2019 (5) TMI 798 - HC - VAT and Sales Tax

Levy of penalty - Recording of transaction in the books of accounts - proof of delivery / dispatch of goods - Purchase and sale of Kirana, Spices and Chemicals - no transfer invoice or challan found as prescribed under Rule 41 of VAT Rules - imposition of penalty u/s 48(5) of the VAT Act - HELD THAT - From the reading of Sub Section (5) of Section 21, it is clear and it provides that the dealer who is liable to pay tax while consigning or delivering any taxable goods to another dealer, whether as a result of sale or otherwise shall issue to the purchaser or consignee of goods a legible challan or transfer invoice - Rule 41 of the VAT Rule provides the challan or transfer invoice to be prepared so as referred under Sub Section 5 of Section 21. It is further clarified in Rule 41 as to how the challan or transfer invoice to be prepared and as to what would be contained in the said challan or transfer invoice which is required at the time of goods delivered or dispatched. From the bare perusal of the penalty order, which is confirmed by the Tribunal, there is no finding recorded by any of the authorities that any of the aforesaid conditions are not fulfilled or any of the conditions are flouted. In the instant case, it is clearly established that the goods which are purchased or sold by a registered dealers against the proper tax invoice, charging the tax plus Mandi Shulk dispatched from seller place to the cold storage on the instructions of the revisionist (purchaser) and the same are duly recorded in the register of the cold storage and the number of item namely 354 bags of Chilly was found by the (SIB) Authority, at the time of inspection held on 18.12.2014 and immediately in pursuance of the first notice issued by the (SIB) Authority, at the first stage itself, the books of accounts are produced by the Revisionist on the very date fixed, then what further remains to be placed by registered dealer - the entire proceedings namely the seizure and the consequential penalty proceedings is nothing but clearly an abuse of process of law at the hands of the respondent authorities. Rule 41 provides the challan or transfer invoice at the time of an occasion when the goods are delivered or dispatched. In the instant case, neither the goods are delivered nor the same are dispatched by the revisionist therefore, there was no occasion to prepare the challan or the transfer invoice - thus it was not a case where the penalty proceedings could legally be initiated and in fact, the Assessing Authority as well as the Tribunal were illegally and arbitrarily proceeded to impose and confirm the penalty. Revision allowed.

Summary

Issues:
1. Penalty imposed under Section 48(5) of the U.P. Value Added Tax Act, 2008.
2. Compliance with accounting and documentation requirements under Section 21(5) of the VAT Act and Rule 41 of the VAT Rules.

Issue 1: Penalty imposed under Section 48(5) of the U.P. Value Added Tax Act, 2008:

The revisionist, a registered dealer, was issued a penalty order under Section 48(5) of the VAT Act for the alleged omission of goods from accounts. The revisionist had purchased 354 bags of Chilly, duly recorded in their books, from a registered dealer and instructed the goods to be sent to a cold storage. The Special Investigating Bureau confirmed the presence of the goods at the cold storage. The penalty order was challenged through appeals, where the Additional Commissioner (Appeals) allowed the appeal, but the Tribunal upheld the penalty. The revisionist argued that the penalty was unjustified as the goods were properly accounted for and supported this claim with evidence of banking transactions and ledger accounts. The Court analyzed Section 48(5) and found no evidence of non-compliance with accounting requirements. It concluded that the penalty proceedings were an abuse of process, setting aside the Tribunal's order and allowing the revision.

Issue 2: Compliance with accounting and documentation requirements under Section 21(5) of the VAT Act and Rule 41 of the VAT Rules:

The Standing Counsel argued that the revisionist failed to produce necessary documents like challans or transfer invoices as required under Section 21(5) of the VAT Act and Rule 41 of the VAT Rules. These documents are essential when consigning or delivering taxable goods. However, the Court found this argument irrelevant in the present case. It noted that the goods were sent to the cold storage as per the purchaser's instructions, with taxes charged and recorded in the tax invoice. Since the goods were not delivered or dispatched by the revisionist, the need for challans or transfer invoices did not arise. Therefore, the Court concluded that the penalty proceedings were unjustified and set aside the Tribunal's decision.

In summary, the Court found that the penalty imposed under Section 48(5) was unwarranted as the goods were properly accounted for and there was no violation of accounting requirements. The Court also determined that the absence of specific documents like challans or transfer invoices did not affect the legality of the transaction in this case. As a result, the Court set aside the penalty order and allowed the revision, highlighting the importance of proper legal procedures and evidence in tax penalty cases.