Gist of Trade Tax Judgments

Transit authorization-The U.P. Trade Tax Act, 1948-Section 28-B-Transit of goods through the State-Detention of goods at the exit check-post-On physical verification goods found as per Transit Authorisation- Seizure of goods illegal.

Where, on physical verification of goods at the exit check-post, 99 drums of agro-chemicals were found in accordance with goods mentioned in the Transit Authorization and goods-receipt mentioned in it, whether the Officer in charge of the exit check-post was legally justified in seizing goods on the allegation that goods were different from the goods mentioned in invoice No. 33 and delivery Note No. 34 dated 3.6.2005, which were made for 75 drums and 117 bags of agro-chemicals and which on search were recovered from the possession of the driver of the vehicle?

With the following observations, the Hon’ble Court was pleased to allow the revision filed by the ex-state dealer:

“In the present case, there is no dispute that the goods were coming from Kamrup Assam. Since they were going to Bhatinda, Punjab at the entry check post Tamkuhiraj on 13.06.2005, transit pass No. 1006 for 99 drums of Agro Chemicals weighing 5100kg valuing Rs. 59,87,142.85 paise was issued. In the transit pass G.R. No. 6401589 dated 9.6.2005 was also mentioned, which was for 99 drums. There is no dispute that at the exit check post at T.P. Nagar, Ghaziabad when the aforesaid transit pass was submitted for endorsement on 15.06.2005, on physical verification 99 drums of Agro Chemicals weighing 5100kg were found. Thus, the goods, which were found on physical verification were the same goods mentioned in the transit pass and no difference was found. The check post officer, T.P. Nagar Ghaziabad has illegally tried to connect the goods with the invoice No. 33 and delivery note No. 34, while the case of the applicant was that these two documents did not relate to the impugned goods and relate to the different transaction.

I have perused the invoice No. 33 and delivery note No. 34. None of the description of the aforesaid documents relate to the impugned goods. In the delivery note No. 34, different date of G.R. and lorry number were mentioned. The number of the drum and weight were also different. Thus, there appears to be no reason to connect the impugned goods with the invoice No. 33 and delivery note No. 34.

In view of the fact that in the present case exactly the same goods were found at the entry check post on physical verification, which were mentioned in the transit pass, the detention of the goods and subsequently seizure of the goods were patently erroneous. Both the detention and seizure of the goods were as a result of harassment on the part of the check post officer. The Tribunal has also not examined the matter judiciously, in accordance to law and based its decision on irrelevant considerations.”

Looking into the manner in which the check-post officer has dealt the case, the Hon’ble Court has passed the following order:

“In the result, revision is allowed. The order of the Tribunal and the authorities below seizing 99 drums of Agro Chemicals are set aside. Check Post Officer, T.P. Nagar, Ghaziabad is directed to release the goods forthwith without any security within three days from the date of filing of certified copy of the order. Applicant is also entitled for costs, which I assess at Rs. 20,000/- (Rs. Twenty thousand) to be paid within fifteen days. It will be open to the applicant to take appropriate action in accordance to law for the losses suffered by it.”

Penalty-The U.P. Trade Tax Act, 1948-Sections 15A(1)(O) and 28-A-Import of goods without Declaration for import of goods-At the time of interception of the vehicle, goods were not accompanied by any document-At the time of detention of goods categorical statement of employee of the dealer that the goods were being brought in U.P. from Delhi-Subsequent explanation that goods were dispatched from Noida (U.P.) to a dealer of Mathura (U.P.) and Driver was returning to Noida after taking Diesel from Delhi- Later explanation not worthy of credence in view of the categorical statement of the representative recorded earlier-Seizure and levy of penalty justified.

(i) no document was available in respect of goods being transported from Delhi to Noida;

(ii) employee of the dealer, at the time of interception of goods, had made categorical statement that goods were being carried from Delhi to Noida; and

where the dealer, in his later explanation had said that goods were consigned from Noida to Mathura and at the time of interception of goods, the driver was returning from Delhi after taking Diesel in the vehicle, whether the Tribunal was legally justified in upholding that levy of penalty was attracted?

