# M/s Diamond Steel, Fatehpur v. State of U.P. & Ors

- **Citation:** (2023) 5 ILRA 1398
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2023-04-06
- **Case number:** Writ Tax No.4 of 2022
- **Bench:** Pankaj Bhatia
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-diamond-steel-fatehpur-v-state-of-u-p-ors-50108
- **Pages:** 5

## Headnote

A. Tax Law - Assessment - U.P. Goods and
Services Tax Act, 2017 - Sections 67 & 74
- For taking recourse to Section 74, it is
essential that along with search and
seizure report, certain specific averment is
made w.r.t. the supply of goods and the
non-payment of tax coupled with the fact
that the same should be by reasons of
fraud, willful misstatement or suppression
of facts and an intent to evade the tax. The
adjudicating authority clearly erred in assessing
and quantifying the demand and levying the
penalty by taking recourse to some guidelines
issued by the Income Tax Authorities (sole basis
for issuance of the show cause notice was the
SIB report, which finds mention in the notice as
well
as
the
additional
notice)
which
is
impermissible while determining the tax liability
u/s 74. The order of the appellate authority is
even further bad in law as it discloses no
reason, whatsoever for assessing the tax and
quantifying the liability. While on the one hand,
the appellate authority disapproved the manner
in which the adjudicating authority had assessed
and quantified the demand of tax and penalty,
in the same breath, he proceeds to quantify the
tax and imposed penalty without disclosing any
reasons whatsoever. (Para 15)

B. Distinction between assessment u/Ss
73 and 74 is that Section 73 prescribes for
normal determination of tax and Section
74 prescribes for determination of tax not
paid for the reasons of fraud, willful
misstatement or suppression of facts
coupled with intent to evade payment of
tax. It is clear in the present case that
department has taken recourse to Section 74 for
assessing the demand of tax and penalty
leviable. (Para 12)

The manner in which the demand has been
raised and quantified is not in consonance with
the mandate of Section 74 and thus on the
ground alone, impugned appellate orders as
well as the adjudicating authority's orders are
liable to be quashed. (Para 16)
Writ petition allowed. (E-4)

Present petition challenges order dated
03.06.2021,
passed
by
the
Deputy
Commissioner, Commercial Tax - Sector1, Fatehpur, as well as the order in appeal
dated 13.07.2021 preferred against the
order dated 03.06.2021.

## Text

1398 INDIAN LAW REPORTS ALLAHABAD SERIES
brought to the notice of the trial Court, the
12 injuries which were found on the body
of the deceased. The PW-5 again is the
Sub-Inspector who has proved the First
Information Report and he was also the
Investigating Officer.

7. The court below after dealing with all
the evidence which were led before it,
concluded that the case was that of
circumstantial evidence and after relying upon
the case of Sharad Birdhi Chand vs. State of
Maharashtra, reported in 1984 (4) SCC 116
had found that as all the links to prove that the
crime which had been committed by the
accused were not being found the case had to
result in an acquittal. It has also stated that
substantially evidence were not such which
would lead to the only conclusion that the crime
had taken place on account of the fact that the
accused had pre-planned the crime and
thereafter had committed the same.

8. Learned A.G.A. has argued that if the
evidence which was there before the trial Court
was looked into and specially the statement of
PW-2 Keshav Khan then it would be clear that
Keshav Khan had actually seen the crime being
committed.

9. Having heard learned A.G.A. and after
having gone through the record, the Court is of
the view that the view taken by the trial Court
was a possible view.

10. On a careful perusal of the judgment
on record, we find that it cannot be said that the
view taken by the Trial Court was perverse or
unreasonable. Simply because another view
might have been taken on the evidence
available would not give us any ground for
interfering with the order of acquittal. Unless
the view taken by the Trial Court was a view
which could not have been possibly taken on
the basis of the evidence available on record, it
cannot be said that the view taken by the Trial
Court was not a reasonably possible view. In
fact, the perusal of the statements of the
witnesses definitely shows that the findings of
the Trial Court were appropriate.

11. This Court which is sitting in appeal
over a judgment of acquittal as per the
judgment of the Supreme Court in Murlidhar
alias Gidda & Anr. vs. State of Karnataka
reported in0 can only interfere in an appeal if
the view taken by the Trial Court was not a
view which was possible. Considering the
inconsistencies, improvements and also the fact
that essential ingredients to constitute the
offence charged against the accused were not
found to be proved beyond reasonable doubt,
we are of the view that the Trial Court's view
was definitely a possible view. Hence, the
instant appeal is liable to be dismissed.

