High Court of KeralaSingle Judge2023-02-28Writ petition allowed

National Radio Electronics Corporation v. Deputy Commissioner of State Tax, State Goods and Service Tax Department (Special Circle, Kannur) & Joint Commissioner (Appeals) I, State Goods and Service Tax Department (Kozhikode) & The Commissioner, State Goods and Service Tax Department (Thiruvananthapuram)

Case / Petition Number:WP(C) No. 38443 of 2022

Case Details & Bench

Court: High Court of Kerala
Hon'ble Judges: T. R. Ravi
Judgment Date: 2023-02-28
Court Decision / Holding: This writ petition is allowed; the finding regarding defect II in Ext.P3 order is set aside. There cannot be any recovery proceedings based on the findings in Ext.P3 with regard to defect II.
Final Disposition: Writ petition allowed

Parties to the Case

Appellants / Petitioners

National Radio Electronics Corporation, Main Road, Taliparamba, Kannur

Respondents

Deputy Commissioner of State Tax, State Goods and Service Tax Department, Special Circle, Kannur
Joint Commissioner (Appeals) I, State Goods and Service Tax Department, Kozhikode
The Commissioner, State Goods and Service Tax Department, Thiruvananthapuram

Legal Representation & Advocates

Counsels for Petitioners

• Rajesh Nambiar

Counsels for Respondents

• Dr. Thushara James, Senior Government Pleader

Case Synopsis & Summary

National Radio Electronics Corporation (the petitioner) challenged the modified assessment order under the Kerala KVAT Act for the year 2013-14. The Appellate Authority, by Ext.P1, directed remand for re‑examination and required the assessee to produce complete books of accounts and supporting documents. Ext.P3 addressed defects I, III, IV, V and VI in favour of the assessee, but defect II—alleged unaccounted purchases revealed by KVATIS data and mismatches between supplier invoices and the petitioner’s records—remained. The assessing authority listed invoices, demanded originals, and, after reviewing the 959 invoices produced by NR Electronics, found that only 53 invoices remained problematic; the rest were accounted for. The petitioner contended that many invoices were issued without purchase orders and later treated as returns by suppliers; the department considered this as evidence of tax evasion, rejecting the argument that the petitioner cannot prove a negative. The Government Pleader relied on a decision in The Bhopal Sugar Industries Ltd. v. The Income-Tax Officer to argue that, once the appellate remand is issued, the assessing officer must independently decide. The court, however, held that while the burden of proof rests on the assessee under Section 9 of the KVAT Act, it cannot require him to prove a non‑existence of a sale. Observing that no proof of sale is presented, the court allowed the writ petition and set aside the defect II finding in Ext.P3, with no recovery based on it.

Provisions of Law Cited

Kerala Value Added Tax Act, Section 9

Legal Doctrines & Maxims

Burden of proof lies on the assessee under Section 9 of the KVAT Act
Cannot be asked to prove a negative (no sale occurred)

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioner challenges Ext.P3's defect II on unaccounted purchases, arguing that KVATIS data showing mismatches cannot compel proof of a sale; the petitioner produced 959 purchase invoices, with 53 invoices remaining in dispute. The petitioner contends that the burden of proof is on the assessee under Section 9 of the KVAT Act, but it is impermissible to require proof of a negative (that no sale occurred), especially where there is no concrete evidence of receipt of goods. The remand directions in Ext.P1 directing production of books and documents were not to be negated by alleging unsatisfied proof for a negative,” and the court should set aside the defect II finding to prevent unjust recovery. respondents:The respondents maintain that there is documentary evidence of mismatches in invoices and KVATIS data indicating unaccounted purchases. They argue that the burden of proof under Section 9 lies with the assessee and that the petitioner failed to prove the transactions. They rely on the appellate remand principle and the Bhopal Sugar decision to justify independent reconsideration by the assessing officer, contending that defect II is valid and should be sustained to protect revenue; that the existence of a sales return does not negate the need for proof of the underlying purchase.

