Based on only one fake tax invoice, evaded sales could not be assessed at 100% of disclosed sales – HC

Based on only one fake tax invoice, evaded sales could not be assessed at 100% of the disclosed sales – High Court

ABCAUS Case Law Citation
ABCAUS 3431 (2020) (12) HC

Important case law relied upon by the parties:
M/S Kapil Kumar & Brothers, Gautam Budh Nagar vs. Commissioner of Trade Tax (Vol. 34 NTN 2007)
Ayyub Traders vs. Commissioner, Commercial Tax U.P. Lucknow, [2019 U.P.T.C. (Vol. 102)-1363]
M/s Vivek Agency Thru’ Prop. Gyan Prakash Kesarwani vs. The Commissioner of Trade Tax, U.P. Lucknow)

In the instant case, a revision was filed by the assessee against the order of the Sales Tax / VAT Tribunal as unjustified to confirm the taxable turnover of sale under the U.P. Value Added Tax Act, 2008 (the ‘Act’) merely on the basis of single fake invoice .

The mobile squad had recovered an invoice which during the assessment proceedings was found to be a fake / non-genuine one. The Assessing Authority inspected and compared the invoice with the actual invoices and also noted that the assessee did not lodge any FIR when it came to his knowledge that any parallel invoice is being issued.

On the basis of the said fake invoice, the Assessment Authority rejected the Books of Accounts and proceeded to assess taking recourse to Section 28(2)(ii) of the Act for ‘best judgement assessment’.

The said ‘best judgement assessment’ was made by an ex-parte order, the revisionist filed an application under section 32 of the Act for recall of the ex-parte order. The Assessment Authority proceeded to decide the matter on merits and passed the order determining the evaded purchase and evaded sales and the resultant tax payable by the assessee.

Aggrieved against the order, the assessee preferred an appeal before the Appellate Authority and submitted that the manner of best judgement assessment was wholly arbitrary and illegal inasmuch as only one bill recovered by the Mobile Squad was found to be non-genuine whereas the assessment took into account the entire sales. The Tribunal upheld the order of the First Appellate Authority.

Before the Hon’ble High Court, the assessee/revisionist argued that while taking recourse to the powers conferred upon the authority under section 28(2)(ii) of the Act, the Assessing Authority does not get absolute powers for making the assessment. The said power has to be exercised with caution and any exercise of power which is prima facie arbitrary has to be held contrary to the powers conferred under section 28(2)(ii) of the Act. 

The assessee placed reliance on several judgments of the Hon’ble High Court.

The Hon’ble High Court observed that the jurisdiction of the Assessing Authority while taking recourse to the ‘best judgement assessment’ is well settled. The Supreme Court has categorically held that while assessing, on the basis of ‘best judgement’, the Assessing Authority has to make the assessment honestly and on the basis of an intelligent well-grounded estimate rather than upon pure surmises. The assessment so made while taking recourse to the ‘best judgement assessment’ should not be speculative or fanciful but on reasonable guess based upon the material available before the Assessing Authority

The Hon’ble High Court noted that in the present case, admittedly, the only one tax invoice, was found to be fake and solely on the basis of the said invoice, the evaded sales had been assessed at 100% of the disclosed sales.

Considering the judgements placed, the Hon’ble High Court stated that clearly the Assessing Authority is bound to act in a rational manner while resorting to best judgement assessment and there was only one bill available as material to assess the evaded sales. There was nothing more before the Assessing Authority to form an opinion that sales equal to the declared sales should be determined as evaded sales.

Following the judgements the Hon’ble High Court held that the evaded sales should be quantified at 10% of the total disclosed sales for the purposes of determining in the tax liability.

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