12. Under such circumstances, the Court
is of the view that there is absolutely no error in
the assessment of the Trial Court.

13. In view of the aforesaid, the appeal is
dismissed at the admission stage itself and no
leave to appeal is being granted.
----------
(2023) 5 ILRA 1398
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 06.04.2023

BEFORE

THE HON'BLE PANKAJ BHATIA, J.

Writ Tax No.4 of 2022
And
Writ Tax No.5 of 2022

M/s Diamond Steel, Fatehpur ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
5 All. M/s Diamond Steel, Fatehpur Vs. State of U.P. & Ors.
1399
Sri Aloke Kumar

Counsel for the Respondents:
C.S.C.

A. Tax Law - Assessment - U.P. Goods and
Services Tax Act, 2017 - Sections 67 & 74
- For taking recourse to Section 74, it is
essential that along with search and
seizure report, certain specific averment is
made w.r.t. the supply of goods and the
non-payment of tax coupled with the fact
that the same should be by reasons of
fraud, willful misstatement or suppression
of facts and an intent to evade the tax. The
adjudicating authority clearly erred in assessing
and quantifying the demand and levying the
penalty by taking recourse to some guidelines
issued by the Income Tax Authorities (sole basis
for issuance of the show cause notice was the
SIB report, which finds mention in the notice as
well
as
the
additional
notice)
which
is
impermissible while determining the tax liability
u/s 74. The order of the appellate authority is
even further bad in law as it discloses no
reason, whatsoever for assessing the tax and
quantifying the liability. While on the one hand,
the appellate authority disapproved the manner
in which the adjudicating authority had assessed
and quantified the demand of tax and penalty,
in the same breath, he proceeds to quantify the
tax and imposed penalty without disclosing any
reasons whatsoever. (Para 15)

B. Distinction between assessment u/Ss
73 and 74 is that Section 73 prescribes for
normal determination of tax and Section
74 prescribes for determination of tax not
paid for the reasons of fraud, willful
misstatement or suppression of facts
coupled with intent to evade payment of
tax. It is clear in the present case that
department has taken recourse to Section 74 for
assessing the demand of tax and penalty
leviable. (Para 12)

The manner in which the demand has been
raised and quantified is not in consonance with
the mandate of Section 74 and thus on the
ground alone, impugned appellate orders as
well as the adjudicating authority's orders are
liable to be quashed. (Para 16)
Writ petition allowed. (E-4)

Present petition challenges order dated
03.06.2021,
passed
by
the
Deputy
Commissioner, Commercial Tax - Sector1, Fatehpur, as well as the order in appeal
dated 13.07.2021 preferred against the
order dated 03.06.2021.

(Delivered by Hon'ble Pankaj Bhatia, J.)

1. Both the said writ petitions arise
out of the similar proceedings against the

2. For the sake of brevity, the facts of
Writ Tax No.4 of 2022 are being recorded.

3. By means of the said writ petition,
the petitioner challenges the order dated
03.06.2021 passed by the respondent no.3
as well as the order in appeal dated
13.07.2021 preferred against the order
dated 03.06.2021.

4. The facts in brief are that the
petitioner is a partnership concern and is duly
registered with the GST Department. The
petitioner claims that all the inwards and
outwards supply was duly reflected on the
portal of the department and the petitioner
uploaded the supply made by him in GSTR-1
and after claiming the Input Tax Credit as
reflected in GSTR-2A, filed his return in the
form of GSTR-3B claiming the benefit of
Input Tax Credit. It is argued that the returns
filed
were
accepted
and
were
never
questioned and no proceedings were initiated
in the case of the petitioner.

