Rejection of books of accounts on the basis of high consumption of electricity justifiable

Shree Gorakhnath Food (P) Ltd. Vs Commissioner (Allahabad High Court)

Allahabad High Court held that excessive power consumption, prima facie, establishes the intention to suppress the production and the turnover. Accordingly, the books of account can be rejected on the basis of high consumption of electricity.

Facts- The Assessee had established a factory for manufacturing of Flour, Maida and Sooji. The matter relates to A.Y. 2007-08 for the period 01.01.2008 to 31.03.2008, and A.Y. 2008-09. The Assessee had disclosed total purchase of Rs.99,80,498/- and sale of Rs.1,20,78,303/- for the period 01.01.2008 to 31.03.2008.

During the assessment period of 2007-08, a show cause notice was issued to the Assessee and the same was replied on 28.04.2010. The Assessing Authority rejected the books of accounts vide order dated 15.06.2010 and enhanced the turnover on the ground of excessive consumption of electricity.

Aggrieved by the order, a first appeal was preferred before the Additional Commissioner, Grade-II (Appeals), Commercial Tax, Gorakhpur. The appeal was allowed vide order dated 15.11.2010 and the quantum of tax was reduced.

Against the order dated 15.11.2010, the Department filed Second Appeal No.38 of 2011. The Tribunal allowed the appeal of the Department while rejected the appeal of the Assessee.

During the assessment proceedings for the year 2008-09, the Assessing Authority found that there was consumption of 26.351 units of electricity for production of 1 quintal of flour against the disclosed consumption of 8.840 unit of electricity by the Assessee. The first Appellate Authority reduced the tax liability imposed by the Assessing Authority in the first appeal relying upon the consumption of electricity for the earlier year 2007-08 at 20.887 units per quintal. Against the order of first Appellate Authority, one appeal was filed by the Assessee being Second Appeal No.104 of 2011 and the other appeal filed by the Revenue being Second Appeal No.47 of 2011. Hence the present revisions.

Conclusion- It is apparent that the Assessing Authority had rightly rejected the books of accounts on the basis of high consumption of electricity after dealing with each aspect of the case and recording a categorical finding as to the production of flour made from the wheat during the relevant period of assessment year in question. The earlier Division Bench and coordinate Bench of this Court had only held that rejection of books of accounts cannot be done on the basis of high consumption when there was no material on record. However, in the present case, the Assessing Authority has demonstrated how the electricity was consumed by the Assessee during the period 01.04.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 when the production did not increase but only the consumption was high.

In M/s Melton India, Gautambudh Nagar, the Apex Court had held that where the production does not increase with the high consumption of electricity, inference is drawn as to the evasion of sales tax by the Assessee by not disclosing the sale.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Sri Shubham Agrawal, learned counsel for the revisionist and Sri Rishi Kumar, learned Standing Counsel for the State.

2. These revisions under Section 58 of the U.P. Value Added Tax Act, 2008 (hereinafter called as “Act of 2008”) have been filed assailing the order dated 12.05.2011 passed by the Tribunal dismissing the second appeal of the Assessee being Second Appeal No.104 of 2011 and allowing Second Appeal No.38 of 2011 and Second Appeal No.47 of 2011 filed by the Revenue.

3. The revision No.486 of 2011 was admitted on 07.07.2011 on the question, “whether on account of higher consumption of electricity during the period 01.01.2008 to 31.03.2008, the books of account of Assessee-revisionist could be rejected?”

4. Revision No.490 of 2011 was admitted on the question “whether on account of higher consumption of electricity during the Assessment Year 2008-09, the books of account of Assessee-revisionist could be rejected?”

5. The Assessee before this Court had established a factory for manufacturing of Flour, Maida and Sooji. The matter relates to Assessment Year 2007-08 for the period 01.01.2008 to 31.03.2008, and Assessment Year 2008-09. The Assessee had disclosed total purchase of Rs.99,80,498/- and sale of Rs.1,20,78,303/- for the period 01.01.2008 to 31.03.2008. During the assessment period of 2007-08, a show cause notice was issued to the Assessee and the same was replied on 28.04.2010. The Assessing Authority rejected the books of accounts vide order dated 15.06.2010 and enhanced the turn over on the ground of excessive consumption of electricity. Aggrieved by the order, a first appeal was preferred before the Additional Commissioner, Grade-II (Appeals), Commercial Tax, Gorakhpur. The appeal was allowed vide order dated 15.11.2010 and the quantum of tax was reduced. Against the order dated 15.11.2010, the Department filed Second Appeal No.38 of 2011. The Tribunal allowed the appeal of the Department while rejected the appeal of the Assessee. During the assessment proceedings for the year 2008-09, the Assessing Authority found that there was consumption of 26.351 units of electricity for production of 1 quintal of flour against the disclosed consumption of 8.840 unit of electricity by the Assessee. The first Appellate Authority reduced the tax liability imposed by the Assessing Authority in the first appeal relying upon the consumption of electricity for the earlier year 2007-08 at 20.887 units per quintal. Against the order of first Appellate Authority, one appeal was filed by the Assessee being Second Appeal No.104 of 2011 and the other appeal filed by the Revenue being Second Appeal No.47 of 2011. Hence the present revisions.