The Hon,ble Court held levy of penalty valid but expressed that the Tribunal has not adjudicated issue of quantum of penalty. The case was remanded to the Tribunal for deciding quantum of penalty. The Hon’ble Court has observed as under:

“I do not find any substance in the argument of learned Counsel for the applicant so far as levy of penalty under Section 15-A (1)(o) of the Act is concerned. Admittedly, when the Vehicle was checked on 02.04.2002 at 8.00 P.M., the Vehicle was coming from Delhi to Noida. The person concerned Sri Dheeraj Kumar, employee of the applicant who was present, categorically stated that the goods were coming from Delhi to Noida, Bill, Builty etc. were not produced. When the employee of the applicant who was present, categorically stated that the goods were coming from Delhi to Noida, Bill, Builty etc. were not produced. When the employee of the applicant categorically stated that the goods were coming from Delhi to Noida, there was no occasion for the officer concerned to make further enquiry that from which place, the goods were loaded. The explanation of the applicant that the Vehicle had gone to Delhi for taking the diesel at a cheaper rate while the goods was being transported through the Tempo for the delivery to Laxmi Transport Company for further transportation to ST-2-709/XI-9 (53)/91-U.P. Act-15-48- Order-97 dated 27.02.1997 Mathura, cannot be accepted and inasmuch as even cash memo of the diesel could not be produced to prove that the Tempo had gone to Delhi for filling of diesel. Subsequent production of bill and explanation that the goods was being sold to Mathura party out of the stock available, appears to be after thought, and is not substantiated. In the circumstances, it is a case where an attempt was made to import the goods inside the State of U.P. without any document. On the facts and in the circumstances of the case, the inference drawn by the authorities that it was an attempt to evade tax, cannot said to be unjustified. In my view, in the facts and circumstances of the case, the Tribunal has rightly up held the penalty levied under Section 15-A (1)(o) of the Act. So far as, quantum of penalty is concerned, the Tribunal has not adjudicated the issue. Before the Tribunal, appeal was of the Commissioner of Trade Tax and after justifying the levy of penalty, the Tribunal should have adjudicated the quantum of penalty and should have justified that why the penalty at 40% which is maximum, is justified in the present case. No reason has been given in this regard. In the circumstances, the Tribunal is directed to adjudicate the issue relating to the quantum of penalty.”

Assessment after remand-The U.P. Trade Tax Act, 1948-Section 7-Case remanded by Appellate Authority-Assessment order passed by Assessing Authority-In appeal before the Tribunal against appeal order, proceedings stayed by the Tribunal on a date after date of assessment in remand case-Tribunal remanded the case to assessing authority-Assessing Authority passed second assessment order-Validity of assessment order-Tribunal of the view that first assessment order valid.

(i) the First Appellate Authority, after setting aside the assessment order, had remanded the case to the assessing authority;

(ii) the assessing authority had made assessment in the remand case before the stay of proceedings was granted in the appeal before the Tribunal; and

(iii) where the Tribunal had remanded the case to the assessing authority and assessing authority had passed second assessment order in compliance of the order of the Tribunal,

whether the Tribunal was legally justified in arriving at the conclusion that first assessment order which was passed before stay was granted was valid order and second assessment order was not a valid order?

With the following observations, the Hon’ble Court was pleased to dismiss the revision file by the Commissioner, Trade Tax:

“I do not find any error in the order dated 17th November, 1999 in which assessment order dated 27th March, 1996 has been held as a valid order and the subsequent order dated 3rd September, 1998 has been held as invalid order. In fact, order dated 27th March, 1996 was passed prior to 14th February, 1997 in pursuance of the appellate order dated 25th November, 1991. During the subsistence of the order dated 27th March, 1996 which was validly passed, there was no justification to pass the order dated 3rd September, 1998 on the dismissal of the appeal by the Tribunal. Therefore, Tribunal has rightly set aside the order dated 3rd September, 1998.”

Assessment of escaped turnover-The U.P. Trade Tax Act, 1948-Section 21-Reason to believe-Basic requirement for initiating proceedings under section -21-Information, received after assessment, about purchase of Mentha Oil from a dealer not verified from documents produced at the time of assessment-Validity of proceedings under section 21.