5. It is argued that an inspection was
carried out on the business premises of the
petitioner on 31.10.2019 and a Panchanama
was drawn wherein the stock present in the
business premises was recorded and certain
papers were seized in exercise of powers
under Section 67 of the GST Act.
1400 INDIAN LAW REPORTS ALLAHABAD SERIES

6. The contention of the Counsel for
the petitioner is that the search and seizure
memo was not in accordance with law,
however, the said issue is not agitated
before this Court and no relief to that extent
has been sought. It is stated that search and
seizure was carried out by the SIB
Authorities. The petitioner objecting to the
manner in which the search and seizure was
carried out, moved an application along
with an affidavit on 18.12.2019 and
thereafter
nothing
transpired.
On
08.01.2021, the respondent no.3 issued a
notice under Section 74 of the UPGST Act
for the period July, 2017 to March, 2018
(Annexure-7 to the writ petition). It is
argued that in the said notice, the date for
filing
the
reply
was
mentioned
as
22.01.2021 and, the date and the time for
personal hearing was also mentioned as
22.01.2021 but the venue of personal
hearing was not disclosed as is clear from
the perusal of the notice (Annexure-7).
Alongwith the said show cause notice, the
petitioner was also supplied with the
summary of show cause notice dated
08.01.2021 in the form of GST DRC-01
(Annexure-8).

7. It is argued that in the show cause
notice, in the column indicating the brief
fact of the case "Adverse material found in
SIB" was mentioned and in the column of
grounds for issuance of the show cause
notice, it was again mentioned that
"Adverse material found in SIB". The
petitioner further argues that yet another
notice was issued calling upon the
petitioner to submit reply by 24.12.2020. In
the said notice also, the report of the SIB
was mentioned. It is argued that in all the
notices, there is a reference to the SIB
report, which was the foundation for
issuance of the notice under Section 74,
however, the said report was never supplied
to the petitioner. Despite that, the petitioner
submitted his reply on 08.01.2021. It is
specifically alleged that neither at the time
of issuance of show cause notice nor on the
date of hearing any evidence whatsoever
was adduced against the petitioner, even
the SIB reply was never produced,
however, an order came to be passed on
03.06.2021 under Section 74 of the UPGST
Act wherein the demand of tax and penalty
was quantified against the petitioner at
Rs.14,84,099.82/-. He draws my attention
to the order passed under Section 74,
wherein on the basis of the SIB report and
the documents referred therein as well as
some
ex-parte
submission
by
the
department wherein it had claimed that
20% profit should be deemed to be
appropriate,
as
against
which,
the
Assessing Authority was of the view that
even under the Income Tax Act, 1961, 8%
profit would be an appropriate estimate and
on the said basis quantified the demand and
penalty
against
the
petitioner.
The
petitioner preferred an appeal against the
said order on various grounds. The
appellate authority decided the appeal and
partly allowed the same. While allowing
the appeal held that on the basis of the
provisions of the Income Tax Act, the
manner of assessment done by the
adjudicating authority cannot be justified,
however, without disclosing any basis,
whatsoever, quantified the tax and penalty
at Rs.9,30,969.60/-. The said order is under
challenge before this Court as the Appellate
Tribunal has not yet been constituted.

8. The contention of the Counsel for
the petitioner Sri Aloke Kumar is that for
invoking the powers under Section 74, it is
essential that all the documents proposed to
be relied upon should be provided, which
has not been done in the present case. He
further argues that in terms of the mandate
5 All. M/s Diamond Steel, Fatehpur Vs. State of U.P. & Ors.
1401
of Section 74, it is essential that the
demand
of
tax
be
quantified
after
considering the supply of goods, the time
and value of supply and after recording that
the petitioner did not pay the tax, which he
was required to pay. He further argues that
from the perusal of the order of the
adjudicating authority as well as the
appellate authority, it is clear that while
adjudicating the issues, the department has
assessed the demand and penalty on the
basis of the best judgment assessment
which is possible only when recourse is
taken to Section 62 and the said best
judgment assessment procedure is neither
prescribed nor contemplated under Section
74.

9. The Counsel for the petitioner further
argues that the recourse to the guidelines
issued to the Income Tax Authorities cannot
be invoked for completing the assessment as
has been done by the adjudicating authority.
He further argues that the appellate authority
has not recorded any reasons whatsoever for
quantifying the tax and penalty, although the
same was substantially reduced from what
was assessed by the adjudicating authorities.

10. Learned Standing Counsel, on the
other hand, tries to justify the demand on the
ground that on the basis of search and seizure
carried out, huge quantity of the stock, which
was not quantified property, was found in the
business premises and on the said basis, the
department has rightly assessed the duty and
penalty against the petitioner.

