Failure of dealer to prove its purchases from registered dealer attracts levy of entry tax, treating such purchases from outside local area

While upholding the decision of the Uttar Pradesh Commercial Tax Department to enhance the turnover of M/s Ramway Foods Ltd. (opposite party), the Allahabad High Court held that the opposite party had failed to substantiate the actual physical movement of the goods, and therefore, the presumption made by the assessing authority, considering the purchases as originating from unregistered dealers, was justified.

A Single Judge Bench of Justice Piyush Agrawal observed 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 unregistered dealer is justified”.

“Once the dealer has failed to prove its purchases from registered dealer, the levy of entry tax treating the same to be purchases from outside the local area and levying of entry tax on the HDEP bags is also justified”, added the Bench.

Briefly, the opposite party, engaged in the wheat purchase and flour manufacturing business, underwent a survey of its business premises. During this survey, it was discovered that their books of accounts were incomplete, and several transactions were not properly recorded. As a result, a best judgment assessment was conducted by rejecting their books of accounts. The seized documents could not be adequately explained, and it was determined that purchases and sales had occurred beyond what was recorded in their books.

The opposite party claimed that some of these purchases were made outside the state of Uttar Pradesh and submitted supporting documents. However, upon verification of vehicle registration numbers, it was found that some vehicles were untraceable, while others were registered as auto-rickshaws, two-wheelers, passenger vehicles, etc. Based on this, an enhancement of the turnover was made, treating the goods as purchased within the state of U.P. and subject to tax.

On appeal, the Commercial Tax Tribunal confirmed the rejection of the books of accounts but accepted the declared turnover and tax, while deleting the tax amount assessed by the assessing authority. The Tribunal placed the burden on the Department to prove with substantial evidence that the goods had been purchased from an unregistered dealer.

After considering the submission, the Bench stated that according to Section 16 of the Uttar Pradesh Value Added Tax Act (UP VAT Act), it was evidently clear, that the burden of proof lies with the dealer or the opposite party.

Simply presenting invoices from registered dealers was not enough and did not sufficiently prove that the purchases were made in good faith or were bona fide transactions, added the Bench.

The Bench also pointed out that in the present case, the dealer had failed to substantiate the actual physical movement of goods, which were presumed to have been purchased from dealers outside Uttar Pradesh (ex-UP dealers).

Therefore, in light of the dealer’s inability to establish these purchases and their physical movement, the argument for non-taxability could not be upheld.

The Bench remarked that, “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 – dealer. Surprisingly, 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.”

With these observations, the Bench concluded that the judgement passed by the Tribunal, cannot be sustained.

Cause Title: The Commissioner, Commercial Tax vs. M/s Ramway Foods Ltd. [Sales/Trade Tax Revision No. 26 of 2023 / 2023-Enterslice-4-HC-All-VAT]

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