2018 (7) TMI 399 - HC - VAT and Sales Tax

Whether the Value Added Tax Tribunal was correct in confirming the order of the Adjudicating Authority raising tax, interest and penalty demands against the assessee? Whether such tax, interest and penalty demands could have been raised on the ground that the registrations of the dealers from whom the assessee had made purchases, were cancelled with retrospective effect ignoring the evidence produced by the assessee to contend that there was actual movement of goods? Held that - It is not in dispute that when the appellant claimed to have purchased the goods from the said two dealers, their registrations were in force. The registrations were cancelled later on abinitio on the ground that they were found indulging in bogus billing activities. The Appellate Commissioner in his detailed order has noted that the said two agencies Shrinathji Industries and Umiya Industries were found to be not only dealing in bogus billing activities, but existed solely for such purpose. They claimed to be the manufacturers but had no manufacturing activity. The spot visits showed no equipments or machinery for such purpose - All in all, the Tax Authorities had concurrently found that the sole activity of the said two agencies was of giving bogus bills of purchases. They were not genuinely dealing in the goods. The case of the appellant that the agencies may be dealing in some bogus billing activities but his purchases from the said dealers were genuine was therefore not believed. These findings were accepted by the Tribunal by giving brief but independent reasons. We do not find that the Tribunal committed any error in this respect - The disentitlement of input tax credit and consequent demand of tax and interest was not on the ground that the registrations of the selling dealers which were valid when the purchases were made, were cancelled later on with retrospective effect. It was on the basis that the purchases made by the appellant from such dealers themselves were found to be nongenuine. Appeal dismissed - decided against appellant-assessee.

Issues Involved:
(I) Whether the Value Added Tax Tribunal was correct in confirming the order of the Adjudicating Authority raising tax, interest, and penalty demands against the assessee?
(II) Whether such tax, interest, and penalty demands could have been raised on the ground that the registrations of the dealers from whom the assessee had made purchases were canceled with retrospective effect, ignoring the evidence produced by the assessee to contend that there was actual movement of goods?

Issue-wise Detailed Analysis:

Issue I: Confirmation of Tax, Interest, and Penalty Demands
The Tribunal confirmed the demands for tax and interest but set aside the penalties, remanding the matter to the Assessing Officer for reexamination after proper notice and hearing. The Sales Tax Officer initially imposed tax, interest, and penalty on the assessee for purchases made from two dealers whose registrations were later canceled retrospectively due to their involvement in bogus billing activities. The Joint Commissioner of Sales Tax upheld this decision, leading to the assessee's appeal to the Tribunal, which also confirmed the tax and interest demands.

The Tribunal's decision was based on the factual findings that the two dealers were engaged solely in bogus billing activities and did not genuinely deal in goods. The Appellate Commissioner provided detailed reasons, including the lack of manufacturing activity and the inability to establish the genuineness of the cheques issued by the assessee.

Issue II: Retrospective Cancellation of Dealer Registrations
The assessee argued that the registration of the two dealers was valid at the time of purchase and that the retrospective cancellation should not affect their entitlement to input tax credit. The assessee also claimed to have provided evidence of actual movement of goods. However, the authorities and the Tribunal found that the purchases were not genuine, based on substantial evidence, including the non-existence of manufacturing activities by the dealers and the inability to trace the cheques' encashment.

The court recognized two principles in such situations:
1. Mere cancellation of registration subsequently, even with retrospective effect, cannot harm the purchasing dealer's interest.
2. If the purchasing dealer is involved in bogus billing activities or if the purchases are found to be bogus, input tax credit can be disallowed.

The court referred to precedents, including the Supreme Court's decision in State of Maharashtra v. Suresh Trading Company, which established that subsequent cancellation of a selling dealer's registration does not affect the purchasing dealer's rights if the transactions were genuine. However, in cases where transactions are not genuine, input tax credit can be denied.

The Tribunal and the Tax Authorities found that the sole activity of the two dealers was issuing bogus bills, and the assessee's claim of genuine purchases was not credible. The Tribunal's findings were based on substantial evidence and were not deemed perverse.

Conclusion:
Both questions were answered against the appellant-assessee. The Tribunal and Tax Authorities' findings were upheld, confirming that the tax and interest demands were justified based on the non-genuine nature of the purchases. The appeals were dismissed.

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