Contentions of Respondents

The respondents contend that there is evidence of mismatch in the KVATIS data; The inspecting officer found unaccounted purchases evidenced by mismatch in invoice numbers; It is for the assessee to produce complete invoices and prove the transactions, per Section 9; They argue that the assessee produced 959 invoices but only 53 are unaccounted; The others have been accounted; The department's position is that a sales return created by the supplier suggests an illicit arrangement, but despite that, the law requires the assessee to prove purchases; Because the petition seeks to remove defense that there is no sale, the Department asserts that defect II is correct; They rely on the principle that if the appellate authority remanded, the assessing officer must consider and pass orders; They propose to sustain the defect II and to sanction the assessment; The court should not upset the entire order; That the proper approach is to require proof of the purchases; If not, revenue loss would occur; The petition should be dismissed.

Cited Precedents (1)

Case Name	Citation	Treatment	Explanation
The Bhopal Sugar Industries Ltd. v. The Income-Tax Officer, Bhopal	AIR 1961 SC 182	Positive	Cited to support that when an Appellate Authority remands, the lower authority must independently consider and pass orders; remand should not lead to chaos in administration of justice; used to justify that this is not a case of failure to carry out superior directions.

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Extracted Judgment Text

Exact text extracted from official judgment records.

# `IN THE HIGH COURT OF KERALA AT ERNAKULAM` ## `PRESENT` ``` THE HONOURABLE MR. JUSTICE T.R.RAVI ``` ``` TUESDAY, THE 28[TH] DAY OF FEBRUARY 2023 / 9TH PHALGUNA, 1944 ``` ## `WP(C) NO. 38443 OF 2022` ## `PETITIONER:` ``` 1NATIONAL RADIO ELECTRONICS CORPORATION, MAIN ROAD, TALIPARAMBA KANNUR, PIN – 670141 REPRESENTED BY ITS JOINT MANAGING PARTNER P.SHAJI, BY ADV RAJESH NAMBIAR ``` ## `RESPONDENTS:` |`1`|`DEPUTY COMMISSIONER OF STATE TAX,`| |---|---| ||`STATE GOODS AND SERVICE TAX DEPARTMENT SPECIAL CIRCLE,`| ||`GROUND FLOOR, ADDITIONAL CIVIL STATION,`| ||`KANNUR, PIN - 670002`| |`2`|`JOINT COMMISSIONER(APPEALS) I`| ||`STATE GOODS AND SERVICE TAX DEPARTMENT`| ||`KOZHIKODE, PIN - 673006`| |`3`|`THE COMMISSIONER`| ||`STATE GOODS AND SERVICE TAX DEPARTMENT, 9TH FLOOR, TAX`| ||`TOWER, KILLPPALAM, KARAMANA P.O,`| ||`THIRUVANANTHAPURAM, PIN - 695001`| ||`BY ADV.DR. THUSHARA JAMES, SR.GOVERNMENT PLEADER`| |`THIS `|`WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON`| |`28.02.2023,`|`THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:`| ``` WPC No.38443 of 2022 ``` 2 ## **T.R. RAVI, J.** ## **-----------------------------------W.P.(C.) No.38443 of 2022 -----------------------------------Dated this the 28[th] day of February, 2023** ## **JUDGMENT** Admit. Government Pleader takes notice for respondents. 2. The prayer in the writ petition is to quash Ext.P3 modified assessment order to the extent it sustains defect No.II noted in the pre-assessment order, pertaining to purchase suppression, and, to declare that the rejection of the documents produced by the petitioner on the reason that the petitioner has not produced the credit notes, is against the directions in Ext.P1 appellate order. 3. The Appellate Authority had by Ext.P1 order dated 22.02.2021 directed modification of assessment and also directed the appellant to produce complete books of accounts and supporting documents before ``` WPC No.38443 of 2022 ``` 3 the assessing authority. Thereafter, by Ext.P3 order the assessing authority has answered defects I, III, IV, V and VI noticed earlier, in favour of the assessee. 4. As far as defect No.II is concerned, the assessing authority noted that KVATIS data revealed that the assessee effected purchases from certain registered dealers and that the verification revealed gross mismatch in the invoice particulars reported by the assessee and the corresponding seller dealers. The assessing authority has taken it as evidence to show unaccounted purchase. It is also stated that there are differences in the invoice numbers, invoice date and value of goods/tax collected. After listing out the details of the invoices it is stated that the assessee was directed to produce the above invoices in original for verification failing which it was proposed to make additions. 