugwala : 1SCR874 , the word 'or' was similarly read as 'and' in section 2(1)(d) of the Bombay Lotteries and Prize Competition Control and Tax Act, 1948. This was done in order to give effect to the clear intention of the legislature as expressed in the impugned Act as a whole. It was noted that well-known canone of construction of statutes permit that to be done.
18. We are, however, not inclined to express any opinion on these respective contentions raised on the interpretation of rule 8(4)(c) as in our opinion as discussed above, rule 8(4)(c) when it permits the non-issue or lesser issue of forms in cases where the assessing authority is satisfied that those forms have not been used bona fide, or required as such, a less onerous condition than the altogether rejection of the application for forms or lesser issue of such forms can be imposed, and that can be of issue of forms sought for subject to furnishing of security.
19. Mr. Sharma has referred to a number of decisions in order to show that the onus of proving that the transaction is not genuine is on the assessing authority, where the assessed had filed declaration form in support of his case. No obligation is case on the assessed by law to satisfy the correctness of the declaration. This is irrespective of the registration of the purchasing dealer having been cancelled subsequently to the date of the transaction. Lurking suspicions in the mind of the assessing authority, 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 assessed : vide Devinder Kumar Kewal Kumar v. The State  30 STC 352 (P&H) and Jasodalal Ghosal Pvt. Ltd. v. Commercial Tax Officer  35 STC 383 (Cal.). In the case Sriniwas Jiwanram v. State of West Bengal  3 STC 301 it was observed that the seller cannot be held responsible for the movements of a purchaser and in case he is not traceable and there is no evidence to conclude that the declaration are not genuine or they were manufactured by the seller, deductions cannot be refused. In the case, Cromelite (India) Pvt. Ltd. v. State of Maharashtra  48 STC 223 the Bombay High Court observed that an order of cancellation of a registration with retrospective effect would not prejudice third parties. In the case, A.D.M. Stores v. Commissioner of Sales Tax, Delhi  18 STC 305 the Punjab High Court was of the view that inaction, neglect or even fraud of a registered purchasing dealer cannot result in penalising the innocent selling dealer in the absence of evidence of his having been a party to any fraud, deception or misrepresentation.
20. However, as observed by the Supreme Court in the case, State of Madras v. Radio and Electricals Ltd.  18 STC 222 (SC), the sales tax authority assessing the selling dealer is competent to scrutinise the certificate to find out whether the certificate is genuine. He may also, in appropriate cases, when he has reasonable grounds to believe that the goods purchased are not covered by the registration certificate of the purchasing dealer, made an enquiry about the contents of the certificate of registration of the purchasing dealer. But it is not for the Officer to hold an enquiry whether the goods specified in the certificate of registration of the purchaser can be used by him for any of the purposes mentioned by him in form C, or that the goods purchased have in fact not been used for the purpose declared in the certificate. The authority issuing the certificate of registration has, before issuing a registration certificate to be satisfied after making such enquiry as it thinks necessary. The correctness of propriety of satisfaction of the notified authority in issuing the certificate that the goods are likely to be required for the purpose of business would not, however, be again open to challenge in an appropriate proceeding for assessment of tax. The seller must satisfy himself that the purchaser is a registered dealer and the goods purchased are specified in his certificate; but his duty extends no further. However, in cases where fraud or collusion or misrepresentation are enacted by the seller himself, he cannot insist on the acceptance of all sorts of declaration forms which are subject of these incidents. The Punjab High Court recognised this in A.D.M. Stores' case  18 STC 305
21. In fact the Commissioner of Sales Tax, Delhi, has as well in circular No. 30 of 1979-80 given effect to the decision of the Supreme Court in the case of Radio and Electricals Ltd.  18 STC 222 (SC). It has been mentioned that ST-1 forms should normally be accepted for allowing deduction from the turnover unless there is a cogent ground to disallow the same. Wherever a form is produced before an assessing authority prima facie the same should be taken to be correct since it is presumed that the selling dealer had obtained the same after satisfying himself that the purchaser is a registered dealer, and the goods purchased are so specified in his certificate.
22. However, since the sales tax authorities in the present case claimed to have laid hand on some material which tends to show collusion and deception on the part of the petitioner in not disposing of the goods purchased in the manner as represented in the ST-1 forms produced, it cannot be said that the authorities exceeded their powers of exercised them illegally or mala fide when they declined to issue further ST-1 forms to the petitioner without his furnishing further security.
23. There is further a controversy whether the petitioner submitted ST-2 form of the utilisation of the ST-1 forms which had been obtained earlier, Naturally this has to be determined by the authorities, and in case the petitioner has submitted the same, then the requirement of the proviso to rule 8(3) should be considered as complied.
24. Before concluding, we would like to make it clear that we are not expressing any opinion on the correctness or otherwise of the material so gathers. Mr. Sharma on behalf of the petitioner has vehemently sought to contend that the petitioner may itself be victim of deception on the part of the purchasing dealers, and that they might be falsely and maliciously deposing against the petitioner. Be that as it may, that part of the controversy will receive adjudication in the appeals which are available to the petitioner under the Delhi Sales Tax Act against the assessment order, uninfluenced by any observation made by us in this petition. We have referred to them in this order only for the limited purpose of determining whether in case any material is discovered by the authorities which implicate the petitioner in any deception or misrepresentation, the security can be called.
25. We are, thereforee, unable to interfere in this writ petition. In any case the order made by this Court on 27th March, 1985, as an interim measure, requiring the furnishing of surety to the extent of Rs. 2,12,000 should appear fair and reasonable. On the furnishing of that surety ST-1 forms can be issued. Subject to this, the writ petition is dismissed. No order as to costs.
26. Writ petition dismissed.