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[Allahabad HC] Seizure and Penalty Orders Overturned Due to Lack of 'Mens Rea' for Tax Evasion by Department

Introduction

In the matter of K Y Tobacco Works (P.) Ltd. v. State of U.P.[i], the Allahabad High Court (‘AHC’) held that the burden to prove that there was a double movement of goods on the same set of documents lies on the Department (‘Respondent’). Furthermore, the AHC made strong observations by cautioning the Department to provide effective future assistance to their counsels, enabling them to defend the cases effectively.

Brief Facts

  • A seizure order was passed against K Y Tobacco Works (P.) Ltd. (‘Petitioner’) on the ground of double movement of goods on the same set of documents. Based on such detention, a penalty order (‘PO’) was also passed under s. 129(3) of the Uttar Pradesh Goods and Service Tax Act, 2017 (‘UPGST Act’). The appellate authority passed the appellate order confirming such seizure and penalty. Therefore, aggrieved by the aforementioned impugned orders, the Petitioner approached the AHC through this writ petition under a. 226 of the Constitution of India.

  • It was submitted that the goods belonging to the Petitioner were detained. A PO was passed only based on the driver’s statement stating that he was moving the goods for the second time on the basis of the documentation used for the first time. In contrast, the material documents were available in the vehicle, and the invoice and the e-way bill also matched the specifications of the goods in the vehicle.

  • Furthermore, the Petitioner was not provided with MOV – 01 being the prime document, wherein the drivers’ statement was recorded, upon which the Counsel of the Respondent submitted that even after several requests had been made, the concerned officer was not able to provide MOV - 01 to the Counsel and that only a loose sheet of paper being the drivers’ statement was provided without the prime document.

Held

  • The AHC observed that the Respondent had provided their Counsel with a loose sheet of paper, the driver’s statement without MOV – 01 being the prime document. Therefore, the AHC noted that the loose sheet of paper was of very little evidentiary value.

  • The AHC, by placing reliance on its own decision of M/s Anandeshwar Traders v. State of U.P. and Others[ii], held that the burden of proving the alleged double movement of goods rests with the Respondents. The AHC found that the Respondents failed to meet this burden in the current case, as they did not provide sufficient evidence to substantiate the claim of double movement.

  • The AHC further observed that no conclusion can be drawn against the usage of e-way bills unless there is any concrete evidence to prove the same. It was further noted that only the driver’s statement was provided to the Counsel without the prime document being MOV- 01, and therefore, any such conclusion drawn by the Respondent should be based on proper facts and evidence found by the concerned officer.

  • By considering the aforementioned facts and circumstances, the AHC noted that since the Respondent did not discharge their burden of proof and also failed to prove any mens rea of the Petitioner to evade tax and, therefore, quashed the Impugned Orders and directed the Respondents to refund the penalty and security paid by the Petitioner within a period of six weeks.

Conclusion

The AHC, in the present decision, made a strong observation that due to the lack of assistance and absence of the relevant documents on record, the Department hindered the defence of the Counsel appearing on behalf of the tax authority and that such lack of assistance has previously resulted in favourable decisions for the Assessee due to the inefficiency of such counsels to prove their case. This judgement furthermore highlights the importance of due process and the onus of proof under the UPGST Act on the Department while pursuing such tax evasion cases. It focuses on the importance of substantive evidence where the Department suspects a double movement of goods. It concludes that no proceedings are maintainable if the Department fails to discharge the burden of proof. While granting relief to the Petitioner, the AHC established a significant precedent for the Department to strictly adhere to the established procedures and to ensure that their assignments are firmly grounded.





End Notes

[i] [2024] 163 taxmann.com 108 (Allahabad) [13-05-2024]

[ii] 2021 SCC OnLine All 1150





Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

 

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