Turnover Cannot Be Enhanced Without Quantifying Suppression Found During Survey: Allahabad High Court

The Allahabad High Court on 25 August held that turnover cannot be enhanced merely on the ground of alleged suppression when the actual figure of suppression has not been identified, observing that even where the books of account are rejected, the enhancement must correspond to the suppression found during the survey.

Justice Piyush Agrawal allowed the revision filed by B.T.C. Industries Pvt. Ltd. and set aside the order of the Commercial Tax Tribunal, Bareilly Division, holding that the enhancement of turnover was not justified in the absence of any specific figure of alleged suppression. The Bench observed:

“No specific allegation has been made with regard to suppression found as no figures have been mentioned by the impugned order. Once the actual figure of suppression has not been pointed out or mentioned as to how much is the alleged suppression undertaken, the enhancement of turnover cannot be justified.”

B.T.C. Industries Pvt. Ltd.'s goods were seized while in transit on 2 February 2008, following which its business premises were surveyed on the same day.

The Assessing Authority subsequently passed an assessment order on 30 March 2018 for Assessment Year 2007-08, rejecting its books of account, estimating turnover on the basis of the penalty imposed pursuant to the seizure, and reversing input tax credit (ITC) claimed on purchases from two registered dealers, Kanheiya Trading Company, Mathura and Raj Trading Company, Meerut.

The first appeal was partly allowed. The Commercial Tax Tribunal, Bareilly Division, Bareilly also partly allowed B.T.C. Industries's second appeal and reduced the taxable turnover.

The Revisionist contended that the subsequent cancellation of the selling dealers' registrations could not be held against it as their registrations were valid on the dates of the transactions. It further submitted that the payments had been made through banking channels and that the penalty proceedings arising from the seizure had been dropped.

The State, however, submitted that the genuineness of the transactions had not been established. It argued that the Revisionist had been found using duplicate books of account, due to which the bills could not be verified.

The Court observed that there was nothing on record to show that the order dropping the penalty proceedings had been reversed or was under challenge. It therefore held that no adverse inference could have been drawn against B.T.C. Industries on that basis.

It further noted that the Tribunal itself had found that all the seized challans and bills had been verified except seven invoices. It held that this finding could not sustain the allegation that B.T.C. Industries had maintained duplicate books of account.

On the reversal of ITC, the Bench observed that the action was based solely on the subsequent cancellation of the selling dealers' registrations. It noted that the dealers had valid registrations on the dates of the transactions, the payments had been made through banking channels and there was physical movement of the goods. It held:

“Once it is not in dispute or any cogent material has been brought on record by the Revenue showing that the registrations of the selling dealers were cancelled after the date of transaction, benefit of ITC cannot be denied.”

The Bench relied on its decision in Safecon Lifescience Private Limited v. Additional Commissioner, Grade – 2 & Another, which was affirmed by the Supreme Court. In that case, proceedings under Section 74 of the Goods and Services Tax Act (which deals with tax demands involving fraud, wilful misstatement or suppression of facts) alleging wrongful availment of ITC were quashed after the Court found that the selling dealer's registration was valid on the date of the transaction.

Accordingly, the High Court held that the Tribunal's order could not be sustained in law, set it aside and allowed the revision filed by B.T.C. Industries Pvt. Ltd.