Narendra Products vs The Commissioner of Commercial Tax

Surya Prakash Kesarwani, J.—Heard Sri. Suyash Agarwal, learned counsel for the applicant and Sri. Nimai Das, learned Standing Counsel for the respondent.

Briefly states the facts of the case are that the applicant is engaged in the manufacture and sale of Tobacco Mixed Pan Masala. During the assessment year in question i.e., 1998-99, certain discrepancies were found and on that basis the assessing authority issued a notice u/s 7(3) of the U.P. Trade Tax Act, 1948 (hereinafter referred to as the ''Act''). The assessing officer rejected the books of accounts and the disclosed turn over on the ground that day to day entries have not been done in the register of raw-material. It was also noticed that vide bill No. 170 dated 12.12.1998 of Awadh Products and Bill No. 348 dated 12.12.1998 of M/s. Kanchan Udyog, Kanpur, certain quantity of catechu was purchased, which was not entered in the books of accounts. The assessee took the stand that the said catechu was directly sent for grinding and since it was not received that day and as such it was not entered. The discrepancies in maintaining stock register of raw-material was found to be undisputed. The assessing authority rejected the books of accounts and made addition of Rs. 20 lacs in the sale turn over disclosed by the assessee and accordingly, the trade tax was levied.

Aggrieved with the assessment order, the applicant preferred an appeal before the Deputy Commissioner (Appeals), Trade Tax, Agra being Appeal No. 1126 of 2001, which was allowed by an order dated 1.1.2001. The appellate authority recorded a finding that no discrepancy was found in manufacturing, purchase and sale and as such the disclosed sale of the applicant-assessee cannot be rejected. He therefore, deleted the entire additions made by the assessing authority in the sale turn over of the applicant-assessee.

Aggrieved with the order of the appellate authority, the Commissioner, Trade Tax preferred Second Appeal No. 175 of 2001 before the Member Commercial Tax Tribunal Bench-II, Agra. The Tribunal allowed the appeal and remanded the matter to the appellate authority for deciding the appeal afresh in the light of the observations made in the body of the order. In the impugned order, the Tribunal has referred and relied upon the judgment of this Court in the case of Luxco Electronics Vs. Commissioner of Sales Tax, and observed that non maintenance of stock register renders the books of accounts to be rejected.

Shri Suyash Agarwal submits that the impugned order of the Tribunal is wholly arbitrary, and illegal for the reason that rejection of books of accounts and addition in turn over are two separate things. For non maintenance of stock register of raw-material or for any discrepancy therein the books of accounts may be rejected, but addition in the turn over cannot be made, unless any positive evidence of suppression of turn over and sale or purchase is found. He submits that no evidence has been brought on record by the assessing authority while making the addition in the disclosed turn over that any sale or purchase has been suppressed. He submits that in the absence of any such evidence the rejection of disclosed turn over is wholly unwarranted and the Tribunal should not have remanded the matter.

Sri. Suyash Agarwal, in support of his submission has relied upon a judgment in the case of M/s. Sarang Electronics (P) Ltd. v. Commissioner of Trade Tax 1998 UPTC 265 wherein in para-6 and 9 this Court has held as under:

I have considered the submissions carefully. In M/s. Agarwal Plastic Industries, Modi Nagar, Ghaziabad v. Commissioner of Sales Tax, 1989(2) U.P.T.C. 1281, a Division Bench of this Court had an occasion to consider sub-section (2) of Section 12 of the U.P. Trade Tax Act and also a further question that where account books are rejected in a given case in terms of those provisions, whether an addition to the disclosed turnover on best judgment was an inevitable consequence and must necessarily be made in every case. It was held that sub-section (2) of Section 12 aimed at preventing the dealer from suppressing or concealing the true position regarding the sale and production. The maintenance of manufacturing account is mandatory in terms of Section 12(2) of the Act and the assessing authority would be well within its jurisdiction to reject the account books for the only reason that a manufacturing account had not been maintained in terms of those provisions. It was however pointed out that where the account books were rejected due to non-maintenance of manufacturing account, the disclosed turnover need not necessarily be rejected in absence of any other adverse material. The rejection of accounts and the assessment to best judgment are two separate and distinct processes, which ought not to be mixed up. The assessment on best judgment is a quasi-judicial function, which cannot be discharged lawfully without an objective appraisal of the relevant material and the attending circumstances place on record. Whether the turnover returned by a dealer should be accepted or whether a higher turnover should be estimated by the assessing authority, it was held, must depend upon the facts and circumstances of each case.

The power of the Tribunal to remand the case for further investigation in an appropriate case, cannot be disputed. What is to be considered is whether on the facts of the case, the Tribunal was justified in exercising that power and directing the assessing authority to pass a fresh assessment order after further investigation and inquiry. Photo copy of the bill had been placed on record before the first appellate authority. Ext. A-18 was also on record. It did not require any investigation by the assessing authority in order to ascertain as to whether the discrepancy was to the extent of 1 Kg. or 500 grams, which in the opinion of the Tribunal required investigation. Likewise the other ground given by the Tribunal for sending the case back to the assessing authority does not stand to reason. The only insignificant discrepancy found in the purchases was in respect of thermo state patti. There is no whisper in any of the orders passed by the authority that in respect of purchase of other inputs required for the manufacture of electrical goods in which the revisionist dealt where suppressed or understated or any concealment was found. No error of any kind was found in the sales effected by the revisionist assessee. In absence of any other supporting material, there seems no justification in setting aside the order of the first appellate authority. The power of remand by an appellate authority can only be exerted in the ends of justice and not for an oblique purpose and for an excuse only with a view to provide a fresh innings to the Revenue. The discrepancy both in terms of the weight and value was so trivial that it was not worth taking notice of having regard to the magnitude of business and the quantum of taxable turnover, which were returned by the revisionist assessee.

