Facts of the Case: The petitioner, a trader in iron and steel products, disclosed purchases worth ₹1,08,16,001 and sales worth ₹98,83,457.95. A survey was conducted on 23.03.2018 at the petitioner’s business premises, which allegedly revealed discrepancies. Based on the survey report, proceedings under Section 74 of the UPGST/CGST Act were initiated, and an ex-parte assessment order was passed determining evaded purchases at ₹1,15,60,493 and sales at ₹7 crore. The petitioner was saddled with a demand of ₹3,40,98,286, including tax, interest, and penalty.

On appeal, the Additional Commissioner (Appeal) partly allowed the appeal on 10.09.2024, reducing the evaded sales to ₹2.5 crore (based on purchases of ₹1,15,60,493), and fixed the tax liability at ₹45,00,000, interest at ₹56,70,000, and penalty at ₹45,00,000, totaling ₹1,46,70,000.

The petitioner challenged this order, contending that no opportunity of hearing was granted, and that the estimation of sales exceeding the determined purchases was arbitrary. Reliance was placed on M/s Moti Lal Dwarika Prasad v. Commissioner of Sales Tax, wherein it was held that turnover estimation should not be arbitrary.

Issue: Whether the Appellate Authority was justified in arbitrarily fixing the evaded sales substantially higher than the determined purchases—without assigning any cogent reasoning, thereby inflating the petitioner’s tax liability?

Held that:

The Court in this case noted that once evaded purchases have been determined at ₹1,15,60,493, sales cannot mechanically be estimated at a figure substantially higher without valid reasoning. The fixation of evaded sales at ₹2.5 crore by the Appellate Authority was held to be arbitrary.

The Court noted that the impugned appellate order did not provide any justification for fixing sales over and above the determined purchases. Reliance was placed on the judgment in M/s Moti Lal Dwarika Prasad v. Commissioner of Sales Tax, which emphasized that estimation of turnover should not be arbitrary.

Further, the Court held that the petitioner was not afforded sufficient opportunity of hearing before determining the purchases and sales, thereby vitiating the assessment process.

Consequently, the impugned orders were quashed, and the matter was remanded to the appellate authority for fresh adjudication by passing a reasoned and speaking order after granting proper hearing to all stakeholders. Any amount already deposited by the petitioner was made subject to the outcome of the fresh order.

Case Name: M/s RAJ TRADING COMPANY vs. STATE OF U.P & ORS. dated 02.09.2025

To read the complete judgement 2025 Taxo.online 2258