2020 (11) TMI 794 - HC - VAT and Sales Tax

Input Tax Credit - illegal transaction - reopening of assessment - reasons to believe - Section 29(1) of the VAT Act - HELD THAT - There is no contention as to why and how the proceedings could be initiated without even recording any reasons to believe merely relying upon the Tax Audit report. Even otherwise the findings recorded in the Tax Audit report had to be controverted by the assessee, which the assessee did by filing the relevant affidavits and documents before the first Appellate Authority and thus no fault could be found with the said procedure. Even otherwise as the Tribunal has recorded that entire exercise was revenue neutral and there is no ground to suggest that the said finding is any way perverse or erroneous, no question of law, much less a substantial question of law arises for consideration by this Court. Revision dismissed.

Summary

Issues:
Challenging Tax Tribunal's judgment on assessment year 2014-15 under the U.P. Value Added Tax Act based on Tax Audit report without recording "reasons to believe."

Analysis:
The revision was filed challenging the Tax Tribunal's judgment on the assessment year 2014-15 under the U.P. Value Added Tax Act. The respondent was alleged to be involved in the purchase and sale of edible oil. Initially, the dealer's assessment was accepted under the deemed scheme, but it was later recalled based on a report from the office of the Joint Commissioner Tax Audit. The Assessing Authority created a demand of ?6,67,30,781 under Section 29(1) of the Act. Subsequently, the assessment was reopened, and the tax recoverable from the dealer was assessed at ?6,35,44,426. The entire process was based on the Tax Audit report.

The respondent filed a First Appeal, presenting evidence of goods transportation during the appeal hearing. The Appellate Authority allowed the appeal, citing that initiating assessment solely on the Tax Audit report without "reasons to believe" was legally flawed. The respondent's evidence was accepted, leading to the allowance of the appeal.

The revisionist appealed to the Commercial Tax Tribunal against the Appellate Authority's decision. The Tribunal noted the absence of "reasons to believe" in initiating the assessment solely based on the audit report. Considering the specific evidence provided by the respondent and the revenue neutrality of the exercise, the Tribunal dismissed the appeal. The Tribunal highlighted that the dealer had paid the tax due on purchases from unregistered dealers.

In the High Court, the Department's counsel argued that the proceedings were initiated based on discrepancies in truck numbers revealed in the Tax Audit report. However, the Court found no justification for initiating proceedings without "reasons to believe" and upheld the acceptance of evidence by the Appellate Authority. The Court agreed with the Tribunal's finding of revenue neutrality and deemed the decision not to raise any substantial question of law. Consequently, the revision was dismissed.