Where the assessing authority had received information that asseessee had certain purchased from a particular dealer and where it had found that the said purchase was not shown in the documents produced by the assessee at the time of assessment, whether the Tribunal was legally justified in holding that information received had not constituted a valid reason to believe that some turnover had escaped assessment?

With the following observations, the Hon’ble Court was pleased to allow the revision filed by the Commissioner Trade Tax:

“In the present case both the Assessing Authority and the First Appellate Authority held that there is material for initiating proceedings under Section 21 i.e. the information from the Sales Tax Officer regarding sale of 342Kg. Mentha Oil to M/s Ajmani Chemicals, Rampur which was not verifiable from the account books of the assessee. Thus in the present case the Assessing Authority formed belief after receiving the definite information regarding sale by the assessee to M/s Ajmani Chemicals, Rampur of 342kg. of Mentha Oil which was not verifiable from the account books of the assessee. The information of sale of 342kg. Mentha Oil to M/s Ajmani Chemicals, Rampur cannot be said to be irrelevant in forming the opinion by the Assessing Authority regarding escaped assessment. The proceedings were initiated under Section 21 when the authority was satisfied after receiving the information that the said is not verifiable from the account books of the assessee. The findings of the Assessing Authority were confirmed by the First Appellate Authority. The Tribunal took the view that the material accepted by the Assessing Authority was not positive material to believe that any turnover has escaped assessment to tax. The Tribunal has relied on the Division Bench judgment of this Court in M.L. Shukla & Co. vs. The Sales Tax Officer, Sector 17, Kanpur (Supra). There cannot be any dispute to the proposition as laid down by this Court in M.L. Shukla & Co. vs. The Sales Tax Officer, Sector 17, Kanpur (Supra). the Tribunal committed error in coming to the conclusion that the above information was not a positive material, on the proposition laid down by the Division Bench of this Court in the case of M.L. Shukla & Co. vs. The Sales Tax Officer, Sector 17, Kanpur (Supra) the initiation of proceedings under Section 21 were fully justifiable. No positive finding has been recorded by the Tribunal that the sale of 342kg. of Mentha Oil with regard to which information was received was verifiable from the account books of the assessee of the relevant assessment year. The Tribunal has observed that only short opportunity was allowed to the assessee. In the present case the information of sale of 342kg. of Mantha oil to M/s Ajmani Chemicals, Rampur was brought into the notice of the assessee. The assessee was well aware of the allegations and the case of the department which allegations were also replied by the assessee in reply to the show cause notice. In similar set of facts the Division Bench of this Court in (1976 UPTC 317) Commissioner of Sales Tax U.P. vs. M/s Shah Kamraj Sumer Mal and Co., Agra repelled the argument of breach of natural justice. In the aforesaid case Section 21 proceedings were initiated on the basis of extracts of another Firm Namely, M/s Kunji Lal Har Dayal which was made in favour of the assessee. The argument of the assessee regarding non compliance of the natural justice was repelled in paragraph 2 of the judgment which is being quoted below:-

:2. We shall consider the questions referred in seriatum. As appears from the supplementary statement of the case and also the original statement of the case submitted, that the extract of the entries of the account books of Firm Kunji Lal Har Dayal showing purchases of liquid gold by the assessee was made available to the assessee. The assessee did not lead and documentary evidence in rebuttal. It contended itself by leading oral evidence to deny the purchases. The Sales Tax Officer believing the documentary evidence the documentary evidence disbelieved the statement. The purchases were held to be proved on the basis of the extracts from the account books of M/s Kunji Lal Har Dayal. The assessee was not taken by surprise by the Sales Tax Officer relying on this document. In fact he had full notice of the fact that the Department was relying upon the proof of the purchases on this extract, and led evidence to rebut it. In these circumstances it cannot be said that any principle of natural justice was violated in relying upon the extracts of the account books. We are therefore of the view that there was sufficient compliance of principles of natural justice, in as much as the extracts had been made available to the assessee and it had full opportunity to disprove them”.