6. Both the revisions are being heard together with the consent of counsel for the parties and are being decided by the common order.

7. Sri Shubham Agrawal, learned counsel for the revisionist submitted that the Assessing Authority as well as Tribunal could not have rejected the books of accounts only on the ground of excessive consumption of electricity. He submitted that no adverse inference was drawn by the Assessing Authority with regard to filing of monthly return. According to learned counsel, books of accounts cannot be rejected simplicitor on the ground of excessive consumption of electricity. The Assessee had furnised an explanation that due to the fact that plants and machineries were sufficiently old and maintenance and repairing of the plants and machineries was not done, and also the electricity of residential quarter of the officials of the Company was supplied through factory premises, where Air Conditioners were installed and due to which, the consumption of electricity was higher. Reliance has been placed upon Division Bench judgment of this Court in M/s Mahashakti Oil Mills, Bisheshargani, Varanasi vs. The Commissioner of Sales Tax, U.P., Lucknow, 1972 U.P.T.C. 361; Mahabir Prasad Jagdish Prasad vs. Commissioner of Sales Tax, U.P. 1971 U.P.T.C. 43 and decision of co-ordinate Bench of this Court in M/s Abhinav Steels Pvt. Ltd. vs. The Commissioner, Commercial Tax, U.P. Lucknow, 2017 U.P.T.C. 344 and M/s Sunita Ispat Pvt. Ltd. vs. Commissioner, Commercial Tax, U.P., VSTI 2016 (27) B-1272.

8. Per contra, learned Standing Counsel while opposing the revision, submitted that the Assessing Authority had recorded a finding that for the period 01.4.2007 to 31.12.2007, the electricity consumption of revisionist’s Unit was 8,55,375 units. Further, during this period, the Assessee had purchased 96728.21 quintals of wheat and the total wheat grinded was 96760.05 quintals. Thus, electricity consumed per quintal of wheat was 8.840 units. On the other hand, for the period 01.01.2008 to 31.03.2008, the total electricity consumed was 1,83,625 units and total grinding of wheat, which was done, was 8791.14 quintals. Thus, the electricity consumed for each quintals of wheat was 20.887 units. He further contended that the Tribunal had rightly rejected the appeal of the Assessee for the Assessment Year 2008-09 and allowed the appeal of the Tribunal as during the period the Assessee had disclosed lessor turn over in spite of higher consumption of electricity.

9. According to learned Standing Counsel, the Assessing Authority as well as Tribunal after recording a finding that for the period 01.04.2007 to 31.12.2007, the consumption per quintal for grinding wheat was 8.840 units while for the period 01.01.2008 to 31.03.2008 was 20.887 units which is more than double and it cannot be believed that such high electricity consumption was because of the Air Conditioners working at the residential quarters of the officials. Emphasis was laid that no Air Conditioners are used during the winter season especially in the city of Gorakhpur where it is an extreme cold climate. Reliance has been placed upon a decision of this Court in M/s Melton India, Gautambudh Nagar vs. The Commissioner, Trade Tax, U.P. Lucknow 2005 NTN (26) 507, which was affirmed by Hon’ble Apex Court in Civil Appeal No.373 of 2007 (Melton India vs. Commissioner Trade Tax, U.P.) reported in 2007 N.T.N. (33) 169.

10. Having heard the respective counseld for the parties and from perusal of record, it transpires that the sole question, which needs to dealt with is, “whether the books of accounts can be rejected by the Assessing Authority on the basis of excessive consumption of electricity?”

11. This question has been directly and indirectly under consideration of this Court as well as Hon’ble Apex Court for a long time. The Division Bench of this Court in Mahabir Prasad Jagdish Prasad (supra) was of the view that high consumption of electricity may be a circumstance justifying action under Section 21 of U.P. Sales Tax Act, 1948 (hereinafter called as “Act of 1948”), but, the Court was of the view that high consumption of electricity by itself is no material for rejecting the books of accounts of the Assessee. The judgment of Mahabir Prasad Jagdish Prasad (supra) was followed by another Division Bench in M/s Mahashakti Oil Mills, Bisheshargani, Varanasi (supra) wherein the proceedings were under Section 21 of Act of 1948 and the Court was of the view that if no material was brought by the taxing authorities on record, there was no justification for rejecting the books of accounts.

