1. SALEEM AKHTAR, J. -The applicant assessee has filed this application under section 17(1) of the Sales Tax Act, raising the following question: "Whether in the facts and circumstances of the case the Tribunal was right in holding that the applicant was not entitled to exemption under section 4 of the Sales Tax Act, 1951 in respect of sale of Cotton Yarn amounting to Rs. 13,07,920 made to four parties who held valid manufacturer's licences issued to them by the Sales tax Authorities under section 8 of the Sales Tax Act, 1951?"
2. The applicant is a company engaged is the manufacture of cotton yarn. For the financial year 1964-65 the applicant filed return for Sales Tax claim--ing that sales amounting to Rs. 55,39,847 were made to manufacturers holding manufacturer licence issued under the Sales Tax Act, and hence were exempt from Sales Tax. The Sales Tax Officer allowed exemption to the sales amounting to Rs. 42,31,927 but disallowed on the sales amounting to Ra. 13,07,920. The disallowance was made on the ground that the parties to whom these sales wore made were not genuine, and that the assessee did not produce any evidence to show that the goods were actually sold to these parties. The applicant filed An. Appeal against the assessment which was dismissed by the Tribunal.
3. The applicant had claimed exemption in respect of sales made to 17 parties. The Sales Tax Officer held that the sales made to 12 parties were genuine but in respect of sales made to (1) Zakaria Textile Mills, (2) Waheed Textile Mills, (3) Lucky Textile Mills, (41 Ruby Textile Mills and (5) Shaheen Textile Mills Ltd., it was held that these parties were not genuine and no evidence was produced to show whether the goods sold to these were actu--ally delivered to them or not. The Sales Tax Officer also observed that parties were nor traceable at the address given by them and no gate passes were produced by the applicant to show that the goods were actually de--livered and were sold. The learned Tribunal after assessing the facts and circumstances observed that "the very factum of sales is doubtful and when the assessee was given an opportunity to prove that the sales effected to the so-called five parties, he could hot do so before the Assessing Officer".
4. Mr. Ali Athar, the learned counsel for the applicant has contended that once the applicant has produced certificate under rule 16 obtained from licensed manufacturers and photo copies of their licence before th6 Sales Tax Officer there is no further obligation on the applicant to establish that the licensed manufacturers were genuine parties. The contention of the learned counsel seems to be correct, because the licence was issued by the Sales Tax Officer and as the applicant bad complied with the require--ment of law by producing a photo copy of the licence and a certificate under rule 16, unless it is established that the licensed manufacturer had cessed to carry on business or ceased to exist or that the license has been revoked before the sale, it may not be open to the department to challenge the genuineness of such a purchaser.
5. In the present case, the exemption was not refused merely on the ground that the purchasers were not genuine. The other ground is that the ap--plicant has not been able to establish that sales were made to these parties mentioned above which means that even if it is accepted that purchasers were genuine parties and were in existence at the time of sale, the goods were never sold and delivered to such parties. If a party seeks any exemption the burden is upon it to establish that it has complied with all the conditions on the basis of which exemption is claimed. It was, therefore, necessary for the applicant to establish that the sale was made to the purchaser.
6. Situation may arise where an assessee may enter into a collusive transaction with a licensed manufacturer and without giving delivery claim exemption. It is possible that those very goods afterwards may be sold to purchasers who are not licensed manufacturers at all. Therefore, if the factum of sale has been doubted it was the duty of the applicant to establish that sale was actually effected. A sale without delivery to the purchaser may cast doubt on the transaction. The necessary ingredients for claiming exemp--tion are that firstly sale has been made, secondly it has been made to a licened manufacturer and thirdly that the required documents have been obtained. Where the very sale has been doubted mere production of necessary documents required under the rules will not prove the sale. The seller in such cases will have to establish by other evidence viz. The receipt of sale consideration, delivery and necessary records evidencing sale. In cases where sale has been challenged the seller has to discharge the burden before claiming exemption. Mr. Salahuddin the learned counsel for the department has contended that the learned Tribunal has given a finding of fact that the sale was not effected and goods were not delivered and, therefore, at this stage it is not possible to investigate into these facts and give a different finding. This contention of the learned counsel has force. In fact it seems that the Sales B Tax Officer had probed into the matter inasmuch as out of 17 parties he bas disallowed sales to only five parties. He had given an opportunity to the applicant to substantiate the sale by producing documents which it failed to do. The learned counsel for the applicant has relied on 1983 PTD 44, 1983 PTD 53 and in unreported decision in S. T. C. No. 689 of 1972 where it was held that if the purchaser is a licensed manufacturer and the assessee has produced the required documents, genuineness and the existence of the purchasers cannot be doubted. T here is no cavil with this proposition, because having issued the licence to the parties their existence cannot be challeng-- ed and in such circumstances the burden of proving existence of parties does not lie on the assessee. But as stated above, in the present case the facts are quite different. Here the very factum of sale has been doubted and the applicant was failed to prove it. Therefore, the aforestated cases relied upon by the learned counsel for the applicant have no application to, the present case.