Show Cause Notice Quashed; if the revenue fails to procure samples for analysis.
Issue: Whether a show cause notice alleging tax evasion in brick manufacturing should be quashed when the revenue failed to obtain samples for analysis and rejected the assessee’s request for analysis, claiming the assessee tendered doctored samples.
Facts:
- The assessee was engaged in the manufacture of bricks.
- An investigation was conducted at the assessee’s premises.
- A show cause notice was issued alleging that the assessee was involved in multiple activities to evade applicable taxes.
- The assessee sought analysis of the bricks produced.
- The department rejected the assessee’s request, claiming the bricks were specially manufactured and that the assessee would provide doctored samples.
- The revenue did not obtain samples on their own.
Decision:
- The court held that the revenue omitted to obtain samples and was contending that the assessee tendered doctored samples.
- The court found that the revenue had no basis to proceed against the assessee.
- Therefore, the impugned order, proceeding, show cause notice, and reminders were quashed.
Key Takeaways:
- Importance of Sample Collection: Failure to collect samples for analysis can be fatal to the revenue’s case, especially when the nature of the manufactured goods is central to the dispute.
- Burden of Proof: The revenue has the burden of proving allegations of tax evasion.
- Rejection of Assessee’s Request: Rejecting the assessee’s request for analysis without a valid reason and without obtaining their own samples weakens the revenue’s position.
- Lack of Basis: Without proper evidence, such as analyzed samples, the revenue has no basis to proceed against the assessee.
- Procedural Fairness: The decision reinforces the importance of procedural fairness and ensuring that the revenue conducts thorough investigations.
- The court is reinforcing the need for the revenue to gather their own evidence, and that they cannot just reject the tax payer’s evidence, and then proceed with a case.
HIGH COURT OF ORISSA
Maa Sarala Fly Ash Bricks
v.
Commissioner of CT and GST
Arindam Sinha, Actg. CJ.
and M.S. Sahoo, J.
and M.S. Sahoo, J.
W.P.(C) No.1061 of 2025
JANUARY 27, 2025
R.P. Kar, Sr. Adv. and Debasish Hazra, Adv. for the Petitioner. S. Mishra, Standing Counsel for the Respondent.
ORDER
1. The writ petition was moved on 15 th January, 2025. On behalf of petitioner Mr. Kar, learned senior advocate had submitted, his client is engaged in, inter alia, manufacture of bricks. Raw materials used are fly ash, sand and cement. It will appear from the project report of his client, percentage use of cement is 15 to 16 percent.
2. Under challenge is, inter alia, order dated 3rd January, 2025 rejecting his client’s prayer for analysis of the bricks produced. The order has been followed up by also challenged notice for personal hearing. He clarified, his client had earlier moved this Court by W.P.(C) no.34908 of 2023, disposed of by coordinate Bench on order dated 7th May, 2024. It is pursuant to said order his client sought the analysis.
3. Mr. Mishra, learned advocate, Standing Counsel appearing on behalf of revenue had submitted, manufacture of bricks is but one of several activities, all of which petitioner indulged in to evade applicable taxes. The proceeding was initiated pursuant to report of investigation. Petitioner subsequently produced two pieces of bricks, for them being subject to analysis. It is clear, the bricks were specially manufactured. Petitioner has been applying several tactics to get away with not paying tax. His client in proceeding had acted in accordance with law, as directed by said order dated 7th May, 2024. Time for completing the assessment is to expire on 5th February, 2025. The writ petition be dismissed.
4. We had required revenue to file additional affidavit on omission to take sample, when the investigation was made Paragraph-5 from our order dated 15th January, 2025 is reproduced below.
“5. Revenue will file additional affidavit stating their position on why the provision was not resorted to in the inspection made based on confidential information had. Form GST INS-01 may also be disclosed in the affidavit. It will be accepted on adjourned date upon advance copy served.”
Today Mr. Mishra files affidavit dated 24th January, 2025 and relies on paragraph-10 therein as explanation for the omission. On perusal of relied upon paragraph we find it is an argument stated.
5. There is disclosure of Form GST DRC-01A dated 21st September, 2023 being intimation of tax ascertained. A passage from the intimation is extracted and reproduced below.
“Basing on the confidential information in possession that the taxpayer is engaged in following clandestine business activities, the place of business of the tax payer was inspected on dtd. 14.02.2022 by virtue of authorization in Form GST INS-01 vide Ref. No.ZD210222007070J, dtd. 14.02.2022 issued by the joint Commissioner of State Tax, CT & GST Enforcement Range, Cuttack.”
In impugned order dated 3rd January, 2025 the authority has referred to section 154 in Orissa Goods and Services Tax Act, 2017. The provision is reproduced below.
“154. Power to take samples.-
The Commissioner or an officer authorized by him may take samples of goods from the possession of any taxable person, where he considers it necessary, and provide a receipt for any samples so taken.”
6. Present situation on facts is that revenue omitted to obtain sample and is contending that petitioner has subsequently tendered a doctored sample. In the circumstances, revenue has no basis to proceed against petitioner. It follows that we must and do quash impugned order dated 3rd January, 2025, preceding show cause notice dated 29th September, 2023 and reminder dated 4th January, 2025.
7. The writ petition is disposed of.