Raj Trading Company Vs State of U.P. And 2 Others
Date: September 1, 2025
Subject Matter
GST Turnover Assessment Quashed As The Value Of Evaded Purchases Was Fixed Aribitrarily
Summary
The petitioner, a trader in iron goods, challenged an appellate order dated September 10, 2024, which partially upheld a tax demand for the assessment year 2017-18. The original dispute arose from a survey that led authorities to initiate proceedings under Section 74 of the UPGST/CGST Act. The Assessing Officer initially determined an evaded purchase amount of Rs. 1,15,60,493/- and then arbitrarily estimated evaded sales at Rs. 7 crore.
The Appellate Authority partially allowed the appeal, reducing the evaded sales estimation from Rs. 7 crore to Rs. 2,50,00,000/- but maintaining the evaded purchases at Rs. 1,15,60,493/-. The total liability confirmed by the Appellate Authority was Rs. 1,46,70,000/- (Tax + Interest + Penalty).
The petitioner's counsel argued that:
No opportunity of hearing was given during the determination of the purchases.
The estimation of evaded sales was arbitrary and, crucially, could not exceed the determined evaded purchases of Rs. 1,15,60,493/-.
The court noted that the Appellate Authority, in its final order, failed to provide any reasoning for fixing the evaded sales at an amount significantly higher than the determined evaded purchases.
The High Court allowed the writ petition and quashed the impugned orders (the original and the appellate order).
The court held that the Appellate Authority's fixation of evaded sales (Rs. 2,50,00,000/-) at an amount greater than the determined evaded purchases (Rs. 1,15,60,493/-) was arbitrary because no reasoning was provided for this assessment. Citing its own precedent in M/s. Moti Lal Dwarika Prasad, the court reiterated that turnover estimation cannot be assessed arbitrarily.
The matter is remanded to the Additional Commissioner Grade-2, (Appeal)-3rd, State Tax Prayagraj (respondent no. 2), with a direction to:
Decide the matter afresh by passing a reasoned and speaking order, after hearing all stakeholders.
Make an endeavor to decide the case within three months from the date the petitioner produces a certified copy of this order.
Any amount already deposited by the petitioner shall be subject to the outcome of the fresh order.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Murari Mohan Rai, learned counsel for the petitioner and Sri R.S. Pandey learned Additional Chief Standing Counsel for the State-respondents.
2. By means of instant writ petition, the petitioner has assailed the impugned order dated 10.09.2024 passed by the Additional Commissioner Grade-2, (Appeal)-3rd, State Tax Prayagraj (respondent no.2) along with the Demand order issued vide Order No.0909240824590, dated 10.09.2024 in Form GST. APL 04 in First Appeal No.AD090223046110P for A.Υ. 2017-18.
3. Learned counsel for the petitioner submits that the petitioner is carrying the business of trading in Tin, Angle, Iron Sheets etc., and disclosed his total purchase and sale to the tune of Rs.1,08,16,001/- and 98,83,457.95/-respectively. On 23.03.2018, a survey was conducted at the business premises of the petitioner and on the basis of the survey report, the proceedings under Section 74 of the UPGST/CGST Act were initiated against the petitioner and an ex-parte order was passed, whereby determined the evaded purchases for the period September, 2017 to March, 2018, amounting to Rs. 1,15,60,493/- and sale to the tune of Rs. 7 crore and also imposed the tax amounting to Rs.1,26,00,000/- as well as interest to the tune of Rs.1,18,98,286/- and penalty of Rs.1,26,00,000/-, thereby totaling a sum of Rs. 3,40,98,286/-. Against the said order, first appeal was filed, which was partly allowed vide order dated 10.09.2024, whereby determined the evaded sales for the said tax period at Rs. 2,50,00,000/- on the basis of purchases amounting to Rs.1,15,60,493/- and fixed the tax liability at Rs.45,00,000/-, interest at Rs.56,70,000/- and penalty of Rs. 45,00,000/-, thereby totaling Rs.1,46,70,000/-.
4. He further submits that no opportunity of hearing was given for determining the purchases made by the petitioner. He next submits that once the evaded purchases have been determined at Rs.1,15,60,493/-, the sale cannot be exceeded more than determined purchases.
5. He further submits that the estimation of turnover should not be assessed arbitrarily and illegally.
6. In support of his submission, he has placed reliance upon the judgment of this Court passed in the case of M/s. Moti Lal Dwarika Prasad Vs. Commissioner of Sales Tax; 1989 U.P.T.C.-358.
7. Per contra, learned Additional Chief Standing Counsel supports the impugned orders and submits that at the time of survey of the business premises of the petitioner, certain discrepancies were found pursuant to which evaded purchases and sales have rightly been determined by the authorities, against which first appeal was filed, which was partly allowed.
8. After hearing the parties, the Court has perused the record.
9. The record shows that the survey was conducted at the business premises of the petitioner and once in the said survey, certain discrepancies were found, the proceedings under Section 74 of the UPGST/CGST Act were initiated against the petitioner against which an appeal was filed, which was partly allowed vide order dated 10.09.2024, whereby determining the evaded sales for the said tax period at Rs. 2,50,00,000/- on the basis of purchases amounting to Rs.1,15,60,493/- and fixed the tax liability at Rs.45,00,000/-, interest at Rs.56,70,000/- and penalty of Rs. 45,00,000/-, thereby totaling Rs.1,46,70,000/-. But, in the said impugned order, no reasoning has been assigned for fixing the evaded sales more than evaded purchases. As such, the fixation of sale more than evaded purchases is arbitrary.
10. As per the judgment of this Court passed in M/s. Moti Lal Dwarika Prasad, the evaded turnover estimation should not be arbitrary.
11. In view of the above, the matter requires re-consideration.
12. In the result, the impugned orders cannot be sustained in the eyes of law and the same are hereby quashed.
13. Accordingly, the writ petition is allowed. The matter is remanded to the respondent no. 2 for deciding the matter afresh by passing a reasoned and speaking order, after hearing all the stakeholders.
14. It is directed to the petitioner to produce a certified copy of this order before the respondent no.2 within ten days’ from today and from the production of certified copy this order, the respondent no.2 shall make an endeavor to decide the same within three months.
15. Any amount deposited by the petitioner pursuant to the impugned orders, shall be subject to the outcome of the fresh order to be passed by the respondent no. 2.