Treating Purchase from Unregistered Dealer is Valid when Dealer Fails to Prove Actual Physical Movement of Goods: Allahabad HC Allows Sales Tax Revision [Read Order]

In a recent case, the Allahabad High Court while allowing a tax revision petition, held that treating a purchase from an unregistered dealer is valid when the dealer fails to prove actual physical movement of goods.

Shri B.K. Pandey, Additional Chief Standing Counsel for the State - revisionist and Shri Vishwjit appeared for the opposite party.

The sales tax revisions under section 28(2) of the Value Added Tax (VAT) Act and section 16 of the Uttar Pradesh VAT Act have been filed against the judgement & order dated 04.11.2022 passed by the Commercial Tax Tribunal, Aligarh Division, Aligarh shifting the burden of proof upon the Department and M/S Ramway Foods Ltd, partly allowing the appeals of the dealer.

The question before the court was whether, on the facts and circumstances of the case, the Commercial Tax Tribunal was legally justified in deleting the amount of tax levied by the assessing authority when the rejection of the account of books has been confirmed and illegally shifted the burden on the department.

The revisionist submitted that the opposite party/dealer is a limited company and is engaged in the business of purchasing wheat and manufacturing atta, maida & suji.  On 19.08.2016, the business premises of the opposite party were surveyed by the Surveying Authority, in which the books of account of the opposite party were found to be incomplete and various transactions were found to be not properly recorded in the books of account, based on which best judgement assessment was made after rejecting the books of account. 

The seized documents could not be explained properly and the purchases & sales were made beyond the record. The opposite party claimed the purchases to be made outside the State of U.P. and supporting documents were submitted.  However, on verification of the registration numbers of the vehicles, it was found that some of the vehicle numbers were not traceable and some of them were found to be auto-rickshaws, two-wheeler, passenger vehicles, etc.

Enhancement of turnover was made treating the same being purchased within the State of U.P. since the goods were treated to be purchased from an unregistered dealer.  Moreover, only tax was imposed upon the HDEP bags.  On appeal before the 1st appellate authority, the assessee partly allowed the appeal, against which cross-appeals were preferred before the Commercial Tax Tribunal. 

The Tribunal, by the impugned judgement & order, has confirmed the rejection of books of account but has accepted the declared turnover and tax and deleted the amount of tax as assessed by the assessing authority, shifting the negative burden upon the Department that the Department has failed to prove by any cogent material that the goods were being purchased from unregistered dealer. 

It was submitted that section 16 of the Uttar Pradesh(UP) VAT Act specifically provides that in any assessment proceedings where any fact is specially within the knowledge of the assessee, the burden of proving that fact shall lie upon him (assessee), and in particular, the burden of proving the existence of the circumstances bringing the case within any of the exemptions, exceptions or reliefs under any provisions of this Act, including claim of any amount as input tax credit, shall lie upon him (assessee) and assessing authority shall presume the absence of such circumstances. 

It was evident that the burden of proof lies upon the dealer/opposite party who has to discharge the said burden and not the Department.  Merely showing the purchases through invoices from the registered dealer, will not be enough and sufficient to prove that the purchases have been made bona fidely. 

It was observed that the dealer has miserably failed to prove the actual physical movement of goods which deemed to have been purchased from ex-UP dealers. Once the dealer fails to establish the said purchases and the physical movement of the same, the claim for non-taxability cannot be accepted.

The Tribunal has failed to appreciate this vital aspect of the matter that the actual physical movement of the goods could not be proved beyond doubt as claimed by the opposite party – the dealer. “The observation of the Tribunal in shifting the burden upon the Department contrary to the provisions of section 16 of the UP VAT Act, is beyond imagination and therefore, the same is perverse.”, Justice Piyush Agrawal held.

Further held that “once the dealer has failed to prove the actual physical movement of goods, the presumption drawn by the assessing authority treating the purchases from an unregistered dealer is justified.  Once the dealer has failed to prove its purchases from a registered dealer, the levy of entry tax treating the same to purchase from outside the local area and levying of entry tax on the HDEP bags is also justified.”

Both the revisions are allowed with a cost of Rs. 5,000/- each.

To Read the full text of the Order CLICK HERE

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