2018 (12) TMI 541 - HC - VAT and Sales Tax

Undisclosed sales turnover - Rejection of books of accounts - rejection solely on the ground that the account books and the stock register could not be produced during the survey conducted on 21.04.2012 - Held that - There does appear to exist undisclosed stock having been discovered by the authorities on 21.04.2012 during the course of survey proceedings. Though, the quantity of excess/undisclosed stock discovered during that survey may itself not be such as may justify the total enhancement made to the turnover, however, it cannot be lost sight that in the present case, the assessee was found to have been indulged in purchase/manufacture and sale of goods outside its regular books of accounts. The books of accounts were not produced on the date of survey and the finding with respect to the shortage and excess in the stock appears to be based entirely on facts, the further finding recorded by the authorities that the assessee had engaged in concealment of his turnover does not appear to suffer from any perversity - the rejection of books of accounts was rightly upheld. Estimation of turnover - Held that - Though, the goods are claimed to be excisable goods and it is further claimed that there is no other material to establish concealment of turnover, the authorities appear to have rightly considered the electricity consumption disclosed by the assessee itself in the earlier year. In the given facts of the case, the same does not appear to be irrelevant or arbitrary. Consumption of electricity - Held that - The assessee having remained engaged in the same activity in the earlier years, and the manufacturing activities have also been the same, the consumption of electricity, in such facts, offered a fair basis to make a guess of the estimated turnover - in the present case, rejection of books of account was made on valid basis. Therefore, the authorities have not erred in looking into the electricity consumption for the purpose of making an estimation of concealed turnover. The presentation arising on account of excisable nature of goods stood rebutted by discovery of undisclosed stocks. Benefit of purchase tax - Held that - Once the assessee deposits the tax on estimated purchase, he would be entitled for the corresponding benefit against payment of tax on turnover of sale. Revision disposed off.

Summary

Issues:
1. Rejection of account books during survey.
2. Estimation of purchase and sale of goods.
3. Benefit of Input Tax Credit (ITC).

Analysis:

Issue 1: Rejection of account books during survey
The applicant argued that the rejection of account books solely based on non-production during the survey was hyper-technical. The books were produced the next day and found to be maintained properly. The discrepancy in stock was noted on an estimated basis during the survey, which the applicant claimed to be negligible. However, the Standing Counsel contended that excessive purchase and sale recorded after the survey led to the rejection of account books. The court found undisclosed stock during the survey and concluded that the rejection of account books was justified due to the concealment of turnover.

Issue 2: Estimation of purchase and sale of goods
The applicant claimed that the estimation of purchase and sale was disproportionate and not related to the material found during the survey. They argued that electricity consumption should not be the basis for estimation, citing a previous court decision disapproving such a method. The court noted that the discrepancy in stock on a single day might not justify estimating the total turnover for the year. However, considering the undisclosed stock and the past activity of the assessee, the consumption of electricity was deemed a fair basis for estimating turnover. The rejection of account books was considered valid, and the estimation of turnover based on electricity consumption was upheld.

Issue 3: Benefit of Input Tax Credit (ITC)
The applicant sought the benefit of ITC on the tax imposed on the estimated enhancement of purchase of goods/raw material. The Standing Counsel agreed that once the tax on estimated purchase was paid, the applicant would be entitled to the corresponding benefit against the tax on the turnover of sale. The court acknowledged this agreement and disposed of the revision accordingly.

In conclusion, the court upheld the rejection of account books, justified the estimation of turnover based on electricity consumption, and confirmed the benefit of ITC on the tax paid for estimated purchases.