2020 (12) TMI 280 - HC - VAT and Sales Tax

Principles of natural justice - best judgement assessment done by ex-parte order - case of revisionist is that the manner of best judgement assessment was wholly arbitrary and illegal inasmuch as only one bill recovered or produced by the Mobile Squad was found to be non-genuine - Enhancement of taxable turnover - whether determination of turn over is commensurate to the material and evidence available on the record? - inclusion of Inter State Sales - benefit of input tax credit - HELD THAT - The jurisdiction of the Assessing Authority while taking recourse to the 'best judgement assessment' is well settled. The Supreme Court in the case of S.M. HASAN, S.T.O., JHANSI VERSUS NEW GRAMOPHONE HOUSE, JHANSI 1975 (9) TMI 177 - SUPREME COURT has categorically held that while assessing, on the basis of 'best judgement', the Assessing Authority has to make the assessment honestly and on the basis of an intelligent well-grounded estimate rather than upon pure surmises. The assessment so made while taking recourse to the 'best judgement assessment' should not be speculative or fanciful but on reasonable guess based upon the material available before the Assessing Authority. In the present case, admittedly, the one tax invoice, which was found to be fake, was of ₹ 11,970/- and solely on the basis of the said invoice, the evaded sales has been assessed at ₹ 26,15,000/- i.e. 100% of the disclosed sales. The Assessing Authority is bound to act in a rational manner while resorting to best judgement assessment in view of the facts on record it is clear that only one bill of ₹ 11,570/- was available as material to assess the evaded sales. There was nothing more before the Assessing Authority to form an opinion that sales equal to the declared sales should be determined as evaded sales - the evaded sales should be quantified as ₹ 2,61,500/- that is the 10% of the total disclosed sales for the purposes of determining in the tax liability - The liability of payment of tax shall be calculated for the year 2014-15 treating evaded sales at ₹ 2,61,500/-. Revision allowed in part.

Summary

Issues:
Assessment proceedings based on disclosed turnover, rejection of Books of Accounts, best judgment assessment, legality of enhancement of taxable turnover, imposition of tax without input tax credit benefit.

Assessment Proceedings and Best Judgment Assessment:
The case involves assessment proceedings for the Assessment Year 2013-14 where the revisionist disclosed turnover of purchases and sales. The Assessing Authority rejected the Books of Accounts based on two tax invoices collected by the Mobile Squad. The assessment was done through a 'best judgment assessment' under Section 28(2)(ii) of the U.P. Value Added Tax Act, 2008. An ex-parte order was initially passed, later recalled, and a final order was issued determining evaded purchases and sales, leading to a tax liability for the assessee.

Appellate Authority and Tribunal Decisions:
The revisionist appealed against the order, arguing that the best judgment assessment was arbitrary and illegal. The Appellate Authority upheld the assessment based on maintaining parallel bill books. However, it set aside the demand for evaded Central Sales due to lack of evidence. The Tribunal affirmed the Appellate Authority's decision, relying on precedents and rejecting the revisionist's arguments.

Substantial Questions of Law and Legal Arguments:
The revisionist raised substantial questions of law challenging the legality of enhancing taxable turnover, arbitrary assessment, and imposition of tax without input tax credit benefit. The revisionist's counsel argued that the Assessing Authority's powers under Section 28(2)(ii) should be exercised cautiously and not arbitrarily. They cited relevant judgments emphasizing the need for assessments to be based on evidence and proportionate to the undisclosed turnover.

Judgment and Conclusion:
The High Court analyzed the arguments and legal precedents cited by both parties. It held that the assessment based solely on one fake invoice was arbitrary. Considering the principles governing best judgment assessments, the Court determined the evaded sales at 10% of the disclosed sales, amounting to &8377; 2,61,500. Consequently, the tax liability for the year 2014-15 was calculated based on this revised assessment. The Court partly allowed the revision, answering the substantial questions of law in favor of the revisionist.

This detailed analysis of the judgment covers the issues involved, the legal arguments presented, and the High Court's decision based on the principles of law and relevant precedents.