Penalty for alleged diesel diversion cannot rest on surmise without proof of misuse of the recognition certificate.

Penalty under Section 4-B(5) of the U.P. Trade Tax Act was said to be unsustainable where the only basis was alleged excess procurement of diesel without material proving misuse of the recognition certificate. The text notes that the assessee purchased diesel against Form III-B for use in generator sets running plant and machinery for khandsari sugar manufacture, and that the Tribunal inferred diversion merely from the quantity purchased. It states that, absent evidence of private use or use for a non-manufacturing purpose, misuse could not be found on surmise. The penalty order was therefore not sustainable on the existing record and fresh adjudication was required.

---

---

Issues: Whether the penalty imposed under Section 4-B(5) of the U.P. Trade Tax Act, 1948 for alleged excess procurement and diversion of diesel oil was sustainable in the absence of material showing misuse of the recognition certificate.

Analysis: The revisionist had been granted a recognition certificate under Section 4-B(2) for purchasing diesel against Form III-B and the diesel was used in generator sets to run the plant and machinery for manufacture of khandsari sugar. The Tribunal proceeded on the basis that 175 kilo litres of diesel was far in excess of the stated requirement of 10 kilo litres and inferred that the surplus must have been diverted for other purposes. However, there was no material before the Tribunal to support a finding that the excess diesel was in fact diverted for private gain or used for a purpose different from manufacturing sugar. A conclusion of misuse and consequent penalty could not be sustained merely on surmise.

Conclusion: The penalty order was not sustainable on the existing record and the matter required fresh adjudication.

---