Supreme Court of India
M/S Star Paper Mills Limited vs M/S Beharilal Madanlal Jaipuria … on 16 December, 2021Author: Hemant Gupta

Bench: Hemant Gupta, V. Ramasubramanian










1. The present appeal is directed against an order passed in an intra-

court appeal by the Division Bench of the High Court of Delhi at

New Delhi on 28.5.2012 whereby the judgment and decree passed

by the learned Single Bench of the High Court was set aside and

the suit filed by the appellant-plaintiff was dismissed. The learned

Single Bench decreed the suit of the appellant for a sum of

Rs.96,41,765.31 along with simple interest @ 15% p.a. from the

date of institution of the suit i.e., 5.10.1987, till the date of

payment, on the principal amount of Rs.71,82,266/-.
Signature Not Verified

Digitally signed by
Jayant Kumar Arora
Date: 2021.12.16
16:27:17 IST

2. The appellant filed a suit for recovery of Rs.96,41,765.31 on the

ground that appellant is a manufacturer of various varieties of

Kraft, writing and printing papers which are sold to customers

through wholesalers. The appellant sells its products through

direct payment or payment against hundies payable on due date

with the bank by such wholesalers. Respondent-defendant No. 1

was a wholesale dealer of the appellant company in the territory of

Delhi since 1984 and was purchasing paper from the Delhi Sales

Office of the appellant as well as from its mills situated at

Saharanpur. The tentative stock lifted by respondent no. 1 was

worth Rs.15-20 lakhs per month. The respondents were making

regular payments and were enjoying immense confidence of the

appellant. The appellant further explained the terms of the

payment in the plaint filed. The terms of the sale of paper to

respondent No. 1 were stated to be through limited credit of 45-60

days as well as through hundi documents. Fifteen days interest-

free credit facility from the date of delivery was available and

thereafter interest was charged. Any default of payment carried

interest @ 21 % p.a. from the date of delivery till the date of

payment and further penal interest @ 3 %.

3. The Respondent No. 1 lifted huge stocks in the month of November

1985 to January, 1986 but did not make the due payments. Even

some of the hundi documents were dishonored. The appellant

supplied goods worth Rs.72,27,079/- by 189 consignments against

the term of direct payment. The goods were duly received by

respondent no.1 with the signatures of respondent no. 2, its

director, but they defaulted in making the payments. The

respondents made a payment of Rs.2,99,480/- for 9 consignments

by hundi documents but the hundi documents were also returned

by the bank unpaid. It was pointed out that since respondent No. 1

was a wholesaler, they were getting trade discount of Rs.700-750

per ton. Thus, the appellant claimed the following amount:

Principal amount Rs.71,82,266.00
Interest on outstanding Bills Rs.24,59,499.31
Total Rs.96,41,765.31

4. In the written statement, it was alleged that the appellant company

was owned and controlled by the family of Bajoria headed by S.S.

Bajoria prior to May 1986. The said family was closely connected

to the respondents. The appellant installed a paper manufacturing

mill at Saharanpur in 1935-36 and offered dealership to the

respondents for Delhi and Bombay markets. The dealership of

Bombay was given up in or about 1955-56. The management of the

appellant changed in May, 1986. It was asserted by the

respondents that the appellant has not rendered true and proper

receipts and a sum of Rs.45 lakhs are due from the appellant. It

was also alleged that the bills raised by the appellant are based on

fictitious transactions which are tainted with fraud, deceit and

circumvention of law. Such transactions are therefore against

public policy and void ab initio. The respondents further alleged

that in 1972-73, the Managing Director of the appellant approached

Shri Nagarmal Jaipuria and suggested that the respondents should

receive certain bills drawn on them inasmuch as the appellant

intended to sell certain quality of paper in open market at prices

higher than the Mill price. The goods could not be taken out from

the Mill unless accepted by one of the wholesalers or dealers. At

the threat of termination of the wholesaler agreement, the

respondents agreed for such proposal. The respondents averred as


“10. Near about the same time, the plaintiff, in addition to
the selling of papers in cash in open market, also indulged in
tax evasion the sales tax on direct sale from Saharanpur was
4%. The sales tax if the goods were transported to Delhi
Depot of the plaintiff and sold from the said depot was Nil.
Thus, there was a net tax saving of the value of the goods
sold in the open market at Delhi. There is no sales tax
leviable on the sale of paper from the Dealer to Dealer at
Delhi. If the sales were made directly from Saharanpur the
Sales Tax leviable was 4%. The dealer to dealer transaction
of sale did not attract payment of anysales tax whatsoever
at Delhi. The Plaintiff in addition to making profit by sale of
paper in the open market at the price higher than the Mill
price also wanted to pocket the sales tax which would have
ordinarily been payable had the sales been made from their
Mills at Saharnapur. This whole ingenious scheme and device
was tainted with fraud and the Jaipuria under undue
influence and coercion were made to submit to the illegal
transactions which were indulged in by the Bajorias/Plaintiff.”

