Dealer's Voluntary Admission of Sales Tax Turnover Suppression holds Strong Evidentiary Value, Cannot be Retracted without Proof: Madras HC [Read Order]

In a recent ruling, the Madras High Court held that a voluntary admission of turnover suppression made by a dealer at the time of inspection carries strong evidentiary value and cannot be retracted without credible evidence.

The State of Tamil Nadu filed a tax case revision challenging the order of the Sales Tax Appellate Tribunal (Additional Bench), Madurai, which had upheld the Appellate Assistant Commissioner’s decision deleting the suppressed turnover and penalty imposed on the Jain Marketing (dealer) for the assessment year 1999-2000.

During an inspection conducted by the Enforcement Wing Officers on 5 October 1999, certain incriminating slips were recovered showing sales suppression of Paan Parrag. The Assessing Officer determined a total suppressed turnover of Rs. 31,63,725 along with additional suppression based on extra pouches found in stock and levied tax and penalty under Section 12(3)(b) of the TNGST Act.

The Appellate Assistant Commissioner accepted the dealer’s explanation that the entries found in the slips were later accounted for and that the extra pouches were given free to retailers, and hence deleted the additions and penalty. The Tribunal confirmed this decision.

Before the High Court, the State’s counsel argued that the Tribunal erred in accepting the dealer’s explanation based on post-inspection reconciliation. The counsel argued that but for the inspection, the suppression would not have come to light, and that the dealer had admitted the suppression during the inspection.

The counsel pointed out that the dealer failed to produce contemporaneous records during inspection to prove that the transactions were already accounted for, and that discrepancies between invoice dates and slip entries established unrecorded sales.

The dealer’s counsel argued that all transactions recorded in the slips were subsequently entered in the books, which were later verified. They argued that the extra pouches found were complementary items given free of cost and not sold separately and that there was no valid ground to sustain the addition or penalty.

The Division Bench comprising Justice P. Velmurugan and Justice K.K. Ramakrishnan observed that the dealer did not produce sufficient evidence at the time of inspection to show that the transactions were recorded.

The court explained that once incriminating records are recovered during inspection, the burden shifts to the dealer to prove that the entries were already accounted for with proper documents. It further observed that the voluntary admission made during inspection has strong evidentiary value and cannot be disregarded in the absence of credible proof to the contrary.

The bench also found that the claim of free distribution of extra pouches was unsupported by any material and that the presence of excess stock supported the Assessing Officer’s conclusion of suppression.

The court held that the Appellate Assistant Commissioner and the Tribunal erred in setting aside the assessment, as their reasoning was contrary to the evidence on record. It restored the assessment order passed by the Assessing Officer, upholding the determination of suppressed turnover and the penalty imposed. The tax case revision was allowed in favour of the Revenue.

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