Sri. Nimai Das submits that it is undisputed that the stock register of raw-material was not properly maintained and discrepancies were found. Under the circumstances, the rejection of books of accounts was correctly done by the assessing officer. The assessing officer has made addition in the turn over on the basis of material available on record and, therefore, the order of the Tribunal remanding the matter to the First Appellate Authority cannot be interfered with.

I have carefully considered the submissions of the learned counsel for the parties and perused the record.

It is undisputed that there was discrepancies in maintenance of stock register and for that reason the books of accounts of the applicant-assessee were rejected. It is also undisputed that the applicant is a manufacturer and was required to maintain stock register as per provisions of Section 12(2) of the Act which he failed to do.

In the case of Commissioner, Sales Tax, U.P., Lucknow Vs. Girja Shanker Awanish Kumar, Hon''ble Supreme Court held in para 4 as under:

The keeping of a stock register, especially in the case of a manufacturer, is of great importance. It is a means of verifying the assessee''s accounts by having a quantitative tally. Section 12(2) of the Act mandates the dealer to maintain stock books in respect of raw materials as well as product obtained at every stage of production. If such a stock book is not maintained, it leads to the conclusion that the account books are not reliable or that particulars are not properly verifiable. If the account books are rejected, the turnover has to be determined to the best of judgment of the assessing authority concerned. We are unable to uphold the view that a defect in non-maintenance of stock register is only technical and so the turnover disclosed in the account books should be accepted. On the facts of a particular case, it is for the assessing authority to consider along with Other materials disclosed in the case, to what extent the account books can be relied on for determining the turnover. In normal circumstances, the rejection of account books call for the estimation of the turnover to the best of judgment of the assessing authority. Having upheld that the account books of the assessee were liable to be rejected, the learned Judge of the High Court was wrong in holding that the defect is of a technical nature and the account books should be accepted. We set aside the decision of the High court and direct that the estimated turnover of the dealer as upheld in appeal, shall stand restored. The appeal is allowed. However, in the facts and circumstances of the case, there shall be no order as to costs.

In the impugned order, the Tribunal has referred to the judgment of this Court in the case of Luxco Electronics Vs. Commissioner of Sales Tax, and held as under:

The ratio of this judgment is that the provisions of Section 12(2) are not of a merely technical nature but they are mandatory and in case of its non-compliance, account books must be rejected. Regarding contention of the department that maintenance of the account books prescribed by the Excise Department, is not sufficient for compliance of Section 12(2), it has been held by the Hon''ble Allahabad High Court in the case of M/s. M.G. Electronics Vs. C.S.T. (2004 NTN Vol. 25) page 777) judgment dated 14.5.2004 that inference of the Tribunal that the account books prescribed by the Excise Department are not sufficient compliance of Section 12(2) of the U.P. Trade Tax Act, which makes it incumbent upon the assessee to maintain the day to day stock register at every stage of production. The learned Appellate Authority has not exercised any view regarding the acceptance or non-acceptance of the account books of the assessee and has accepted the turnover as disclosed by the assessee. Hon''ble Supreme Court in the case of C.S.T. Vs. M/s. Girija Shankar Avneesh Kumar (STI 1997 S.C. page 1) has held that Section 12(2) of the Act mandates the dealer to maintain stock books in respect of raw materials as well as finished goods at every stage of production and if such a books are not maintained, it leads to the conclusion that account books are not reliable or that particulars are not properly verifiable. "If the account books dare rejected, the turnover has to be determined to the best of the judgment of the Assessing Authority concerned. We are unable to uphold the view that a defect in non-maintenance of stock register is only technical and so the turnover disclosed tin the account books should be accepted." The bottom line is what is the fun of rejecting the account books if the turnover is accepted. But determination of turnover is a question of fact to be determined on the basis of material on record. In my opinion, in this case the account books of the appellant are worthy of rejection. So far as the determination of turnover is concerned, learned assessing authority has not given any cogent basis or logical reason for the same. Thus, the assessing authority has erred while estimating the turnover on the basis of best judgment assessment and the first appellate authority has erred in accepting the turnover keeping in view the above mentioned legal pronouncements.

Hence, appeal deserves to be allowed and the case is liable to be remanded to the first appellate authority for passing orders afresh in the light of the observations made hereinabove.

On the facts and circumstances of the present case it cannot be disputed that the provisions of Section 12(2) of the Act, were not followed by the applicant-assessee. Under the circumstances, the books of accounts were liable to be rejected in the light of the observations made by Hon''ble Supreme Court in the case of Commissioner of Sales Tax, U.P., Lucknow v. M/s. Girja Shanker Awanish Kumar (supra). The Tribunal has merely remanded the matter to the first appellate authority to pass a fresh order.

Under the circumstances, I do not find any error in the impugned order of the Tribunal. No question of law is involved in the order of the Tribunal. However, it is directed that the first appellate authority shall decide the appeal in accordance with law without being influenced by any of the observations made in the body of this order.

In result, the revision fails and is hereby dismissed.