5. One of the issues framed after completion of pleadings was

whether the alleged bills forming the claim in the suits have been

raised on the basis of the fictitious and fraudulent transactions.

The suit has been dismissed by the Division Bench on such issue

inter-alia on the ground that documents had not been proved by

summoning the person, who had issued such large number of

documents (Ex-P1 – Ex-P976).

6. The appellant filed an affidavit of Shri A.S. Bhargava, Retainer,

formerly General Manager-Management Services on 8.12.2003. In

such affidavit, the appellant has produced 976 documents

including copies of all the invoices, debit notes, delivery challan,

ST-1 Form, interest debit notes, letter of the respondents, credit

notes and the statement of accounts. All the invoices are stamped

and signed by the respondents. The appellant also produced ST-1

Form in respect of each of the invoices stamped and signed by

respondents. In the cross-examination, the witness stated that in

case of sale transaction by the company/manufacturer with any

wholesaler, the sales tax can be avoided against ST-1 Form.

However, if the manufacturer would sell these goods directly to any

retailer or consumer, sales tax would be payable. He further

deposed that he has not placed on record the copies of the books

of accounts and that the Bills-cum-Challans have not been

acknowledged by the respondents in their presence. He stated

that the respondents used to lift the material from their godown.

He further deposed that sales tax number is given on the top of the

invoices though he could not say if the sales tax number is not of

Delhi but of Calcutta. He further stated that the transactions in the

suit were from Delhi and no transaction took place from

Saharanpur. The suggestion that the suit transactions are fictitious

was denied.

7. The respondents produced an affidavit of Shri R.C. Jaipuria in

evidence. It was stated that the books of accounts were not

produced for the reason that the office of the respondents was

reconstructed during the period 1993-1995 when there were

torrential rains and the records kept on the open roof got spoiled

and eaten by pests. Though, it is averred that income tax, sales

tax returns of these years have been finalized on the basis of

destroyed books of accounts. The respondents have denied the

receipt of goods and produced documents Ex. DW-1/1 to Ex. DW-

1/5. He accepted his signatures on the invoices, ST-1 Form and the

debit notes but denied signatures on the delivery challans as not of

any of the employee of the respondents. It was stated that

signatures got signed from him on large number of documents

under pressure and duress in the circumstances stated in his

affidavit. He admitted that books of accounts pertaining to

transactions in question have not been filed. He denied that the

respondents had not paid a sum of Rs.2,72,08,398.29 to the

plaintiff between the period 1.5.1985 to 19.3.1987. In respect of

signatures on ST-1 Form, he deposed that he used to sign such

forms under duress and bear his signatures.

8. On the basis of the evidence led, the learned Single Bench decreed

the suit. However, the first appeal was accepted inter alia on the

ground that the appellant has failed to prove that it was registered

as a dealer with the Sales Tax Authorities in Delhi and it failed to

prove having any godown in Delhi. Since the appellant has failed

to prove that it was a registered dealer, it could not effect any sale

of paper at Delhi without paying Central Sales Tax. The Division

Bench of the High Court held as under:

“31. We may summarize. The respondent No.1 has failed to
prove that it was registered as a dealer with the Sales Tax
Authorities in Delhi. It failed to prove having any godown at
Delhi. As per the laws applicable to Sales Tax, unless
respondent No.1 proved being a dealer registered at Delhi, it
could not effect any sale of paper at Delhi without paying
Central Sales Tax. It is obvious that respondent No.1
surreptitiously removed its goods from its mill at Saharanpur
not under the cover of the invoices raised in favour of the
appellant, for the reason these invoices show an intra-city
sale and not an inter-city sale. The respondent No.1 has not
led any evidence with respect to goods receipts pertaining to
movement of goods from its mill at Saharanpur to Delhi and
much less shown delivery by any transporter to the
appellant. The aforesaid has been totally ignored by the
learned Single Judge and therefrom it is apparent that the
sales were fictitious i.e. appellant was shown as a name-
lender. Respondent No.1 managed to cheat the revenue.”

9. Learned counsel for the appellant argued that the finding of the

High Court is patently erroneous as the respondents have not

denied that the appellant is a dealer in the State of Delhi which is

evident from Para 10 of the written statement reproduced above.

