2025 (12) TMI 216 - HC - VAT / Sales Tax

Penalty under s. 48(5) UP VAT Act quashed; suspicion alone cannot prove unrecorded sales or tax evasion

M/s Sonu Metal Store Versus The Commissioner Of Commercial Tax U.P., Lucknow

HC allowed the revision and set aside the penalty imposed under s. 48(5) of the UP VAT Act. It held that once the authorities themselves accepted that ... Detention of vehicle - levy of penalty u/s 48 (5) of UP VAT Act - penalty imposed u/s 48 (5) of the UP VAT Act in spite of the dealer having produced all the documents before them before passing the penalty order - no intention to evade tax - non-application of mind to the prima facie merit of the case at the time of deciding the first appeal - HELD THAT:- The proceedings against the revisionist have been initiated under Section 48 (5) of the Act and penalty has been imposed. The authorities have recorded a finding of fact that the entries have been made just to compound the seizure proceedings. Once the finding has been recorded that the entry has been made in the books of account, no adverse inference can be drawn against the revisionist, as the case in hand, nothing has been brought on record to show that immediately after seizure, any survey or inspection was conducted at the business premises of the revisionist to verify as to whether due entries were made in the books of accounts of the revisionist. 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 order cannot be sustained in the eyes of law. The same are hereby set aside - revision allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether detention of goods and imposition of penalty under Section 48(5) of the U.P. VAT Act were legally justified in the absence of a definite finding of intention to evade tax. 1.2 Whether penalty under Section 48(5) could be sustained when the transaction was recorded in the books of account and the department conducted no survey, search, or provisional assessment to establish omission or manipulation. 1.3 Whether the Tribunal's affirmation of penalty, based solely on seizure and suspicion without supporting material, amounted to a perverse finding. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Justification for detention and penalty under Section 48(5) of the U.P. VAT Act Legal framework (as discussed) 2.1.1 The Court proceeded on the basis that proceedings under Section 48(5) require a definite conclusion that (i) the transaction in question has not been duly recorded in the books of account, and (ii) such non-recording was with an intention to evade payment of tax. 2.1.2 The Court relied on its earlier decisions holding that mere suspicion or doubt is not sufficient for levying penalty under Section 48(5); there must be clear material establishing intention to evade and omission from the books of account. Interpretation and reasoning 2.1.3 The authorities had imposed penalty on the basis that, at the time of interception, no documents were produced and the driver initially described the goods as cloth whereas, on physical verification, they were found to be copper. This was treated by the department as indicative of an intention to evade tax. 2.1.4 The assessing authority concurrently recorded a finding that the relevant entries were made in the books of account after the seizure order, allegedly to facilitate compounding of seizure proceedings. 2.1.5 The Court held that once a finding exists that the entries have been made in the books of account, no adverse inference can be drawn merely on suspicion without independent verification at the business premises. 2.1.6 It was emphasized that the normal statutory mechanism for verification of books is through assessment or provisional assessment, and that, in appropriate cases, survey or search may be undertaken to verify whether entries existed at the relevant time. 2.1.7 In the present case, no provisional assessment proceedings were initiated and no survey or search was conducted immediately after seizure to verify whether the transaction had in fact been omitted or was subsequently entered in the books. 2.1.8 The Court found that the inference that entries were made 'just to compound the seizure proceedings' rested solely on the fact of seizure and was unsupported by any contemporaneous verification or material. 2.1.9 Referring to prior precedent, the Court reiterated that, for initiation and sustenance of penalty proceedings, there must be a definite conclusion of intention to evade tax coupled with non-recording of the transaction in the books, and that mere suspicion arising from seizure circumstances does not meet that standard. Conclusions 2.1.10 Detention of goods and imposition of penalty under Section 48(5) solely on the basis of interception, inconsistent statement of the driver, and subsequent seizure, without establishing by concrete material that the transaction was unrecorded with an intention to evade tax, were held to be unjustified. 2.1.11 The essential statutory precondition of a definite finding of intention to evade tax and non-recording in the books of account was not satisfied; consequently, initiation and continuation of penalty proceedings under Section 48(5) could not be sustained. 2.2 Effect of recording the transaction in books of account and absence of departmental verification Interpretation and reasoning 2.2.1 The Court noted the concurrent finding of the authorities that the transaction had been entered in the books of account, albeit with an allegation that such entry was made post-seizure. 2.2.2 It held that, in the absence of any survey, search, or provisional assessment conducted immediately after seizure, there was no evidentiary basis to conclude that the transaction was not recorded at the material time of movement of goods. 2.2.3 The Court observed that it is a matter of common knowledge that the books of account are ordinarily verified at the stage of assessment or provisional assessment. No such steps having been taken, the department could not rely merely on conjecture as to the timing of the entry. 2.2.4 The inference that entries were made only 'just to compound the seizure proceedings' was held to be speculative and not supported by any independent check of the assessee's accounts or business premises. 2.2.5 Applying the principle that 'mere suspicion or doubt cannot be justified' for levy of penalty, the Court concluded that the absence of any verification exercise rendered the finding of non-recording or belated recording unsustainable. Conclusions 2.2.6 Where the department itself accepts that entries exist in the books of account but fails to conduct any survey, search, or provisional assessment to establish that such entries were absent at the relevant time or made belatedly with intent to evade, no adverse inference can lawfully be drawn against the dealer. 2.2.7 In the absence of such verification, penalty under Section 48(5) based on an assumed belated entry in the books is legally unsustainable. 2.3 Perversity of the Tribunal's findings and sustainability of the impugned orders Interpretation and reasoning 2.3.1 The Tribunal upheld the penalty on the premise that the dealer had not recorded the transaction in its books of account at the relevant time of movement of goods, thereby implying an intention to evade tax. 2.3.2 The Court held this to be a perverse finding, as there was no material on record-such as survey, search, or immediate provisional assessment-to show that the transaction was omitted from the books at the relevant point of time. 2.3.3 The Tribunal's conclusion was found to rest solely on seizure circumstances and suspicion, contrary to the settled requirement of a definite conclusion based on material that there was intentional non-recording of the transaction. Conclusions 2.3.4 The findings of the Tribunal regarding non-recording of the transaction and intention to evade tax were characterized as perverse and unsupported by evidence. 2.3.5 The orders imposing and affirming penalty under Section 48(5) were held erroneous and unsustainable in law and were accordingly set aside. 2.3.6 The questions of law were answered in favour of the dealer and against the revenue, and the revision was allowed.