Cause title — parties, addresses and appearances
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Court No. - 6
AFR
Case :- WRIT TAX No. - 4 of 2022
Petitioner :- M/S Daimond Steel
Respondent :- State Of Up And 3 Others
Counsel for Petitioner :- Aloke Kumar
Counsel for Respondent :- C.S.C.
AND
Case :- WRIT TAX No. - 5 of 2022
Petitioner :- M/S Daimond Steel
Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- Aloke Kumar
Counsel for Respondent :- C.S.C.
Hon'ble Pankaj Bhatia,J.
1.
Both the said writ petitions arise out of the similar proceedings against
the petitioner, although in respect of the different financial years.
2.
For the sake of brevity, the facts of Writ Tax No.4 of 2022 are being
recorded.
3.
By means of the said writ petition, the petitioner challenges the order
dated 03.06.2021 passed by the respondent no.3 as well as the order in
appeal dated 13.07.2021 preferred against the order dated 03.06.2021.
4.
The facts in brief are that the petitioner is a partnership concern and is
duly registered with the GST Department. The petitioner claims that
all the inwards and outwards supply was duly reflected on the portal
of the department and the petitioner uploaded the supply made by him
in GSTR-1 and after claiming the Input Tax Credit as reflected in
GSTR-2A, filed his return in the form of GSTR-3B claiming the
benefit of Input Tax Credit. It is argued that the returns filed were
accepted and were never questioned and no proceedings were initiated
in the case of the petitioner.
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5.
It is argued that an inspection was carried out on the business
premises of the petitioner on 31.10.2019 and a Panchanama was
drawn wherein the stock present in the business premises was
recorded and certain papers were seized in exercise of powers under
Section 67 of the GST Act.
6.
The contention of the Counsel for the petitioner is that the search and
seizure memo was not in accordance with law, however, the said issue
is not agitated before this Court and no relief to that extent has been
sought. It is stated that search and seizure was carried out by the SIB
Authorities. The petitioner objecting to the manner in which the
search and seizure was carried out, moved an application along with
an affidavit on 18.12.2019 and thereafter nothing transpired. On
08.01.2021, the respondent no.3 issued a notice under Section 74 of
the UPGST Act for the period July, 2017 to March, 2018 (Annexure-7
to the writ petition). It is argued that in the said notice, the date for
filing the reply was mentioned as 22.01.2021 and, the date and the
time for personal hearing was also mentioned as 22.01.2021 but the
venue of personal hearing was not disclosed as is clear from the
perusal of the notice (Annexure-7). Alongwith the said show cause
notice, the petitioner was also supplied with the summary of show
cause notice dated 08.01.2021 in the form of GST DRC-01
(Annexure-8).
7.
It is argued that in the show cause notice, in the column indicating the
brief fact of the case “Adverse material found in SIB” was mentioned
and in the column of grounds for issuance of the show cause notice, it
was again mentioned that “Adverse material found in SIB”. The
petitioner further argues that yet another notice was issued calling
upon the petitioner to submit reply by 24.12.2020. In the said notice
also, the report of the SIB was mentioned. It is argued that in all the
notices, there is a reference to the SIB report, which was the
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foundation for issuance of the notice under Section 74, however, the
said report was never supplied to the petitioner. Despite that, the
petitioner submitted his reply on 08.01.2021. It is specifically alleged
that neither at the time of issuance of show cause notice nor on the
date of hearing any evidence whatsoever was adduced against the
petitioner, even the SIB reply was never produced, however, an order
came to be passed on 03.06.2021 under Section 74 of the UPGST Act
wherein the demand of tax and penalty was quantified against the
petitioner at Rs.14,84,099.82/-. He draws my attention to the order
passed under Section 74, wherein on the basis of the SIB report and
the documents referred therein as well as some ex-parte submission by
the department wherein it had claimed that 20% profit should be
deemed to be appropriate, as against which, the Assessing Authority
was of the view that even under the Income Tax Act, 1961, 8% profit
would be an appropriate estimate and on the said basis quantified the
demand and penalty against the petitioner. The petitioner preferred an
appeal against the said order on various grounds. The appellate
authority decided the appeal and partly allowed the same. While
allowing the appeal held that on the basis of the provisions of the
Income Tax Act, the manner of assessment done by the adjudicating
authority cannot be justified, however, without disclosing any basis,
whatsoever, quantified the tax and penalty at Rs.9,30,969.60/-. The
said order is under challenge before this Court as the Appellate
Tribunal has not yet been constituted.
8.
