Transit pass compliance limits tax penalty where statutory presumption of local sale is not triggered by document defects alone

Section 28B of the U.P. Trade Tax Act raises a presumption of intra-State sale only where a vehicle in transit fails to obtain the transit authorisation at the first check-post or fails to surrender it at the exit check-post. An incorrect description in the accompanying papers, or mere doubt about the consignor, does not by itself trigger that presumption. Here, the transit pass was issued after verification and was surrendered in time at the exit check-post, with no finding that the goods were unloaded in Uttar Pradesh, that they did not tally with the documents, or that there was any intent to evade tax. On those facts, penalty under section 13A(4) was not attracted.

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Issues: Whether penalty under section 13A(4) of the U.P. Trade Tax Act was sustainable when the assessee obtained a transit pass under section 28B of the Act at the entry check-post and duly surrendered it at the exit check-post.

Analysis: Section 28B creates a presumption of sale within the State only if the vehicle in transit fails to obtain the transit authorisation at the first check-post or fails to deliver it at the exit check-post. Incorrect description in the accompanying documents, or doubt about the existence of the consignor, does not by itself attract that statutory presumption. In the present case, the transit pass was subsequently issued after verification, and it was produced at the exit check-post within time. There was no finding that the goods were unloaded within Uttar Pradesh, that the goods did not tally with the documents, or that there was any clear intention to evade tax. The subsequent issuance and surrender of the transit pass negatived the adverse inference drawn by the Department.

Conclusion: The penal provision under section 13A(4) was not attracted, and the penalty could not be sustained. The assessee succeeded.

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