2025 (12) TMI 359 - HC - VAT / Sales Tax

Penalty under Section 13-A(4) quashed for lack of evidence of unrecorded sale or intent to evade tax

M/s Godrej Sara Lee Limited Versus Commissioner of Commercial Tax

HC allowed the revision and set aside the penalty imposed u/s 13-A(4) of the U.P. Trade Tax Act, 1948. It held that mere seizure of goods and a ... Imposition of penalty u/s 13-A(4) of the U.P. Trade Tax Act, 1948 - transaction in question was duly disclosed in the monthly return and this fact was not rebutted or disputed by the lower authority - challan no. was hand written and not printed and by presuming that such challan cannot be verified whereas the law does not contemplate such a presumption - confirmation of quantum of penalty at maximum rate i.e. @ 40% of the value of goods, when maximum penalty requires justifiable reasons - HELD THAT:- While passing the penalty order dated 30.11.2005 the said fact has neither been noticed nor any order has been passed on the said basis that the monthly return in August 2004 was filed after disclosure of monthly sales. The record does not show that after detention or seizure of the goods, any inspection or survey was conducted at the business premises of the revisionist to verify the authenticity of the transaction in question. The State authorities are duly equipped with SIB, Flying Squad/Mobile Squad in every cities. When the seizure was made, the authorities ought to have inspected the business premises of the revisionist to verify the genuineness of the transaction as to whether the same were duly recorded in the books of account or not. In the case in hand, nothing has been brought on record to show any inspection/survey was conducted after the seizure of the goods. 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 cases of M/s Randeep Singh Steel Private Limited [2025 (11) TMI 1332 - ALLAHABAD HIGH COURT] and M/s Sonu Metal Store [2025 (12) TMI 216 - ALLAHABAD HIGH COURT] has specifically held that no adverse inference can be drawn against the revisionist as 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 account or not. 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 imposition of penalty under section 13-A(4) of the U.P. Trade Tax Act, 1948 was legally sustainable when the transaction in question was disclosed in the monthly return and there was no material to establish that it was not recorded in the books of account. (2) Whether, for initiating and sustaining penalty proceedings under section 13-A(4), the authority must reach a definite conclusion regarding intention to evade tax and non-recording of the transaction in the books of account, supported by inspection, survey, search, or assessment. (3) Whether the Tribunal was justified in affirming the penalty, including at the maximum rate, in absence of any evidentiary basis such as survey/inspection or provisional assessment, and by drawing adverse inference merely from seizure and alleged irregularities in documents. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Sustainability of penalty under section 13-A(4) where transaction disclosed in monthly return Interpretation and reasoning: (a) The penalty proceedings under section 13-A(4) were initiated on the premise that relevant entries of the seized goods were not made in the books of account. (b) In reply to the show cause notice, the assessee specifically asserted that the invoice relating to the seized goods had already been disclosed in the monthly sales return for August 2004, under the expression 'no tax value' as the product was claimed to be exempt under a specified exemption notification. A copy of the return and sales tax register was furnished. (c) While passing the penalty order, the authority did not notice, consider, or return any finding on the assessee's specific plea that the transaction had been disclosed in the monthly return for August 2004. (d) There was no material on record to demonstrate that, after detention or seizure of the goods, the department undertook any inspection, survey, or verification at the assessee's business premises to check whether the transaction was or was not recorded in the books of account. (e) The Court noted that State authorities possess investigative machinery such as SIB, Flying Squad/Mobile Squad, and that, ordinarily, books of account are verified at the time of assessment or provisional assessment; yet neither survey/search nor provisional assessment was initiated in this case. (f) The Court, relying on earlier decisions, reiterated that no adverse inference can be drawn merely on the basis of seizure of goods when there is no follow-up survey or inspection to verify entries in the books. Conclusions: (g) The inference that the transaction was not recorded in the books of account, drawn solely from seizure of the goods and without verification of books or return, was held to be unjustified. (h) In the absence of material rebutting the assessee's disclosure in the monthly return, imposition and confirmation of penalty under section 13-A(4) were held to be unsustainable in law. Issue (2): Requirement of definite conclusion on intention to evade tax and non-recording in books for initiation of penalty under section 13-A(4) Legal framework (as discussed): (a) The Court proceeded on the basis that proceedings under section 13-A(4) are penal in nature and must be founded on a definite conclusion that the transaction was not duly recorded in the books of account with intention to evade payment of tax. Interpretation and reasoning: (b) The Court held that, for initiation of proceedings under section 13-A(4), the authority must first reach a definite conclusion that there existed an intention to evade tax and that the transaction was consequently not duly recorded in the books. (c) Such a conclusion must be grounded in some material, such as inspection, survey, search, or at least a provisional assessment conducted immediately or in close proximity to the seizure, to verify whether the transaction was entered in the books. (d) In the present case, there was no survey, search, or provisional assessment, nor any immediate verification of the assessee's books of account, and thus no evidentiary foundation for inferring either non-recording or intention to evade. (e) The Court characterised the Tribunal's finding that the transaction was not recorded in the books at the relevant time of movement of goods as 'perverse,' as it was unsupported by any material or verification exercise by the department. (f) The Court further held that such a finding could be justified only if the department had carried out a survey/search or passed a provisional assessment order immediately after the seizure. Conclusions: (g) In absence of any material-backed, definite conclusion about intention to evade tax and non-recording of the transaction, initiation and continuation of penalty proceedings under section 13-A(4) were held to be unjustified. (h) The foundational requirement for invoking section 13-A(4) was found to be lacking, vitiating the penalty orders. Issue (3): Justification for affirming penalty and its quantum in absence of evidentiary basis and on the basis of seizure/documents alone Interpretation and reasoning: (a) The Tribunal had affirmed the imposition of penalty at the maximum rate (40% of the value of goods) without recording any specific, cogent reasons correlating with material on record. (b) The Court stressed that the department's case rested essentially on seizure of goods and an unverified assumption that the transaction was not recorded, without any subsequent survey, search, inspection, or provisional assessment. (c) The Court noted that the penal consequence, particularly at the maximum rate, could not be justified merely on presumptions or on the basis of seized documents without verification of the assessee's accounts and returns. (d) The Court relied on the principle, reaffirmed in earlier judgments, that no adverse inference should be drawn against the assessee regarding non-recording of transactions in books unless the department conducts an immediate survey or inspection to verify the factual position. (e) On this factual and legal foundation, the Tribunal's affirmation of the penalty was held to rest on a perverse finding, lacking evidentiary support. Conclusions: (f) The affirmation of penalty, particularly at the maximum rate, was held to be legally unsustainable in the absence of any material justifying either the existence of an intention to evade tax or the non-recording of the transaction in the books. (g) The impugned orders of penalty and the Tribunal's order confirming them were set aside in their entirety, and the questions of law were answered in favour of the assessee and against the Revenue.