12. The said judgment was subsequently followed in M/s Sunita Ispat Pvt. Ltd. (supra) and the Court found that excessive electricity consumption cannot be a ground for rejection of books of accounts.

13. In M/s Abhinav Steels Pvt. Ltd. (supra) also the coordinate Bench of this Court, following the earlier decisions, had found that the books of accounts cannot be discarded only on the ground of excessive use of electricity. The Court further held that excess consumption of electricity, can at best given rise to suspicion so as to warrant examination of other materials.

14. In both the judgments of M/s Sunita Ispat Pvt. Ltd. (supra) and M/s Abhinav Steels Pvt. Ltd. (supra), no material was brought before the Tribunal or the Court so as to demonstrate that the production was not commensurate with the use of electricity and the Court in general held that excessive use of electricity cannot be a ground for rejection of books of accounts.

15. The Division Bench of this Court was also of the view that only when the material has been brought on record to justify the rejection of books of accounts then only the high consumption of electricity can be considered.

16. In the case in hand, there is no denial of the fact that for nine months starting from 01.04.2007 to 31.12.2007, the total electricity consumption was 8,55,375 and total grinding of wheat, which was done, was 96760.05 quintals, while for the remaining period i.e. 01.01.2008 to 31.03.2008, only 8791.14 quintals of wheat was grinded consuming 1,83,625 units of electricity, which comes to 20.887 units of electricity per quintal compared to the earlier period, where the consumption was 8.840 units per quintal. The difference between consumption of electricity for the period 01.4.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 is about 2.5 times high, for which justification given by the Assessee to the extent of electricity being consumed by the officials at their residential premises for running Air Conditioners, fans and light, cannot be accepted, as the period for which explanation has been given is the winter time when there is no use of Air Conditioners and the domestic consumption cannot be believed on such a higher side.

17. In Melton India (supra), the Apex Court while considering the case of excessive consumption of electricity, when compared to production, found that when electricity consumption goes up, a reasonable inference can be drawn that production have gone up. If the electricity consumption is going up, but the production is seen to be going down, a reasonable inference can, prima facie, be drawn that there was suppression of production and consequently suppression of sales in order to avoid sales tax. Relevant paras 9, 10 and 12 of the judgment are extracted hereas under :

“7. In this connection we may refer to the electricity consumption and production in the appellant’s factory for the three assessment years in question, which are as follows:

10. A perusal of the above figures shows that while the electricity consumption has clearly been going up, the production has gone down from 402 MT to 314 MT. Ordinarily, when electricity consumption goes up, a reasonable inference can be drawn that the production will also have gone up. If the electricity consumption is going up but the production is seen to be going down, a reasonable inference can, prima facie, be drawn that there was suppression of production and consequently suppression of sales in order to avoid sales tax.

11. ….

12. In view of the above, we agree with the High Court that excessive power consumption, prima facie, establishes the assessee’s intention to suppress the production and the turn over.”

18. Reliance placed by the Assessee counsel on the report of M/s Flour Mill Engineers and Consultants dated 20.06.2010 before the first Appellate Authority wherein it was stated that an inspection of the factory was done on 10.06.2010 and it was found that machinery was old and there was fault in the electricity being supplied to the factory. This report is of the year 2010 filed before the first Appellate Authority and that too by a private person. The report cannot be taken into account as the relevant period is 01.01.2008 to 31.03.2008. Subsequent report after two and a half years cannot be taken into account and the findings recorded by the first Appellate Authority relying upon said report was rightly negated by the Tribunal.

19. Thus, in the light of the constant view of this Court and Hon’ble Apex Court, it is apparent that the Assessing Authority had rightly rejected the books of accounts on the basis of high consumption of electricity after dealing with each aspect of the case and recording a categorical finding as to the production of flour made from the wheat during the relevant period of assessment year in question. The earlier Division Bench and coordinate Bench of this Court had only held that rejection of books of accounts cannot be done on the basis of high consumption when there was no material on record. However, in the present case, the Assessing Authority has demonstrated how the electricity was consumed by the Assessee during the period 01.04.2007 to 31.12.2007 and 01.01.2008 to 31.03.2008 when the production did not increase but only the consumption was high.

20. In M/s Melton India, Gautambudh Nagar (supra), the Apex Court had held that where the production does not increase with the high consumption of electricity, inference is drawn as to the evasion of sales tax by the Assessee by not disclosing the sale.

21. Considering the facts and circumstances of the case, I find that no ground for interference is made out in the order of Tribunal. Both the revisions lack merits and are hereby dismissed.

22. The question of law stands answered in favour of the Revenue and against the Assessee.