2016 (7) TMI 787 - HC - VAT and Sales Tax

Levy of penalty - offences of failure to maintain proper accounts and failure to keep true and correct accounts - Inability to produce their books of accounts for verification during inspection - Subsequently the regular books of accounts were called for and on inspection of the books of accounts that were produced variation in stock was found - Held that - when the responsibility of maintaining true and accurate accounts disclosing the stock is entirely on the assessee the First Revisional Authority could not have directed the intelligence officer to arrive at the opening stock on the basis of the accepted stock of any previous year and taking the purchase and sale. Such an order passed by the First Revisional Authority is certainly an order prejudicial to the interest of the revenue as contemplated under Section 37 of the KGST Act entitling the commissioner of commercial taxes to exercise his powers thereunder. - Levy of penalty confirmed.

Summary

Issues:
1. Invocation of power under Section 37 by Commissioner of Commercial Taxes.
2. Penalty imposition based on estimation by Intelligence Officer.
3. Justification of setting aside Annexure-B order by Commissioner.
4. Interpretation of "prejudicial to the revenue" under Section 37 of KGST Act.

Issue 1: Invocation of power under Section 37 by Commissioner of Commercial Taxes
The appeal was filed against Annexure-C order passed by the Commissioner of Commercial Taxes under Section 37 of the KGST Act. The Commissioner invoked his power under Section 37 after finding the order passed by the First Revisional Authority prejudicial to the revenue. The Commissioner set aside the previous order and directed the intelligence officer to pass fresh orders after providing the assessee with a reasonable opportunity of hearing. The Commissioner's decision was based on the assessee's failure to maintain daily stock registers, hindering the verification of stock with purchase and sale documents. The order highlighted the dealer's statutory responsibility to maintain accurate accounts, emphasizing the importance of supporting evidence for the details of opening stock. The Commissioner held that the First Revisional Authority's order was erroneous and prejudicial to revenue, justifying the exercise of power under Section 37.

Issue 2: Penalty imposition based on estimation by Intelligence Officer
The Intelligence Officer found a variation in stock during inspection due to the absence of documentary evidence regarding the opening stock of goods. Consequently, the officer quantified the variation, worked out the turnover, and imposed a tax effect and penalty on the assessee. The First Revisional Authority held that the penalty was based on wild estimation and directed the officer to quantify the opening stock accurately. However, the Court disagreed with this reasoning, stating that the officer's quantification exercise was not estimation but a legitimate calculation based on available documents provided by the assessee. The Court emphasized that the responsibility of maintaining accurate accounts lies with the dealer, and the officer's actions were justified. The Court deemed the interference by the First Revisional Authority as erroneous and prejudicial to revenue, upholding the penalty imposed by the Intelligence Officer.

Issue 3: Justification of setting aside Annexure-B order by Commissioner
The Deputy Commissioner's Annexure-B order confirmed the findings of the Intelligence Officer regarding the offense and directed a reevaluation of the opening stock calculation. However, the Commissioner found this order prejudicial to revenue and set it aside under Section 37 powers. The Commissioner's decision was based on the lack of supporting evidence for the opening stock details provided by the assessee during verification. The Commissioner emphasized the importance of maintaining daily stock registers and accurate accounts, highlighting the dealer's failure in this regard. The Commissioner's decision to set aside the Annexure-B order was justified to ensure proper enforcement of tax laws and revenue protection.

Issue 4: Interpretation of "prejudicial to the revenue" under Section 37 of KGST Act
Section 37 of the KGST Act empowers the Commissioner to revise orders deemed prejudicial to revenue. The term "prejudicial to the interest of the revenue" was interpreted by the Court, stating that orders not in accordance with the law leading to unrealized revenue fall under this provision. In this case, the Court found that the Intelligence Officer's actions were lawful and based on quantification rather than estimation. The Court emphasized the dealer's responsibility to maintain accurate accounts and stock records, dismissing the argument that the penalty imposition was based on estimation. The Court upheld the Commissioner's decision to set aside the previous order, highlighting the importance of revenue protection and proper enforcement of tax regulations.

In conclusion, the Court dismissed the appeal against the Annexure-C order, upholding the Commissioner's decision under Section 37 of the KGST Act as justified and in the interest of revenue protection.