5. The assessee submitted detailed reply. The assessing authority noted that the assessee has ``` WPC No.38443 of 2022 ``` 4 produced the entire 959 Nos. of purchase invoices in original and that except for 53 purchase invoices, the rest were found to be accounted. The list of the 53 invoices is shown as a table in the order. 6. The contention of the assessee is that invoices are raised without any purchase orders and the said invoices had been returned to the supplier, as there were no corresponding purchase or supply of goods. However, the same has been shown as sales return in the returns filed by the suppliers. The assessing authority has rejected the contention stating that it is a prevailing tax evasion practise, where the suppliers and the buyer dealer collude together and form an illicit agreement and supply of goods are effected on properly issued sales invoices and after completing the sales transaction and transportation, the supplier shows the same as sales return in the returns filed and the buyer shows it as goods not received. Except for stating that there is such a practise, there is ``` WPC No.38443 of 2022 ``` 5 nothing to show that the goods were actually received by the petitioner or the invoices were issued on the basis of purchase orders. The officer has stated that the burden of proof is on the assessee under Section 9 of the Act and the assessee failed to produce valid documentary evidence to prove the claim. The said finding cannot be justified, since the assessee cannot be asked to prove a negative. The assessee cannot be expected to prove that he had **not** purchased or received goods. The reasoning ultimately is that the petitioner has failed to produce proof of sales return. According to the petitioner, there cannot be a sales return if there has been no sale at all. 7. The Government Pleader raised two contentions against the challenge. Reliance was placed on the decision in **The Bhopal Sugar Industries Ltd. v. The Income-Tax Officer, Bhopal [AIR 1961 SC 182],** to submit that once the Appellate Authority had remanded the matter for ``` WPC No.38443 of 2022 ``` 6 consideration of the assessing officer, it is for the assessing officer to independently consider and pass orders. It is also submitted that under Section 9 of the Act it is for the petitioner to prove the transaction if he is called upon by the assessing officer to do so. There can be no quarrel with the above said propositions. **The Bhopal Sugar (Supra)** specifically says that if a Subordinate Tribunal refuses to carry out directions given to it by a Superior Tribunal in exercises of its appellate powers, the result will be chaos in the administration of justice. 8. This is not a case where there is a refusal by the respondent to carry out the directions of the Superior Tribunal. As a matter of fact, all other defects noticed earlier were answered in favour of the assessee, pursuant to the directions issued by the Appellate Tribunal. As far as the defect No.II is concerned, as already observed, the reasoning of the assessing officer cannot be sustained. Even though ``` WPC No.38443 of 2022 ``` 7 the burden of proof is on the assessee, the assessee can only be expected to prove what is possible of proving and he cannot be expected to prove a negative. He cannot prove a transaction which does not exist according to him. There is no logic or reason to direct the assessee to prove a sales return, when the contention is, there is no sale. The said direction can be justified only if there is a proof of sale. In the above view of the matter, this writ petition is allowed and the finding regarding defect No.II in Ext.P3 order is set aside. Needless to say, there cannot be any recovery proceedings based on the findings in Ext.P3 with regard to defect No.II. ## **Sd/-** ## **T.R.RAVI** **JUDGE** SKP/28-02 ``` WPC No.38443 of 2022 ``` 8 ## `APPENDIX OF WP(C) 38443/2022` ``` PETITIONER’S EXHIBITS: EXHIBIT P1TRUE COPY OF THE APPELLATE ORDER DATED 22.02.2021 EXHIBIT P2TRUE COPY OF THE JUDGMENT OF THIS HON'BLE COURT IN W.P.(C) 33103/2022 DATED 19.10.2022 EXHIBIT P3TRUE COPY OF THE MODIFIED ASSESSMENT ORDER DATED 9.11.2022 FOR THE YEAR 2013-14 ``` ``` RESPONDENTS' EXHIBITS:NIL ``` ## `TRUE COPY` ``` P.A. TO JUDGE ```