2007 (10) TMI 593 - HC - VAT and Sales Tax

Misuse of the eligibility certificate - Penalty under section 13A(4) of the U.P. Trade Tax Act, 1948 - Held that - Merely on the ground that the goods were found packed in a packing material in which the name of M/s. Grossav Industries, Noida was mentioned from such isolated case, it has been inferred that the applicant was found selling goods manufactured by M/s. Grossav Industries, Noida on the garb of the eligibility certificate does not appear to be justified. It was explained that both the applicant as well as M/s. Grossav Industries, Noida were purchasing packing material from M/s. Kriti Krafts, Delhi and inadvertently M/s. Kriti Krafts, Delhi had dispatched such packing material of M/s. Grossav Industries, Delhi to the applicant. Certificate of M/s. Kriti Krafts, Delhi in this regard was filed. In the certificate issued by M/s. Grossav Industries, Noida they have denied the ownership of the impugned goods. The possibility of dispatch of the goods manufactured by the applicant in the packing material in which the name of M/s. Grossav Industries, Noida was printed inadvertently cannot be overruled.There is no material on record that the impugned goods was not the manufactured goods of the applicant and was the manufactured goods of M/s. Grossav Industries, Noida.The entire allegation is merely based on surmises, conjuncture and suspicion. Revision allowed. In favour of assessee.

Issues Involved:
1. Misuse of Eligibility Certificate
2. Inadvertent Use of Incorrect Packing Material
3. Validity of Eligibility Certificate Issuance
4. Timing and Justification of Proceedings
5. Evidence of Manufacturing and Tax Evasion

Issue-wise Detailed Analysis:

1. Misuse of Eligibility Certificate:
The primary issue was whether the applicant misused the eligibility certificate by selling products manufactured by M/s. Grossav Industries, Noida, under its own name to claim tax exemption. The Commissioner of Trade Tax alleged misuse based on a vehicle inspection on March 23, 1991, where goods were found packed in boxes labeled with M/s. Grossav Industries' name. However, the court found this inference unjustified, noting that the applicant was indeed involved in manufacturing the goods for which it sought exemption, as evidenced by accepted turnover disclosures for the relevant assessment years.

2. Inadvertent Use of Incorrect Packing Material:
The applicant argued that both it and M/s. Grossav Industries purchased packing materials from M/s. Kriti Krafts, Delhi, and that the incorrect packing material was supplied inadvertently. The court considered the possibility of such a mistake, supported by certificates from M/s. Kriti Krafts and M/s. Grossav Industries, which denied ownership of the goods in question. The court found no substantial evidence to contradict this claim, emphasizing that the isolated instance of incorrect packing material did not justify the conclusion of misuse.

3. Validity of Eligibility Certificate Issuance:
The eligibility certificate was issued on May 21, 1991, despite the inspection on March 23, 1991. The court noted that if the inspection was relevant, the certificate should not have been issued. The fact that it was granted suggests that the authorities did not find the inspection findings significant enough to deny the certificate at that time.

4. Timing and Justification of Proceedings:
The proceedings to withdraw the exemption were initiated on July 29, 1995, and the exemption was withdrawn on September 17, 1996, long after the eligibility period had expired. The court criticized this delay, referencing the Supreme Court's stance in Birla Jute and Industries Ltd. v. State of M.P., which held that reviewing an eligibility certificate long after its term had expired was unjustified.

5. Evidence of Manufacturing and Tax Evasion:
The court found no evidence that the goods checked on March 23, 1991, were not manufactured by the applicant. The goods were cleared with an excise gate pass, and there was no indication that the goods did not match the bill and excise pass entries. The court highlighted that the value of the goods was minimal, making it unlikely that the applicant would risk evading a small tax amount. Additionally, no further instances of selling goods manufactured by M/s. Grossav Industries were found before or after the inspection date.

Conclusion:
The court concluded that the order of the Tribunal and the Commissioner of Trade Tax was not sustainable. The allegations of misuse were based on surmises and suspicion without substantial evidence. The revision was allowed, and the orders of the Commissioner of Trade Tax and the Tribunal were quashed.

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