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April 14, 2023

The GST Act’s section 15 provisions do not mandate valuation based on visual estimation

The GST Act’s section 15 provisions do not mandate valuation based on visual estimation

Fact and issue of the case

The present petition has been filed challenging the order dated 29.01.2019 whereby tax of Rs.26,10,000/- has been assessed to be payable by the petitioner and penalty of Rs.26,10,000/- and further fine of Rs.25,000/-, total Rs.52,54,000/- has been assessed against the petitioner as well as the appellate order dated 15.06.2020 whereby the appeal preferred by the petitioner was partly allowed.

The facts in brief are that the petitioner is a Company duly registered under the GST Act. It is stated that the material purchased by the petitioner are duly reflected on the portal of the department including the GSTR-3B. It is alleged that on 29.09.2018, the Deputy Commissioner, (SIB), Commercial Tax, Mirzapur Division, Mirzapur in purported exercise of powers under Section 67(1) and 67(2) of the GST Act inspected the registered business premises and drew a Panchanama on 29.09.2018 (Annexure No.1). On the same day, a seizure memo was also prepared, which is contained as Annexure No.2 to the writ petition.

It is argued that the petitioner was compelled to deposit an amount of Rs.52,20,000/- for getting the seized goods released. Thereafter, the petitioner was served with summons on 29.09.2018 and the petitioner was called upon to produce the records relating to the purchase for the year 2017-18 and 2018-19. The petitioner was once again issued summons under Section 70 of the Act on 27.12.2018 whereby certain documents were called from the petitioner. The petitioner claims to have produced the documents on the date fixed, however, an order came to be passed thereafter without issuance of any show cause notice to the petitioner levying the tax liability of Rs.26,10,000/- and further an amount of Rs.26,10,000/- was determined as penalty to be paid by the petitioner and further a fine of Rs.25,000/- was also imposed, thus, a total liability of Rs.52,45,000/- was determined to be payable under Section 130(3) of the GST Act. As the petitioner had paid an amount of Rs.52,20,000/-, the total balance amount payable by the petitioner came to Rs.25,000/-. The said order was challenged by the petitioner by preferring an appeal. The said appeal was partly allowed by means of the order dated 15.06.2020 and an amount of tax assessed against the petitioner was quantified at Rs.7,92,405/- on which a like penalty of Rs.7,92,405/- was imposed and thus, in terms of the appellate order, the petitioner was required to pay a total amount of Rs.15,84,810/-. The amount paid by the petitioner in excess was directed to be refunded in accordance with law.

The contention of the Counsel for the petitioner is that the order impugned as well as the appellate order is bad in law for the reasons more than one. He argues that in terms of the mandate of the GST Act, although a power of search and seizure is conferred upon the authorities, the manner in which the goods were held to be in excess of the recorded goods, is wholly arbitrary. He argues that the goods were quantified only on the basis of the eye estimation, which argument of the petitioner was also accepted by the appellate authority, as is clear from the perusal of the appellate order. In the light of the same, he argues that once the appellate authority accepted the contention of the petitioner that the valuation of the goods on the basis of eye estimation was not possible, the entire proceedings ought to have been declared as null and void. He further argues that even otherwise the manner in which the appellate authority has quantified (although reduced), the demand against the petitioner has no foundation whatsoever.

The issue raised in the present writ petition is being decided in view of the fact that the appellate tribunal contemplated under the Act has not yet been constituted.

The issue raised herein in Issue no.I is marked resemblance to facts referred in the judgment of this Court in the case M/s Metenere Limited (supra) wherein on the basis of a similar search conducted, the demand was quantified. This Court after analysing the provisions of the Act and the Rules applicable held that for the infractions as contained in Section 122 of the GST Act and specified in Column ‘A’ of paragraph 35 of the said judgment M/s Metenere Limited (Supra) held that penalty has to be Rs.10,000/- or the amount of tax evaded whichever is higher, whereas for the infractions specified in Column ‘B’ of paragraph 35, the penalty that can be imposed is Rs.10,000/-only. This Court also held that the demand for tax can be quantified and raised only in the manner prescribed in Section 73 or Section 74 of the Act, as the case may be.

Observation of the court

In terms of Clause (a) of Section 169(1), a service would be completed only when it is tendered to the taxable person or on his Manager or authorized representative.

Serving on the Accountant of the firm is neither contemplated nor provided for under Section 169(1)(a) and thus, the service as claimed by the Counsel for the respondent on the Accountant cannot be held to be a valid service, thus, on that count also, the entire proceedings are liable to be quashed.

Coming to the Issue no.IV with regard to the determination of value of the goods. Section 15 of the GST Act provides for valuation of the taxable supply. In furtherance of the provisions contained in the Act, Rules have been framed and Rule 27 of the said Rules provides for the manner of valuation of supply of goods or services, however, in the present case, the valuation of the goods is required to be done in terms of the mandate of Section 15(1) read with Section 15(2) and read with Section 15(3). In the said Section 15 or the Rules framed thereunder, there is no prescriptions for valuation of the goods on the basis of eye estimation as has been done by the department and has been repelled by the appellate authority. The appellate authority has erred in repelling the valuation done on the basis of eye estimation, however, has proceeded to value the goods (although differently) at the appellate stage without resorting to the mandate and manner prescribed in Section 15 read with the Rules, thus, on that count also, the impugned order is not sustainable.

For all the reasons recorded above, the writ petition deserves to be allowed. Accordingly, the impugned order dated 29.01.2019 is set aside and the writ petition is allowed.

The amount deposited by the petitioner shall be refunded subject to the outcome of the demand quantified under Section 74 of the Act in accordance with law.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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