2022 (12) TMI 968 - HC - VAT and Sales Tax

Rejection of the books of accounts of the revisionist - assessment of turnover on best judgment basis on the strength of invoices which were never proved by the Department as pertaining to the revisionist - HELD THAT - It is a case where various mobile squads had sent certain material to the assessing officer who during the assessment proceedings had issued notice to the assessee to verify the said sale and purchase. There has been denial on the part of the assessee to the said transaction which has been alleged by the assessing authority. The assessing authority found that the assessee has not entered the transaction in his books of accounts and thus held that undisclosed purchase at Rs.2,30,00,000/- was made by the assessee while there was undisclosed sale to the tune of Rs.2,50,00,000/-. The burden to prove the material which was recovered by the various mobile squads was upon the Department and burden could not have been shifted upon the assessee to prove the same. Further, the assessee has denied the transaction having been made by him. Now coming to the question of Section 16 of the Act of 2008, this Court finds that the word used in Section 16 is that where a fact is in the knowledge of the assessee, then during assessment the burden of proving shall lie upon assessee. In the present case, it was the material which was recovered by the various mobile squads which was denied by the assessee and thus was not in his knowledge. Thus Section 16 of the Act of 2008 is not attracted and the argument raised from the revenue side fails - Assessee is entitled to the relief claimed and no tax liability can be fastened upon the assessee by the material which was seized by the mobile squad which remained unproved during the assessment proceedings nor at the first appellate stage. The question of law as framed stands answered in favour of the assessee and against the Department - the revisions stands allowed.

Summary

Issues:
Assessment of undisclosed purchase and sale, rejection of books of accounts, burden of proof on the assessee, legal sustainability of the Tribunal's order, interpretation of Section 16 of the U.P. Value Added Tax Act, 2008.

Assessment of Undisclosed Purchase and Sale:
The revisionist's books of accounts were rejected, leading to the assessment of undisclosed purchase at Rs.2,30,00,000 and undisclosed sale at Rs.2,50,00,000, resulting in a tax demand of Rs.23,99,993. The first appellate authority reduced the quantum of sale and purchase to Rs.69 lacs and Rs.75 lacs, respectively, and decreased the tax liability by Rs.16,80,000. Subsequently, both the revisionist and the State filed second appeals before the Commercial Tax Tribunal, which were decided together by a common order.

Rejection of Books of Accounts and Burden of Proof:
The revisionist contended that the Tribunal should have entirely favored the assessee and disputed the Tribunal's finding that the assessee should have filed a First Information Report against alleged transaction parties. The State argued that the assessing officer found certain transactions outside the books of accounts, emphasizing the burden of proof on the assessee under Section 16 of the Act. However, the Tribunal and the first appellate authority failed to explain how they reduced the quantum of purchase and sale, and the burden of proving material recovered by mobile squads rested on the Department.

Legal Sustainability of Tribunal's Order and Interpretation of Section 16:
The Court found that the Tribunal's order was unsustainable as the burden of proof was not discharged by the Department regarding the material seized by mobile squads. The Court highlighted that Section 16 of the Act places the burden on the assessee only when a fact is within their knowledge, which was not the case here. Therefore, the Court set aside the Tribunal's order, ruling in favor of the assessee and against the Department.

Conclusion:
The Court allowed the revision, concluding that no tax liability could be imposed based on unproven material seized by mobile squads. The decision favored the assessee, emphasizing the failure of the Department to discharge its burden of proof and the incorrect application of Section 16 of the Act.