The Goods and Services Tax Appellate Tribunal (GSTAT), Agra Bench, has held that suppressed turnover cannot be determined merely from an aggregate figure drawn from seized diaries without examining the individual entries and correlating them with the taxpayer’s accounts, invoices and statutory returns.

The Bench of Ajeet Singh (Judicial Member) and Vivek Kumar (Technical Member) set aside both the original adjudication order and the first appellate order after finding material deficiencies in their examination of the evidence.

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The bench remanded the dispute for fresh adjudication. It clarified that its decision did not conclusively establish suppression or require acceptance of the taxpayer’s explanation.

The dispute arose from an inspection conducted by the Special Investigation Branch at the taxpayer’s business premises on August 7, 2018, during which three diaries were seized.

Based on entries in those diaries, the adjudicating authority treated transactions aggregating to ₹34,71,068 as unaccounted outward supplies. It imposed tax of ₹5,83,608.24, along with an equivalent penalty.

The taxpayer challenged the determination before the Additional Commissioner, Grade-II (Appeal-I), Agra. The first appellate authority substantially reduced the alleged suppressed turnover to ₹95,734, sustaining tax of ₹17,232 and an equivalent penalty.

Aggrieved by this relief, the Revenue approached the Tribunal seeking restoration of the original adjudication order.

The department argued that the first appellate authority had wrongly accepted 85 B2B tax invoices produced at the appellate stage.

According to the Revenue, these invoices had not been furnished during the initial investigation and were an afterthought intended to explain the entries in the seized diaries.

The department further alleged that the diaries reflected unaccounted sales of 76 hand pumps, whereas the appellate authority had accepted the taxpayer’s explanation concerning only 36 hand pumps. It also questioned the acceptance of explanations describing certain entries as rough calculations and expenses.

The Revenue relied additionally on the absence of regular books of account at the business premises during the investigation.

The taxpayer disputed these allegations. It maintained that the B2B transactions had been declared in GSTR-1 and that the corresponding tax liability had been accepted. It also submitted that the diary entries had been reconciled with the regular books after copies of the seized documents became available.

The Tribunal observed that the crucial question was whether the diary entries, after proper examination and correlation with other records, established taxable supplies that had not been accounted for or disclosed.

The nature of each disputed entry, its connection with an actual supply, its reconciliation with the books and its disclosure in statutory returns required specific findings.

An inference of suppression could not be sustained merely on the basis of an aggregate figure without a demonstrable factual basis for its computation.

Examining the original proceedings, the Bench found that neither the show-cause notice nor the adjudication order contained a sufficiently clear entry-wise analysis explaining how the alleged suppressed turnover of ₹34,71,068 had been calculated.

The adjudication order also failed to adequately identify the entries supporting the alleged sale of 76 hand pumps or explain why the taxpayer’s descriptions of certain entries as rough calculations, expenses or other transactions had been rejected.

The Tribunal observed that the absence of regular books of account at the premises during investigation could be a relevant circumstance.

However, that circumstance alone did not dispense with the requirement to establish the alleged suppressed turnover through an appropriate analysis of the available evidence.

The authority was required to examine the disputed entries against the taxpayer’s records and explain why particular transactions were considered unaccounted supplies.

Addressing the 85 B2B invoices, the Tribunal held that their non-production during the initial investigation did not, by itself, conclusively establish suppressed turnover.

At the same time, their subsequent production and the taxpayer’s assertion that the transactions appeared in GSTR-1 could not be accepted conclusively without verification.

The adjudicating authority must examine whether the invoices correspond to the diary entries, whether the underlying transactions are supported by records, and whether the turnover and tax liability were properly reported and discharged. This verification must include the relevant GSTR-3B particulars wherever applicable.

Where a transaction has already been accounted for, disclosed and taxed, the authority must determine whether any further demand concerning that transaction is legally sustainable. Conversely, an allegation of an independent undisclosed taxable supply must be supported by a specific finding and relevant evidence.

The Tribunal found that the first appellate order suffered from similar shortcomings.

It did not adequately identify the entries treated as unverifiable or provide a clear computation explaining how the reduced suppressed turnover of ₹95,734 had been determined.

The appellate authority also failed to sufficiently explain its acceptance of the explanation concerning 36 hand pumps. Nor did it clearly identify the bills, cash memos or other documents considered evidence of unaccounted sales and verify whether the corresponding turnover had already been disclosed and taxed.

The Tribunal found no adequate basis either to affirm the reduced demand or simply restore the original demand.

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