It was further pointed out that the respondents have not disputed

the registration of the appellant in the written statement nor any

issue was framed about the appellant being a registered dealer in

Delhi. Therefore, the High Court had made out a new case for the

respondents when such case was not even referred to in the

written statement filed.

10. The appellant had filed a registration certificate as the reseller

dealer in Delhi as Annexure P/12 along with an application to

produce such certificate. The said certificate shows that the

appellant was registered as a Dealer under Section 14 of the Delhi

Sales Tax Act, 1975. The nature of business being Reselling of

Paper and Boards only. There is a mention of godown in the

registration certificate as well.

11. Learned counsel for the respondents supported the judgment of

the learned Division Bench and relied upon judgment of this Court

reported as Subhra Mukherjee and Another v. Bharat Coking

Coal Ltd. and Others1 to contend that the onus of proof whether

transactions were genuine and bonafide has to be discharged by

the appellant. Learned counsel for the respondents also relied upon

the judgment of this Court reported as Ishwar Dass Jain v. Sohan

Lal2 to contend that the appellant has not produced account books

but only extracts which are not admissible in evidence and hence

suit was rightly dismissed by the High Court in appeal.

12. We have heard learned counsel for the parties and find that the

Division Bench of the High Court has gravely erred in law in

accepting the appeal of the respondents on wholly erroneous and

untenable grounds. Each of the invoices produced bears the

registration No. S.T. No. 36/102499/08/84 and also bears the stamp

and signatures of the Managing Director/ Director of the

respondents. Apart from such invoice, the appellant has proved

the debit note which has also been stamped and signed by the

Managing Director/ Director. The ST-1 Form also bears the stamp

and signature of the Director of the respondents. Such ST-1 Form

1 (2000) 3 SCC 312
2 (2000) 1 SCC 434

bears the invoice number and the date as well as the value of the

goods. The witness of the respondent has admitted his signatures

on the ST-1 Form, invoice and debit notes. The respondent

company has only denied the signatures of its representative only

on the Delivery Challan.

13. The judgments referred to by the learned counsel for the

respondents are not applicable in the present case. The

respondents have alleged that the alleged bills have been raised

on the basis of fictitious and fraudulent transactions. Since such

stand was of the respondents, the onus of proof of such issue was

on the respondents. Such issue necessarily implies that the raising

of the invoices is not in dispute but it was alleged that such bills

are fictitious and fraudulent. The onus of proof of issue no. 4,

whether the defendant no.1 accepted the bills without actual

delivery of goods to it is also upon the respondents as it is their

stand that the bills were accepted without actual delivery of goods.

14. The reasoning of the Division Bench that the witness examined by

the appellant was not in Delhi when the transactions took place is

wholly irrelevant to determine whether the invoices, debit notes

and ST-1 Form are proved or not. It is not a case of mere exhibition

of documents. Such documents were proved by a witness as such

documents were kept by the appellant in their ordinary course of

business. All these documents are stamped and counter-signed by

the representatives of the respondents. Such documents have

come from the records of the appellant. It is not necessary for the

witness to be signatory of such documents or such documents

were executed in his presence. The documents were maintained in

the regular course of business of the appellant. In fact there is no

dispute about the maintenance and production of such documents.

The witness of the respondent has admitted the execution of all

the invoices, debit notes and ST-1 Form which bear their stamp and

also the signatures of the authorized representative. Therefore, the

reasoning given by the High Court is bereft of any merit.

15. The judgments referred to by the learned counsel for the

respondents are not applicable to the facts of the present case at

all. In Subhra Mukherjee, it was held that a person who attacks a

transaction as sham, bogus and fictitious must prove the same. It

is the respondent, who have alleged the transaction as fraudulent.

In fact, in the aforesaid case, the transaction of sale was found to

be bogus and appeal of the alleged purchasers was dismissed.

Thus, the onus of proof was on the respondents but the

respondents have failed to discharge the same.
16. In Ishwar Dass Jain, it was suit for redemption of usufructuary

mortgagee which was dismissed by the High Court. The appellant

before this Court was the plaintiff. The defence of the respondent

was that there was no relationship of mortgagor and mortgagee

between the parties but that the relationship was as landlord and

tenant. It was the defendant who has not produced his books of

accounts to show that he was paying various amounts as rent to

the appellant every month. In these circumstances, the extract of

accounts produced by the respondent was found to be

unbelievable and the suit decreed. In fact, the respondents in the

written statement itself denied that they do not have the account

books as they got damaged in rain and eaten by pests when they

were kept on the roof of a building during the process of

reconstruction. Such defence on the face of it appears to be made

up defence. The account books were not produced by the

respondents to discharge the onus on them. Therefore, the adverse

inference had to be drawn against the respondents rather than

against the appellant who are not relying upon the entries in the

account books alone to maintain suit but reliance is on the

invoices, debit note as well as ST-1 Form which had been issued

only after the receipt of goods. Though the respondents have

denied the receipt of goods but the receipt of goods is proved by

numerous documents stamped and signed by the respondents.

17. Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 excludes the sale

made to the registered dealer from the taxable turnover, which

reads thus:

“(2) For the purposes of this Act, “taxable turnover” means
that part of a dealer’s turnover during the prescribed period
in any year which remains after deducting therefrom,—

(a) his turnover during that period on—
(i) sale of goods ……………………….
xxx xxx
(v) sale to a registered dealer-

(A) of goods of the class or classes specified in the certificate
of registration of such dealer, as being intended for use by
him as raw materials in the manufacture in Delhi of any
goods, other than goods specified in the Third Schedule or

(1) for sale by him inside Delhi; or

(2) for sale by him in the course of inter-State, trade or
commerce, being a sale occasioning, or effected by transfer
of documents of title to such goods during the movement of
such goods from Delhi; or

(3) for sale by him in the course of export outside India being
a sale occasioning the movement of such goods from Delhi,
or a sale effected by transfer or documents of title to such
goods effected during the movement of such goods from
Delhi, to place outside India and after the goods have
crossed the customs frontiers of India; or”

18. Rule 7 of the Delhi Sales Tax Rules, 1975 allows the dealer to claim

deduction from his turnover if he files a declaration in ST-1 Form

duly filled in and signed by the purchasing dealer or a person

authorized by him in writing. The said Rule reads thus:

“7. Conditions subject to which a dealer may claim
deduction from his turnover on account of sales to registered
dealers. –

(1) A dealer who wishes to deduct from his turnover the
amount in respect of sales on the ground that he is entitled
to make such deduction under the provisions of sub-clause
(v) of clause (a) of sub-section (2) of section 4, shall produce-

(a) copies of the relevant cash memos or bills according at
the sales are cash sales or sales on credit; and

(b) a declaration in Form ST-1 duly filled in and signed by the
purchasing dealer or a person authorised by him in writing:”

19. The respondents have admitted that no sales tax is payable by a

dealer to a dealer. By necessary implication, the respondents are

admitting the appellant to be a dealer as also the respondents to

be dealer under the Delhi Sales Tax Act, 1975. It is only on account

of sales made by a dealer to a dealer that the sales tax is not be

payable as the incidence of payment of tax would be when the

goods are sold to a consumer. The respondents as wholesaler,

were getting the benefit of trade discount, which is an agreed term

of sale.

20. The High Court, in the impugned judgment erred in holding that

the appellant had not examined the author of the documents. Such

reasoning is absolutely erroneous as in the written statement, the

respondents had not denied their signatures on the documents

referred to by the appellant but pleaded duress in executing of

these large number of documents. The witness examined by

respondent no.1 in his cross examination admitted his signature or

that of the representative of company on invoices, debit notes and

on ST-1 Form. The respondent had led no evidence in respect of

fraud or duress apart from self-serving statement. The

consignment of goods was sent from the month of November 1985

to January 1986. The respondent had signed large number of

documents during this period. However, no complaint was made to

any person or authority or even to the plaintiff. It is a denial of

receipt of goods without any basis raised only in the written

statement filed. Such stand is wholly bereft of any truth and is thus


21. The debit notes stamped and signed by the respondents were in

respect of trade discount on the wholesale price mentioned in the

invoice. Having accepted the trade discount, which is evident from

the stamp and signatures not only on the debit notes but also on

the invoice as well as on ST-1 Form, shows that the goods were

actually lifted by the respondents for which payment has not been

made. The respondents have taken up wholly untenable ground

that the documents were signed under duress. Large number of

documents such as invoices, debit notes and ST-1 Form spread

over 3 months is unbelievable to be an exercise of duress. The

stand of the respondents is wholly untenable and unjustifiable in

law and is only to defeat the legitimate claim raised by the

appellant. The High Court in the appeal has gravely erred in

setting aside the reasoned order of the learned Single Bench on

the grounds which were not even raised by the respondents.

22. In view of the said fact, the order of the Division Bench of the High

Court dated 28.5.2012 is set aside. The suit is decreed for

recovery of Rs.96,41,765.31 and future interest on the principal

sum of Rs.71,82,266/- @9% p.a. from the date of filing of the suit

till realisation. The appeal is thus hereby allowed.



DECEMBER 16, 2021.



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