2025 (11) TMI 1332 - HC - VAT / Sales Tax

Penalty under Section 48(5) U.P. VAT Act quashed for lack of evidence, suspicion alone held insufficient

M/s Randeep Singh Steel Private Limited Versus The Commissioner Commercial Tax UP Lucknow

HC set aside the penalty imposed under section 48(5) of the U.P. VAT Act, 2008, holding that the finding of improper accounting and alleged re-use of OC ... Penalty order passed u/s 48(5) of the U.P. VAT Act, 2008, by making a wrong observation that the transaction was not found properly accounted for in the account books - re-use of OC stamp - OC Stamp issued by the Department was affixed on the tax invoice, but details written in the OC stamp were not there - HELD THAT:- It is a matter of common knowledge that the books of account of the assessee are always verified at the time of assessment or the provisional assessment. In the case in hand, neither any provisional assessment proceedings were initiated, nor any survey or search was conducted at the business premises of the revisionist. Therefore, the inference drawn only on the basis of seizure of the goods that due entries were not made in the books of account cannot be justified. This Court in the case of M/s Shree Balaji Concast [2015 (11) TMI 1806 - ALLAHABAD HIGH COURT] has specifically held that for levying penalty, mere suspicion or doubt cannot be justified. For initiation of proceedings, the authority has to come to a definite conclusion that there was an intention to evade payment of tax and therefore, the transaction in question has not been duly recorded in the books of account. In absence thereof, the proceedings initiated against the revisionist cannot be justified. The Tribunal has recorded a perverse finding of fact without there being any material that the revisionist has not recorded the transaction in its books of account at the relevant time of its movement. Such finding can only be justified if the Department made a survey or search or even a provisional assessment order was passed immediately. The impugned orders passed in these revisions cannot be sustained in the eyes of law. The same are hereby set aside - revision allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under section 48(5) of the U.P. VAT Act (GST Act for purposes of these proceedings) can be sustained where it is imposed solely on the basis of seizure of goods and suspicion that an O.C. stamp was re-used or invoice numbering was manual, without any verification of books of account, survey, search or provisional assessment demonstrating that the transactions were not recorded in the assessee's accounts. 2. Whether adverse inferences about non-accounting of goods in books can be drawn where no inspection of the business premises, no verification of books contemporaneous with seizure, and no factual material establishing reuse of stamps on other invoices were brought on record. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of imposing penalty under section 48(5) based on seizure and suspicion alone Legal framework: Section 48(5) permits levy of penalty where goods found on vehicle/vessel are not accounted for in the dealer's books; penalty requires proof that the transaction was not duly recorded and, where evasion is alleged, evidence of intent to evade tax. Precedent treatment: The Court relied on prior decisions of this High Court holding that mere suspicion or doubt is insufficient for imposing penalty; authorities must arrive at a definite conclusion of non-recording or intent to evade (referenced decisions treated as followed). Interpretation and reasoning: The Court held that seizure on grounds such as alleged reuse of an O.C. stamp or manual invoice numbering may justify detention/seizure for investigation, but are inadequate by themselves to sustain a penalty under section 48(5). To impose penalty, the authority must examine and rely upon the books of account or other cogent material proving non-recording - not mere presumptions arising from the state of documents at interception. The impugned orders relied solely on presumption without any contemporaneous inspection, survey, search or provisional assessment establishing non-recording. Ratio (binding part): A penalty under section 48(5) cannot be levied on the basis of suspicion arising from seized documents alone; there must be positive material (e.g., verification of books, survey/search results, or provisional assessment) showing the transaction was not recorded or that there was an intention to evade tax. Obiter: Seizure may be justified on suspicion and to prevent evasion, and departmental techniques such as mobile/flying squads are available and appropriately used for investigation; however, such measures do not automatically substitute for proof required to levy penalty. Conclusion: The penalty imposed solely on the basis of seized invoices and suspicion was unsustainable; the Tribunal's affirmation of such penalty was perverse in the absence of material proving non-accounting. Issue 2 - Drawing adverse inference without inspection/verification and on alleged reuse of O.C. stamps Legal framework: Administrative findings that transactions are not recorded must be founded on verification procedures and evidence; adverse inference requires factual basis, not conjecture. Precedent treatment: The Court adhered to earlier rulings emphasizing need for definite conclusion and cogent material before drawing adverse inference and levying penalties; such precedents were followed to negate reliance on mere suspicion. Interpretation and reasoning: The record showed no inspection/survey/search of business premises nor any provisional assessment conducted contemporaneously with seizure. The Tribunal nonetheless held that transactions were not recorded. The Court found this to be a conclusory and perverse finding absent any verification of books or evidence that the stamped documents had been used on other invoices. Allegations that an O.C. stamp was reused or ink evaporated were insufficient without corroboration through inspection of accounts or demonstration of reuse on other tax invoices. Ratio: Adverse inferences regarding non-recording of transactions or reuse of departmental stamps cannot be drawn without supporting factual material such as inspection of books, survey/search findings, or other direct evidence; failure to undertake such steps renders findings perverse. Obiter: Departments equipped with investigative squads ought to employ available fact-finding mechanisms at the time of or immediately after seizure to substantiate allegations; absence of such action weakens the case for penalty though it may validate initial seizure. Conclusion: The finding that the transactions were not recorded, premised solely on the state of seized invoices and suspicion about stamp reuse, is unsupported; no adverse inference could properly be drawn in circumstances where no verification of books or inspection of premises occurred. Interrelation of Issues and Final Conclusion Cross-reference: Issues 1 and 2 are interlinked - imposition of penalty (Issue 1) depends on factual verification (Issue 2). The Tribunal's factual finding (Issue 2) was foundational to upholding the penalty (Issue 1), but that factual finding was held perverse for lack of evidentiary basis. Overall reasoning: While seizure of goods may be warranted on suspicion of misuse of documents or attempted evasion, statutory penal consequences require a higher evidentiary threshold. The authorities failed to perform or record investigative steps (inspection, survey, provisional assessment) that would substantiate an inference of non-accounting; reliance on mere suspicion rendered the penalty irrational and unsustainable. Final disposition: The impugned orders imposing and upholding penalty under section 48(5) were set aside. The Court answered the questions of law in favour of the revisionist and against the Revenue, holding that penalties levied on the stated grounds without verification of books or other cogent material cannot be sustained.