2015 (1) TMI 233 - HC - VAT and Sales Tax

Court Upholds Denial of Tax Credit, Remands Penalty Decision for Review

MADHAV STEEL CORPORATION Versus STATE OF GUJARAT

The High Court upheld the Tribunal's decision to deny input tax credit and remand the penalty issue for reconsideration. The Tribunal's findings were ... Denial of input tax credit on the ground that registration certificate of the supplier has been cancelled ab initio - Necessary proofs to establish the genuineness and bonafide of purchases – Assessee contended that since vendors' registration was cancelled subsequently, the genuine transactions on which tax credit was claimed in the year 2006-07, could not be disallowed merely because the registration certificate of the said vendor was cancelled retrospectively – Held that:- When the appellant/s – dealer/s have failed to satisfy/prove the actual physical movement of the goods alleged to have been purchased by them from the aforesaid two vendors on which the input tax credit have been claimed and when the sale transactions are found to be not genuine and it appears that there were only billing activities, no error has been committed by the AO as well as Tribunal in denying the input tax credit - the input tax credit has / have been denied also on the ground that the respective appellant/s – dealer/s have failed to prove the actual physical movement of the goods alleged to have been purchased by them from the aforesaid vendors and therefore, it is held that there was no actual physical movement of the goods and therefore, the sale transaction is/are not genuine and it was only billing activities to defraud the government - Decided against petitioner assessee. Dismissal of appeal by JC on account of non-payment of pre-deposit - Whether the Tribunal was right in deciding the appeal when the Joint Commissioner had not passed the appeal on merits but dismissing it only for non-payment of pre-deposit – Held that:- The similar issue has been decided in RG SCRAP TRADERS Versus STATE OF GUJARAT [2015 (1) TMI 221 - GUJARAT HIGH COURT] wherein it was held that the Tribunal ought not to have entered into the merits of the case and / or decided the appeals on merits against the order of assessment - when the appellant made submissions on merits against the order of assessment as if the appeals before the Tribunal were against the order of assessment and when the Tribunal has dealt with and considered the same and decided the appeals on merits and when appellant has lost in the appeals on merits, thereafter it not open for the appellant now to make the grievance that the Tribunal ought not to have decided the appeals on merits – thus, it is not open for the appellant now to raise a grievance that the Tribunal ought not to have entered into the merits of the case and dismissed the appeals on merits, when the submissions were made before the Tribunal as if appeals are on merits against the order of assessment also and more particularly, when the appellants have lost on merits. No error has been committed by the Tribunal in entering into the merits of the case and even considering the appeal/s on merits against the order of assessment passed by the DC - as such by judgment and order, the Tribunal has partly allowed the second appeals and has quashed and set aside the order of assessment passed by the AO insofar as imposing maximum penalty is concerned and has remanded the matter to the AO - the judgment and order passed by the Tribunal is partly in favour of the appellant – dealer against which the appellant/s have not made any grievance - no error has been committed by the learned Tribunal in entering into the merits of the case and decided the appeal on merits and against the order of assessment passed by the AO – Decided against petitioner. Issues Involved:1. Whether the Tribunal was right in deciding the appeal when the Joint Commissioner had not passed the appeal on merits but dismissed it only for non-payment of predepositRs.2. Whether the Tribunal has the power to decide the appeal when there is no order on merits passed by the appellate authorityRs.3. Whether the Tribunal was correct in not following the judgment of the Supreme Court regarding billing activity and tax liabilityRs.4. Whether the Tribunal was correct in holding that the appellant was not entitled to input tax credit under Section 11 due to the vendor's registration being canceled ab initioRs.5. Whether the Tribunal correctly appreciated and accepted the evidence provided by the appellant to prove the genuineness of the purchasesRs.6. Whether the Tribunal was correct in not following the judgments relied upon by the appellantRs.7. Whether the Tribunal was right in remanding the issue of penalty for a fresh orderRs.8. Whether the Tribunal's decision is perverse and contrary to the evidence on recordRs.Detailed Analysis:1. Tribunal's Decision on Appeal Dismissal for Non-payment of Predeposit:The Tribunal was correct in addressing the merits of the case despite the appeal being dismissed by the Joint Commissioner for non-payment of predeposit. The appellant had challenged both the assessment order and the dismissal for non-payment of predeposit. The Tribunal considered the merits of the assessment order because the appellant made elaborate submissions on the merits and requested relief against the assessment order. This approach was upheld by the High Court, referencing a similar case where the Tribunal's consideration of merits was deemed appropriate when the appellant invited such a decision.2. Tribunal's Power to Decide Appeal Without Merits Order from Appellate Authority:The Tribunal had the power to decide the appeal on merits even though the Joint Commissioner had dismissed the appeal for non-payment of predeposit. The High Court noted that the appellant had challenged the assessment order and made submissions on merits before the Tribunal, which justified the Tribunal's decision to address the merits of the case.3. Non-following of Supreme Court Judgment on Billing Activity:The Tribunal did not err in its decision by not following the Supreme Court's judgment regarding billing activity and tax liability. The Tribunal and the Assessing Officer found that the transactions in question were not genuine and were merely billing activities without actual movement of goods. This finding was based on evidence and was upheld by the High Court.4. Denial of Input Tax Credit Due to Vendor's Registration Cancellation:The Tribunal was correct in denying input tax credit under Section 11 on the grounds that the vendor's registration was canceled ab initio. The High Court upheld this decision, noting that the appellant failed to prove the actual physical movement of goods, which is essential for claiming input tax credit. The cancellation of the vendor's registration further supported the finding that the transactions were not genuine.5. Appreciation and Acceptance of Evidence:The Tribunal correctly appreciated and accepted the evidence provided by the appellant. The High Court reviewed the documentary evidence, including invoices, weigh bridge receipts, stock registers, and bank statements, and found that the appellant failed to prove the actual physical movement of goods. The Tribunal's decision to deny input tax credit based on the lack of evidence of genuine transactions was upheld.6. Non-following of Judgments Relied Upon by Appellant:The Tribunal was correct in not following the judgments relied upon by the appellant. The High Court noted that the Tribunal and the Assessing Officer had specific findings of fact based on evidence that the transactions were not genuine. The judgments cited by the appellant were not applicable to the specific facts and evidence of this case.7. Remanding the Issue of Penalty for Fresh Order:The Tribunal was right in remanding the issue of penalty for a fresh order. The High Court upheld the Tribunal's decision to quash and set aside the orders imposing maximum penalties and remand the matter to the Assessing Officer for reconsideration. The Tribunal found that the Assessing Officer had not provided adequate reasoning for the imposition of such high penalties.8. Tribunal's Decision and Evidence on Record:The Tribunal's decision was not perverse or contrary to the evidence on record. The High Court found that the Tribunal and the Assessing Officer had correctly assessed the evidence and concluded that the transactions were not genuine. The appellant failed to provide sufficient evidence to prove the actual physical movement of goods, supporting the finding that the transactions were merely billing activities.Conclusion:The High Court dismissed the appeals, upholding the Tribunal's decision to deny input tax credit and remand the issue of penalties for fresh consideration. The Tribunal's findings were based on substantial evidence, and the appellant failed to prove the genuineness of the transactions. The High Court also dismissed the civil applications in view of the dismissal of the main tax appeals.