11. Considering the said submissions
at the bar, it is essential to note the scheme
of the UPGST Act.

12. In terms of the provisions of the
GST Act, the tax is leviable on the supply
of goods as specified under Section 7 and
the said tax is to be paid at the time of
supply of goods, which is clarified under
Chapter IV of the UPGST Act. The value
on which the tax is to be levied flows from
Section 15 of the Act, which mandates the
manner in which the value of the taxable
supply is to be done. Chapter IX of the said
Act prescribes for filing of the returns by
the assessee and Chapter X mandates the
payment of tax, interest, penalty and other
amounts on the basis of the returns filed as
prescribed under Chapter IX of the said
Act. Chapter XIV of the Act confers the
power on the authorized officers with
regard to the inspection, search, seizure and
arrest and Chapter XV prescribes for
demands and recovery in respect of the tax
not paid or short paid or erroneously
refunded or input tax credit wrongly
availed.
The
distinction
between
assessment under Sections 73 and 74 is that
Section
73
prescribes
for
normal
determination of tax and Section 74
prescribes for determination of tax not paid
for
the
reasons
of
fraud,
willful
misstatement or suppression of facts
coupled with intent to evade payment of
tax. It is clear in the present case that
department has taken recourse to Section
74 for assessing the demand of tax and
penalty leviable.

13. The sole basis for issuance of the
show cause notice under Section 74 was the
SIB report, which finds mention in the notice as
well as the additional notice served upon the
petitioner. No material in the form of the SIB
report was ever supplied to the petitioner as is
contended by the petitioner specifically in the
writ petition in paragraph 31. Although in the
counter affidavit, it has been stated that the SIB
report was never demanded by the petitioner,
however, on the request of the assessee, the
same was given at the time of assessment
proceedings and he had submitted a return reply
1402 INDIAN LAW REPORTS ALLAHABAD SERIES
against the said report. In the impugned order,
there is no mention of SIB report being supplied
to the petitioner or his counsel or consideration
of the alleged reply while passing the impugned
order.

14. Be that as it may, the fact remains that
while passing the assessment order, the
adjudicating authority assessed the demand of
tax and levied penalty on the basis of some
guidelines
issued
by
the
Income
Tax
Authorities and taking the mean average of 8%,
which
is
wholly
impermissible
while
adjudicating Section 74, the said manner of
adjudication adopted by the respondents
department can at best be termed as best
judgment assessment which can be resorted to
only under Section 62 and that too only in
respect of the persons who have not filed the
returns. In respect of the persons who have filed
returns, Section 61(3) is very clear under which
the department is duly empowered to take
action under Sections 73 or 74, in case the
returns furnished contain discrepancies and the
assessee fails to take corrective measures in
respect of the said discrepancies.

15. For taking recourse to Section 74, it is
essential that along with search and seizure
report, certain specific averment is made with
regard to the supply of goods and the nonpayment of tax coupled with the fact that the
same should be by reasons of fraud, willful
misstatement or suppression of facts and an
intent to evade the tax. The adjudicating
authority clearly erred in assessing and
quantifying the demand and levying the penalty
by taking recourse to some guidelines issued by
the
Income
Tax
Authorities
which
is
impermissible while determining the tax
liability under Section 74. The order of the
appellate authority is even further bad in law as
it discloses no reason, whatsoever for assessing
the tax and quantifying the liability. While on
the
one
hand,
the
appellate
authority
disapproved the manner in which the
adjudicating authority had assessed and
quantified the demand of tax and penalty, in the
same breath, he proceeds to quantify the tax and
imposed penalty without disclosing any reasons
whatsoever.

16. On the perusal of the adjudicating
authority's order as well as the appellate order,
the manner in which the demand has been
raised and quantified is not in consonance with
the mandate of Section 74 and thus on the
ground alone, impugned appellate orders as
well as the adjudicating authority's orders are
liable to be quashed.

17. Accordingly, the appellate order dated
13.07.2021 and the order dated 03.06.2021
challenged in Writ Tax No.4 of 2022 and the
appellate order dated 13.07.2022 and the order
dated 09.06.2021 challenged in Writ Tax No.5
of 2022 are quashed.

18. Both the writ petition stand allowed.

19. Any amount deposited by the
petitioner shall be refunded to the petitioner on
his moving an appropriate application in
accordance with law.
----------
(2023) 5 ILRA 1402
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 12.04.2023

BEFORE

THE HON'BLE PANKAJ BHATIA, J.

Writ Tax No.1569 of 2022
And
Writ Tax No.1570 of 2022

M/s Lari Almira House, Gorakhpur
 ...Petitioner
Versus
State of U.P. & Ors. ...Respondents