In view of the foregoing discussion the proceedings initiated under Section 21 were based on relevant positive material and it cannot be said to be mere change of opinion of the Assessing Authority. The question is answered accordingly.”

(B) Recognition Certificate-The U.P. Trade Tax Act, 1948-Section 4-B-Breach of conditions-Cancellation of Recognition Certificate with retrospective effect-Validity of cancellation order.

Whether the Tribunal was legally justified in upholding that Recognition Certificate, issued under section 4-B of the U.P. Trade Tax Act, 1948, could not be rejected with retrospective effect?

With the following observations, the Hon’ble Court was pleased to dismiss the revision filed by the Commissioner Trade Tax:

“The Division Bench of this Court in M/s Jitendra Oil Mills, Farrukhabad vs. State of U.P. & others (Supra) laid down following in paragraphs 3 and 4: -

“3. The fact of these writ petitions hinges on the reply of the question as to whether by means of an order, which is not a piece of legislation, can be cancelled with retrospective effect. The same question came up before this Court in the case of M/s Sivalik Cellulose Ltd., Gujarat, District Moradabad and another vs. State of U.P. & others, reported in U.P. Tax Cases 1992 (1) page 1 where in the Division Bench consisting of Hon’ble A.P. Misra and Hon’ble R.R. Misra JJ., observed as follows:-

“That the order canceling the registration certificate of the dealer to the extent that it was to have retrospective effect was illegal, but the order would be deemed to be effective from the date of service of the same on the dealer”

We respectfully agree with the observations made by the Bench in the case of Sivalik Collulose Ltd., (Supra).

Although the impugned order may have a prospective operation but such an order which has been passed with retrospective effect cannot be sustained to that extent.”

Trade Tex Revision No. 45 of 1996

Commissioner of Trade Tax, U.P. Lucknow

Inter-State and intra-state purchases-The Central Sales Tax Act, 1956- Section 3 – Purchases made by agents for ex-state Principals and dispatch of goods to Principals outside the State-Goods purchased by commission agents delivered to ex-state principals within the State-Intra-state purchases-Purchases for non-existent ex-State principals.

Where the assessing authority had treated purchases, declared by the dealers for ex-U.P. Principals, as inter-state sales on the ground that Principals were found bogus, Whether the Tribunal was legally justified in holding that if on verification some of the Ex-U.P. Principals were not traceable or found to be bogus, the dealer could not be held responsible nor the transactions entered in the books of account could be held to be wrong particularly when in some of the transactions of similar nature had been accepted by the Assessing Authority?

With the following observations, the Hon,ble Court, after allowing the revisions filed by the Commissioner Trade Tax, was pleased to remand the cases to the assessing authority:

“In my view, the order of the Tribunal and the authorities below are not sustainable and the matter requires further examination afresh by the Assessing Authority. So far as proceeding under Section 21 of the Act is concerned, the same has been held valid by the Tribunal and this question, has become final. The question for examination is whether on the facts and circumstances, the transaction can be treated as inter-State sales. It is settled principle of law that for a transaction being inter-State sales, there must be a contract between the two parties for purchase and sale and in pursuance thereof, there should be movement of goods from one State of another State. If the Ex-U.P. Principals are found to be bogus or on-existence, then the agreement between the two parties cannot exist. Now it is to be examined, whether the dealer has given the delivery of the goods inside the State of U.P. If the delivery of the goods has been given inside the State of U.P. to the alleged Ex-U.P. Principals and the claim was not of inter-State purchases, the transaction cannot be treated as inter-State sales, it can only be treated as intra-Sate sales. The transaction can only be treated as inter-State sale in case; if it is proved that there was movement of goods to outside the State of U.P. This aspect of the matter requires detailed examination afresh. Learned Counsel for the dealer contended that the information are incomplete and even in respect of the some of the Ex-U.P. Principal, it is found to be incorrect. In this view of the matter, in case, if the information is incomplete and the dealer asked for the dealer. It will open to the dealer to adduce any evidences in support of its claim.”

