2023 (4) TMI 1147 - HC - VAT and Sales Tax

Clandestine business - Ex-parte orders of assessment - suppression of sales - Business was carried on or not - presumption drawn on the basis of weighing machine - findings of the taxing authorities are based on no evidences - Whether on the facts and in the circumstances of the case, report of a particular year can be relied and made basis for assessing for previous years? HELD THAT - As a matter of fact, the Assessing Officer in support of start of business has relied upon the evidence of the inspecting officials who found that the Weights and Measures License with effect from 10.07.2000 being renewed every year and an electronic weighing machine was installed at the shop since 27.03.2000 and basing upon the confession of the dealer his daily sales was accepted by the Inspector of Sales Tax (Vigilance) at Rs. 2,000/- and estimated the total sale transaction at Rs. 6,20,000/- for 2001-02. Apart from the same, at the time of inspection, the dealer could not produce any purchase bill, purchase register confessing his unaccounted for purchase since 2000-01 and also at the time of inspection the dealer could not produce any sale bill or sale invoice before the officials. If it is the case of the petitioner that after cancellation of registration certificate he had stopped the business and could not revive the same, the Assessing Officer should not have drawn a presumption, on the basis of weighing machine said to have been purchased and obtained Weights and Measures License on 10.07.2000 and available in the premises, and the electronic machine said to have been installed at the shop since 27.03.2000, and come to a conclusion on the basis of best judgment assessment that the petitioner was engaged in clandestine nature of business during 2001-02 and accepted the Gross Turnover estimated by the Inspector of Sales Tax (Vigilance) at Rs. 6,20,000/-. On perusal of the orders passed by the assessing officer, first appellate authority and also the second appellate authority, namely, the Tribunal, it appears that no material relevance was indicated to justify the assessment of daily sales for the assessment years 2001-02, 2002-03 and 2003-04. Thereby, fixing of liability by the Assessing Officer on surmises and conjectures cannot be sustained in the eye of law. More so, if the Vigilance Officials conducted inspection in April, 2004, that material can be utilized for the assessment made in same year, i.e., 2004-05 but the same cannot be used for the assessment years 2001-02, 2002-03 and 2003-04, particularly when the petitioner had not carried out any business due to reason beyond its control. It may be pertinent to make observation that the inspection of the business premises was made on 11.08.2004 by the Vigilance personnel. On the material found available on the said date there was suggestion for determination of liability for the periods from 2000-01 to 2004-05 vide Vigilance New Case Report bearing No. 8, dated 29.11.2004. No material is placed on record by the Revenue to the effect that any of the documents suggested sale of goods during the period from 2000-01 to 2003-04 - Mere presence of weighing machine and obtaining Weights and Measures License ipso facto would not lead to construe that there was sale and the turnover exceeded the threshold limit as contained in Section 4(7) of the OST Act at any point of time during 2001-02 to 2003-04 particularly when the continuing liability fixed for the period 2000-01 was set aside by the Appellate Authority which attained finality as no second appeal was preferred thereagainst. Non-maintenance of books of account by the present petitioner-dealer, whose registration has been cancelled under Section 9(3-f) of the OST Act with effect from 01.04.1997, cannot be taken as pointer for suppression of sales so as to saddle on him the burden of tax on the specious plea that the assessee failed to discharge liability, more so when the liability fixed for the year 2000-01 was set aside by the Appellate Authority which attained finality being not questioned by the Revenue in the further proceeding. Whether there can be backward and forward projection of materials detected which are relevant to a particular assessment for the purpose of making assessment for some other year? - HELD THAT - If the assessing officer wants to do so, some material has to be brought on record to justify just projection, which is absent in the present case. Thereby, the orders so passed by the authorities cannot be sustained in the eye of law - the date when the material was discovered is not relevant. What is relevant is the nature of evidence or material discovered during inspection is the most important thing. In absence of the same, the same cannot be utilized for making assessment for other years unless their relevance to any other period is established by the Assessing Officer. The matter is remitted back to the assessing officer to make fresh assessment in adherence to the principles of natural justice and in conformity with the provisions of law - Revision allowed.

Summary

Issues Involved:

1. Whether the findings of the taxing authorities are based on no evidence and in violation of the principles of natural justice.
2. Whether the report of a particular year can be relied upon and made the basis for assessing previous years.

Issue 1: Violation of Principles of Natural Justice and Lack of Evidence

The petitioner, an unregistered dealer under the Odisha Sales Tax Act, 1947, faced ex-parte orders of assessment for the years 2001-02 to 2004-05 based on a Vigilance Report. The petitioner contended that the Assessing Officer did not apply its mind properly and relied solely on the vigilance officials' allegations without giving the petitioner an opportunity to be heard. The court noted that the Assessing Officer should not have presumed business activity based on the presence of a weighing machine and a Weights and Measures License. The court emphasized that mere presumption cannot be the basis for any assessment and that the material discovered during the inspection in 2004 could not be used for assessing previous years without establishing relevance.

Issue 2: Reliance on Report of a Particular Year for Previous Years

The court observed that the inspection conducted in August 2004 and the subsequent Vigilance Report could not be used to assess the years 2001-02 to 2003-04. The court highlighted that the liability determined for the year 2000-01 was nullified by the Appellate Authority due to a lack of evidence, and the same reasoning should apply to the subsequent years. The court concluded that the Tribunal erred in sustaining the liability for the years 2001-02 to 2004-05 based on the same material that was used for the year 2000-01.

Conclusion

The court quashed the orders of assessment for the years 2001-02 to 2004-05, as well as the orders passed by the first appellate authority and the Tribunal. The matter was remitted back to the Assessing Officer for fresh assessment in adherence to the principles of natural justice and in conformity with the provisions of law. The questions of law were answered in favor of the petitioner and against the revenue.