2025 (4) TMI 563 - HC - VAT / Sales Tax

Rejection of account books of the applicant - legality of accepting survey report which is inadmissible in the eyes of law in view of the law laid down by this Hon ble Court in the case of M/s Girja Ispat Pvt. Ltd. Vs. Commissioner of Trade Tax U.P. Lucknow 2013 (5) TMI 1014 - ALLAHABAD HIGH COURT - justification in relying on the stock noted by surveying authority on estimate basis without actual weighment ignoring the law laid down by this Hon ble Court in the case of M/s Girja Ispat Pvt. Ltd. - HELD THAT - Perusal of the order impugned reveals that the books of account as produced by the petitioner at the time of survey were disbelieved on the basis of the survey carried out and the goods which were found based upon eye estimation. Considering the fact that it is well settled that the calculation of goods cannot be done only on the basis of eye estimation as held in the case of M/s Girja Ispat Pvt. Ltd. and also in the case of Maa Mahamaya Alloys Private Limited vs. State of U.P. Ors. 2023 (3) TMI 1358 - ALLAHABAD HIGH COURT a judgment of this Court the order impugned based upon eye estimation cannot be upheld more so when provision of Section 28(5) of U.P. Value Added Tax Act empowers passing of an order of assessment which has to be based upon credible material as prescribed under Section 28(2)(ii). Conclusion - In the present case weighing all the goods merely on the basis of eye estimation cannot be termed as a credible material and cannot be judged as foundation for passing the order under the best judgment assessment powers conferred upon the Assessing Authority. Petition allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

(1) Whether the Commercial Tax Tribunal was legally justified in rejecting the account books of the applicant and confirming the order passed by the assessing authority.

(2) Whether the Commercial Tax Tribunal was legally justified in accepting a survey report deemed inadmissible under established legal precedents.

(3) Whether the Commercial Tax Tribunal was justified in relying on stock estimates made by the surveying authority without actual weighment, contrary to established legal standards.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rejection of Account Books

The relevant legal framework involves the U.P. Value Added Tax Act, which requires assessments to be based on credible material. The Court examined whether the rejection of the account books by the Tribunal was justified under this framework. The Court noted that the rejection was primarily based on a survey conducted at the premises, which led to disbelief in the account books.

The Court's interpretation emphasized that assessments should not rely solely on estimates, particularly when conducted through eye estimation without actual weighment. The Court found that the Tribunal's reliance on such methods was contrary to the principles established in prior judgments, notably M/s Girja Ispat Pvt. Ltd. v. Commissioner of Trade Tax, U.P., Lucknow, which underscored the necessity of credible and accurate estimation methods.

Key evidence included the survey report and the account books presented by the revisionist. The Court found that the survey report, based on eye estimation, lacked the credibility required for rejecting the account books.

In applying the law to the facts, the Court concluded that the rejection of the account books was unjustified, as it was based on an unreliable method of estimation.

Issue 2: Admissibility of the Survey Report

The Court considered whether the survey report, which was the basis for the best judgment assessment, was admissible under established legal standards. The legal precedent cited was M/s Girja Ispat Pvt. Ltd., which held that estimation should not be based solely on eye estimation.

The Court reasoned that the survey report's reliance on eye estimation rendered it inadmissible as credible evidence. The Tribunal's acceptance of the report was therefore not legally justified.

The Court found that the survey report lacked the necessary factual basis to support the assessment, as it did not involve actual weighment or other reliable methods of estimation.

Competing arguments from the revenue were addressed, but the Court maintained that the principles established in prior case law were not adhered to, leading to the conclusion that the survey report was inadmissible.

Issue 3: Reliance on Estimated Stock

The legal question here was whether the Tribunal's reliance on stock estimates made without actual weighment was justified. The Court referred to the same legal precedents as in the previous issues, emphasizing the necessity for credible estimation methods.

The Court found that the stock estimate, based on eye estimation, did not meet the legal standards for credible evidence. The Tribunal's reliance on such estimates was therefore unjustified.

The Court concluded that the stock estimation method used was inadequate and could not serve as a foundation for the assessment under the best judgment assessment powers.

SIGNIFICANT HOLDINGS

The Court preserved the following significant holdings:

"The calculation of goods cannot be done only on the basis of eye estimation..." This principle was reinforced by the Court's reliance on prior judgments that established the need for credible and accurate estimation methods.

The final determinations on each issue were in favor of the assessee, with the Court quashing the impugned order dated 19.06.2018 and answering all questions in favor of the assessee and against the revenue.