M.R Sharma, J.:— The Sales Tax Tribunal, Punjab, Chandigarh, has referred the following two questions of law to us for our opinion:

“(1) Whether, on the facts and circumstances of the case, the applicant was not entitled in law to claim deductions under section 5(2)(a)(ii) of the Act with respect to M/s. Kapoor Weaving Factory, Amritsar, and M/s. Laxmi Trading Company, Amritsar, amounting to Rs. 4,01,690?

(2) Whether the considerations and factors relied upon by the Tribunal in rejecting the deductions of M/s. Kapoor Weaving Factory, Amritsar, and M/s. Laxmi Trading Company, Amritsar, are relevant in law for disallowing deductions claimed?”

2. The assessee is a registered dealer under the Punjab General Sales Tax Act as well as under the Central Sales Tax Act. On 8th December, 1969, the Assessing Authority framed the assessment for the year 1965-66 against the assessee. The assessee had claimed deductions under section 5(2)(a)(ii) with respect to two firms, namely, M/s. Kapoor Weaving Factory, Amritsar, and M/s. Laxmi Trading Company, Amritsar, in respect of five transactions of sale aggregating to Rs. 2,80,531 in favour of M/s. Kapoor Weaving Factory, Amritsar, and one sale transaction in the sum of Rs. 1,11,159 to M/s. Laxmi Trading Company, Amritsar. Both these firms were holding valid registration certificates for the relevant assessment year. The Assessing Authority came to the conclusion that these sales amounting to Rs. 4,01,690 had not in fact been made in favour of these two registered dealers. As a consequence of this finding, the Assessing Authority added this amount in the taxable quantum of the dealer.

3. Feeling dissatisfied against the order passed by the Assessing Authority, the assessee filed an appeal before the Deputy Excise and Taxation Commissioner (Appeals), Jullundur, who dismissed the same on 19th November, 1970. The second appeal filed by the assessee before the Sales Tax Tribunal was also dismissed on 16th September, 1972. While dismissing the appeals, the Tribunal observed as under:

“The fact that two alleged purchasing dealers stood registered at the relevant time is not in dispute. The appellant also furnished declaration forms which according to them were filled in and signed by the two purchasing dealers. But these contentions did not find favour because of the following facts:

(i) Shri Laxmi Narain appeared to be managing the two concerns in his capacity as the sole proprietor or a partner.

(ii) The person who was said to have furnished the affidavits was not duly identified by any person.

(iii) One of the signatures was in English script while the other signature was in landa script. Both the affidavits were attested on one and the same date.

(iv) The appellants had been given a number of opportunities to produce the purchasing dealers but had failed to produce them.

(v) Cash payments were made in respect of all the transactions.”

4. At the request of the assessee the aforementioned two questions of law have been referred to us for decision.

5. We have heard the learned counsel for the parties and bestowed our thoughtful consideration to the arguments raised at the Bar. A similar matter came up for consideration before a Division Bench of this Court in Ram Pal Medan Gopal, Chaura Bazar, Ludhiana v. Punjab State [1968] 22 S.T.C 79.. It was held therein that in order to claim a deduction, under section 5(2)(a)(ii) of the Punjab General Sales Tax Act (hereinafter called the Act), on account of sales stated to have been made to registered dealers, the production of the declaration under that section read with rule 26 of the Punjab General Sales Tax Rules, 1949, was prima facie proof of the fact that the sales had been made to the registered dealers; but the authorities could refuse to allow the deductions if there was evidence that the sales were not genuine.

6. The second case in point is reported as Pahar Chand & Sons v. State of Punjab [1972] 30 S.T.C 211.. In that case, the court held:

“(1) that the principles that have to be considered in income-tax cases on the subject pari materia apply to sales tax cases and the principles enunciated in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Bengal, governed the cases under the Sales Tax Act;

(2) that if the Assessing Authority was relying on the testimony of a witness, the assessee should have been afforded an opportunity to cross-examine him. It was not open to the Assessing Authority to get over this hurdle on the plea that the witness had not been produced by the assessee;

(3) that the Assessing Authority acted on material, which was not legal, to come to the conclusion that the sales were fictitious;

(4) that the finding of the Assessing Authority was contradictory in terms; if sales were fictitious, in other words, no goods had been sold, there was no question of adding them to the taxable turnover of the assessee, but if the goods had been sold, then the mere fact that the registered dealer had stopped its business would be no ground to penalise the assessee when the sales had been made in accordance with the rules. The assessee had complied with the provisions of law while selling the goods to the registered dealer after receiving from it form S.T XXII and, therefore, the liability, if any, had to fall on the purchasing dealer. If the purchasing dealer had closed its business, it was for the department to cancel its registration certificate or not to issue form S.T XXII.”

7. In Devinder Kumar Kewal Kumar v. State, the same position of law was reiterated. The court, however, enumerated the following five heads of evidence noticed by the Tribunal in the statement of the case:

“(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 fexcise 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. 11,94,624-14-3 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.”

8. Thereafter the Bench after noticing some earlier decisions observed as under:

“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 v. Commissioner of Sales Tax, Delhi. 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. Punjab State, 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 the Ram Pal's case 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 Jiwan-ram v. State of West Bengal. A seller in the Sriniwas' case 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 the Ram Pal's case that the purchasers were men of straw and this was a good piece of evidence, but the contention was repelled. In an overall 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.”

9. In the instant case, however, the Assessing Authority doubted the sales said to have been made in favour of M/s. Kapoor Weaving Factory, Amritsar, on the ground that all the payments against the five transactions had been made in cash. It also rejected the evidence of three witnesses produced by the dealer mainly on the ground that the witnesses were trying to help the assessee. In fact the Assessing Authority seems to have acted under the premises that it was the duty of the assessee to produce before him the dealer to whom the goods were said to have been sold. Even the request made on behalf of the assessee that further attempts be made to summon Laxmi Narain, the owner of the two firms, was declined by the Assessing Authority with the following observations:

“The dealer had all along been intentionally avoiding to produce Shri Laxmi Narain despite the repeated directions to them. On 5th December, 1969, the learned counsel filed an application requesting that Shri Laxmi Narain be summoned again. I have considered the request very carefully. The previous record shows that Shri Laxmi Narain is avoiding to appear before the Assessing Authority intentionally and the dealer has not co-operated in producing the said Shri Laxmi Narain before me intentionally.”

10. In the Devinder Kumar's case [1972] 30 S.T.C 352., the inability of the assessee to produce the dealers and the financial status of the purchasing dealers who made huge payments on cash basis were considered to be insufficient circumstances for drawing a conclusion against the dealer. In spite of this binding authority, the Assessing Authority in the instant case drew a presumption against the dealer on account of its own default in declining to enforce the process against Laxmi Narain. In other words, the decision rendered by the Assessing Authority is based on some circumstances which are wholly irrelevant. Such a decision cannot be allowed to stand. It is settled law that where a decision of a quasijudicial authority rests on some circumstances which are relevant and some which are irrelvant the decision stands vitiated.

11. We, therefore, allow this petition and answer the two questions of law in favour of the assessee and against the revenue. The case shall now go back to the Tribunal for a fresh decision in accordance with law.

12. No costs.

B.S Dhillon, J.:— I agree.

14. Petition allowed.