The contention of the Counsel for the petitioner Sri Aloke Kumar is
that for invoking the powers under Section 74, it is essential that all
the documents proposed to be relied upon should be provided, which
has not been done in the present case. He further argues that in terms
of the mandate of Section 74, it is essential that the demand of tax be
quantified after considering the supply of goods, the time and value of
supply and after recording that the petitioner did not pay the tax,
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which he was required to pay. He further argues that from the perusal
of the order of the adjudicating authority as well as the appellate
authority, it is clear that while adjudicating the issues, the department
has assessed the demand and penalty on the basis of the best judgment
assessment which is possible only when recourse is taken to Section
62 and the said best judgment assessment procedure is neither
prescribed nor contemplated under Section 74.
9.
The Counsel for the petitioner further argues that the recourse to the
guidelines issued to the Income Tax Authorities cannot be invoked for
completing the assessment as has been done by the adjudicating
authority. He further argues that the appellate authority has not
recorded any reasons whatsoever for quantifying the tax and penalty,
although the same was substantially reduced from what was assessed
by the adjudicating authorities.
10.
Learned Standing Counsel, on the other hand, tries to justify the
demand on the ground that on the basis of search and seizure carried
out, huge quantity of the stock, which was not quantified property,
was found in the business premises and on the said basis, the
department has rightly assessed the duty and penalty against the
petitioner.
11.
Considering the said submissions at the bar, it is essential to note the
scheme of the UPGST Act.
12.
In terms of the provisions of the GST Act, the tax is leviable on the
supply of goods as specified under Section 7 and the said tax is to be
paid at the time of supply of goods, which is clarified under Chapter
IV of the UPGST Act. The value on which the tax is to be levied flows
from Section 15 of the Act, which mandates the manner in which the
value of the taxable supply is to be done. Chapter IX of the said Act
prescribes for filing of the returns by the assessee and Chapter X
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mandates the payment of tax, interest, penalty and other amounts on
the basis of the returns filed as prescribed under Chapter IX of the
said Act. Chapter XIV of the Act confers the power on the authorized
officers with regard to the inspection, search, seizure and arrest and
Chapter XV prescribes for demands and recovery in respect of the tax
not paid or short paid or erroneously refunded or input tax credit
wrongly availed. The distinction between assessment under Sections
73 and 74 is that Section 73 prescribes for normal determination of tax
and Section 74 prescribes for determination of tax not paid for the
reasons of fraud, willful misstatement or suppression of facts coupled
with intent to evade payment of tax. It is clear in the present case that
department has taken recourse to Section 74 for assessing the demand
of tax and penalty leviable.
13.
The sole basis for issuance of the show cause notice under Section 74
was the SIB report, which finds mention in the notice as well as the
additional notice served upon the petitioner. No material in the form
of the SIB report was ever supplied to the petitioner as is contended
by the petitioner specifically in the writ petition in paragraph 31.
Although in the counter affidavit, it has been stated that the SIB report
was never demanded by the petitioner, however, on the request of the
assessee, the same was given at the time of assessment proceedings
and he had submitted a return reply against the said report. In the
impugned order, there is no mention of SIB report being supplied to
the petitioner or his counsel or consideration of the alleged reply
while passing the impugned order.
14.Be that as it may, the fact remains that while passing the assessment order, the adjudicating authority assessed the demand of tax and levied penalty on the basis of some guidelines issued by the Income Tax Authorities and taking the mean average of 8%, which is wholly impermissible while adjudicating Section 74, the said manner of 6 adjudication adopted by the respondents department can at best be termed as best judgment assessment which can be resorted to only under Section 62 and that too only in respect of the persons who have not filed the returns. In respect of the persons who have filed returns, Section 61(3) is very clear under which the department is duly empowered to take action under Sections 73 or 74, in case the returns furnished contain discrepancies and the assessee fails to take corrective measures in respect of the said discrepancies.
15.For taking recourse to Section 74, it is essential that along with search and seizure report, certain specific averment is made with regard to the supply of goods and the non-payment of tax coupled with the fact that the same should be by reasons of fraud, willful misstatement or suppression of facts and an intent to evade the tax. The adjudicating authority clearly erred in assessing and quantifying the demand and levying the penalty by taking recourse to some guidelines issued by the Income Tax Authorities which is impermissible while determining the tax liability under Section 74. The order of the appellate authority is even further bad in law as it discloses no reason, whatsoever for assessing the tax and quantifying the liability. While on the one hand, the appellate authority disapproved the manner in which the adjudicating authority had assessed and quantified the demand of tax and penalty, in the same breath, he proceeds to quantify the tax and imposed penalty without disclosing any reasons whatsoever.