Burden of proof-The U.P. Trade Tax Act, 1948-Section 12-Purchases of Iron & Steel declared from registered dealer-Payment through cheques-Copy of purchase bills produced-No sales disclosed by selling dealer in the list of sales submitted-Assessing authority, treating the bills forged, assessed the sales by the purchaser to tax treating sales by him in the capacity of manufacturer-First appeal decided in favour of assessee-Tribunal allowed the appeal of the Commissioner and held that bills were forged.

Where the assessee had declared purchases of goods from a registered dealer, had made payment through checques and had produced copies of purchase Bills, whether the Tribunal was legally justified in holding that Bills were forged where it had found that no evidence was adduced to show that such amounts were credited in the account of the selling dealer?

With the following observation, the Hon’ble Court, after allowing the revision filed by the assessee, has remanded the case to the assessing authority:

“Under Section 2(ee) of the Act, are ‘artificial meaning of word ‘manufacturer’ has been given which includes a dealer who makes purchases from any other dealer not liable to tax on his sale under the Act, Section 2(ee) of the Act does not apply in case if the dealer able to prove that the dealer from whom, the purchases were made, were liable to tax on the sales. Now the question is the purchases were made, were liable to tax on the sales. Now the question is how, the aforesaid burden is to be discharged. In my view, if the dealer produces the bills relating to the purchases giving complete details of the seller including registration number etc. Initial burden of the dealer, is deemed to have been discharged. If the Revenue authority is of a different view and alleges otherwise burden shifts on the Revenue authority to prove otherwise. If the Revenue authority alleges that such bills are forged, burden lies upon the Revenue authority to prove and for that, it is open to the authorities concerned to make necessary enquiries. In the present case, in respect of purchases, dealer has produced bills of M/s Pushpanjali Traders. In the bills, complete name, address and registration number of the seller and other particular of the goods were mentioned. On enquiry, it was found that M/s Pushpanjali Traders was registered dealer, thus, merely because M/s Pushpanjali Traders was not registered in respect of Iron Steel, the bills cannot be said to be forged. Till date, Revenue has not come up with the case that such sales have not been disclosed in the books of account of M/s Pushpanjali Traders. It is the claim of the dealer that the payments were made by Cheques. Necessary details were furnished in this regard. It was open to the Assessing Authority to make enquiry as to whether such payments have been credited in the account of M/s Pushpanjali Traders or not and to examine the genuineness of the transactions are not genuine transaction, applicant may be confronted with the records of M/s Pushpanjali Traders or not and to examine the genuineness of the transactions. If it is the case of the Revenue that the bills are forged and the transactions are not genuine transaction, applicant may be confronted with the records of M/s Pushpanjali Traders and if asked for the opportunity of cross-examination, should also be given. Unless a proper enquiry is made as stated above, Bills cannot said to be forged. If the bills are produced relating to the purchases, the presumption should be that they are genuine unless contrary is proved. In the present case, it appears that proper enquiry had not been made. The Tribunal has decided the appeal on wrong facts and only on presumptions. The Tribunal has wrongly observed that the original bills have not been got verified from the books of account during the proceedings prior to remand and after the remand of the case. This observation of the Tribunal appears to be wrong. Copies of the bills are on record as mentioned in the assessment orders. It is not the case of the Assessing Authority that the original bills have not been produced and have not been got verified from the books of account. The details of payments were given by the applicant. It was open to the authorities concerned to make enquiry in this regard. Without making any enquiry, payments through the Cheques, cannot be disputed. In my view, in case if, payments were made through the Cheques to M/s Pushpanjali Traders and the amount was debited from the Bank account to the applicant and was credited in the account of M/s Pushpanjali Traders, it would be difficult to say that the transactions were not genuine. There may be a situation that M/s Pushpanjali Traders have obtained registration with intent to evade tax and had not disclosed the turnover of sales in the return or in the books of account, but for the illegal act of M/s Pushpanjali Traders, the purchasing dealer cannot be held responsible unless it is found that the purchases made by the dealer were not as a result of real transactions and a manipulation had been made on the part of the applicant. Thus, the case is being remanded back to the Assessing Officer with the direction to make proper enquiry to ascertain whether the transactions of the purchases were real and genuine transactions and if the transactions are found real and genuine, applicant cannot be held liable to tax.”