No Evidence of Sister Concern Stock: Madras HC confirms VAT Demand on Stock Variation [Read Order]

The Madurai Bench of the Madras High Court upheld a VAT ( Value Added Tax ) demand linked to stock discrepancies ruling that simple claims regarding a sister concern's ownership of stock, if not backed by evidence, cannot override the factual findings of tax authorities.

As per the submissions, an inspection by the Enforcement Wing on September 12, 2015, was conducted at the petitioner’s beedi distribution premises in Trichy.

During this visit, officials identified a mismatch between physical stock and the accounting books, leading them to conclude that turnover had been suppressed. This resulted in a revised assessment order issued on November 29, 2016, which raised both a tax demand and a penalty.

The petitioner initially appealed this assessment, receiving partial relief when the appellate authority removed the penalty while maintaining the tax demand. The matter then moved to the Tamil Nadu Sales Tax Appellate Tribunal, which dismissed the appeal.

Aggrieved by the set backs, the petitioner approached the High Court through a revision petition.

When the matter came before the High Court, the petitioner’s primary argument was that enforcement officials had erroneously included stock belonging to a "sister concern" during their count.

They contended that this mixing of inventory artificially inflated the discrepancy, leading to an unfair and incorrect finding of hidden turnover.

However, the Court rejected this argument after reviewing how the lower authorities handled the case. It noted that the inspection was conducted methodically, with stock in different rooms verified and recorded independently.

The Court said that a partner of the firm was present during the inspection and had countersigned the records. And if there are any concerns, petitioner could have raised the issue from there itself, said the bench.

Justices N. Anand Venkatesh and K.K. Ramakrishnan noting the discrepancy allegations said that “except for the ipse dixit of the petitioner, no other material was available to substantiate the stand taken by the petitioner.”

Accordingly, the Court declined to interfere under its revisional jurisdiction and dismissed the revision petition.

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