Holding

Excessive power consumption, when production shown to decrease, prima facie establishes the assessee's intention to suppress production and turnover, justifying the rejection of books of account and enhancement of turnover.

Summary

Melton India, a manufacturer of metallised plastic films, held an eligibility certificate under Section 4-A of the U.P. Trade Tax Act. The assessing authority rejected its books of account and enhanced its turnover, citing a rise in electricity consumption while reported production fell over three assessment years. The Tribunal and the High Court upheld this enhancement, rejecting the appellant’s explanations that a shift from 23‑micron to 12‑micron products, which consume more power, accounted for the higher electricity use, and that the chilling plant operated during production shutdowns. The courts noted the appellant’s failure to produce wage registers, production registers, and separate job‑work accounts, concluding that the non‑production of such records indicated an intent to suppress production. The Supreme Court affirmed that excessive power consumption, when production declines, prima facie establishes suppression of production and turnover, and therefore upheld the rejection of the books of account and the turnover enhancement. The appeal was dismissed.

Issues considered

Whether excessive electricity consumption, in the face of declining reported production, can be taken as prima facie evidence of suppression of production and turnover under the U.P. Trade Tax Act.
Whether the appellant’s explanation of a change in product specifications (from 23 micron to 12 micron goods) and operation of the chilling plant during shutdown defeats the inference of suppression.

Legislation cited

U.P. Trade Tax Acts. 4-A

Subjects

trade taxturnover enhancementsuppression of productionelectricity consumptionbooks of accountassessmentU.P. Trade Tax Acteligibility certificatehigh courttribunalfactual inference

Judgment

A MELTON INDIA
v.
THE COMMISSIONER TRADE TAX, U.P.

JANUARY 31,2007

B (S.B. SINHA AND MARKANDEY KA TJU, JJ.]

U.P. Trade Tax Act:

Turnover-Enhancement of, on the ground of suppression-Increased
C power consumption by assessee's unit-Books of account of assessee showing
lesser production-Rejection ofbooks ofaccount by courts be/ow-Correctness
of-Held, correct-Excessive power consumption prima facie establishes
assessee's intention to suppress the production and turnover.

D The question which arose for consideration in the present appeal is
whether the Authorities, Tribunal and High Court were right in rejecting
the books of account of assessee and enhancing the turnover, on the premise
that the assessee had suppressed its production when there is increase in
electricity consumption.

E Dismissing the appeal, the Court

HELD: 1. The High Court is right in saying that excessive power
consumption, prima facie, establishes the assessee's intention to suppress
the production and the turnover. (Para 12( (44-8)

2.1. The assessee's contention that earlier the appellant was
F 'f
manufacturing goods of 23 micron which required less electricity
consumption, whereas subsequently it had started manufacturing goods of 12
micron which required more electricity consumption, cannot be accepted. It
may be noted from the orders of the Tribunal and the High Court that the
assessee's books of accounts have been rejected on several grounds. For
G example, the assessee had not produced the relevant books showing the
payment of wages to the workers. This book was very important because had
it shown that the total wage bill of the unit was going up, it would be a
reasonable inference to draw that production was also going up. Non-
production of such a book despite several opportunities being given by the

H 40
MELTON INDIA v. THECOMMNR. TRADE TAX, U.P. [MARKANDEY KATJU, J.] 4]

authorities indicates that the assessee was trying to suppress its production. A
Similarly, non-production of the production register also leads to the same
inference. lfara 141144-D-E]

2.2. There were relevant considerations and relevant material on the
basis of which the books of the assessee were rejected by Tribunal. The
Tribunal has given various reasons for upholding the rejection of the assessee B
books. For example, there was no verification of the raw materials used and
the work done on job work basis has not been verified. The Tribunal also
considered the assessee's submission regarding the difference in the
production of23 microns and 12 microns. The Tribunal has also observed
that the appellant has nowhere mentioned that the chilling plant has ever C
remained closed and similar is the position with regard to the supply of
electricity for labourers. lfara 15] [44-F-G]

3. The High Court has considered these reasons and has not interfered
with the findings of the Tribunal about non maintenance of proper accounts
and suppression of production and turnover. These are findings of fact and D
hence the High Court, which could only interfere if there was an error of
law, rightly rejected the revision. IPara 161145-A-BI

-I CIVIL APPELLATE JURISDICTION: Civil Appeal No. 373 of2007.

From the Judgment and Final Order dated 10.12.2004 of the High Court E
of Judicature at Allahabad in T.T.R. Nos. 2407,2408,2409 and 2410/2004.

Dinesh Dwivedi, Kavin Gulati and T. Mahipal for the Appellant.

Gaurav Banerjee, Vikrant Yadav and Kamlendra Mishra for the
Respondent. F
The Judgment of the Court was delivered by

MARKANDEY KATJU, J. I. Leave granted.

2. This appeal has been directed against the judgment and order dated G
10.12.2004 by the High Court of Judicature at Allahabad in Trade Tax Revision
Nos. 2407-2410/2004.

3. Heard learned counsel for the parties and perused the record.

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42 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 4. The appellant was doing the business of manufacture of metallised .J

plastic films. The appellant's unit was holding an eligibility certificate under
Section 4-A of the U.P. Trade Tax Act for the period from 20.02.1995 to
19.02.2003 upto monetary limit of Rs. 66,56,239/-. The Assessing authority
rejected the appellant's books of account and enhanced the tum over. The
B first and second appeals filed by the appellant were rejected.

5. The appellant then filed Revisions before the High Court which were
also dismissed and hence this appeal.

The Tribunal has rejected the books of account of the assessee appellant
C on the ground that during the assessment year 2000-0 l as against the electricity
consumption of 513596 units, production was shown at 402 MT, while in the
assessment year 2001-02 as against the electricity consumption of 638164
units, production was shown at 268 MT, and for the assessment year 2002-
03 as against the electricity consumption of 668736 units, production was
shown at 314 MT. Thus the Tribunal, as also the High Court, were of the
D view that since electricity consumption by the assessee had increased it can
be reasonably inferred that the assessee's production must also have increased.
Since the production had in fact gone down, it could be reasonably inferred
that the assessee had suppressed its production.

6. The appellant explained that during the period in question it had
E switched over from production of23 micron goods to production of 12 micron
goods. According to it, electricity consumption in the manufacturing of 23
micron goods was less than that in manufacturing 12 micron goods. It was
explained that the appellant was now manufacturing goods of 12 micron,
which requires more electricity consumption as compared to the goods of 23.
F micron as the length of 12 micron is more than the length of 23 micron. The
weight of23 micron is 33 gm. per sq. meter, whereas the weight of 12 micron
is almost half i.e. 17 gram per sq. meter, and therefore to manufacture I kg.
goods of 12 micron the consumption of electricity is almost double than the
consumption of electricity for mJnufacture of I kg. of 23 micron. It was
further explained that the chilling tower was in operation even during the
G closure of the manufacturing which resulted continuous consumption of
power, through manufacturing did not take place and electricity was also
consumed in residential area. These explanations have not been accepted by
the Tribunal on the ground that it can not be believed that during the closure
of the production the chilling plant kept in operation. The Tribunal further
H held that though less production was shown but the claim of labour expenses
MELTON INDIA v. THE COMMNR. TRADE TAX, U.P. [MARKANDEY KATJU,J.] 43
-1-- etc. have not been shown less and the position was same as it was in the A
earlier years. The Tribunal observed that no prudent businessman would
keep in operation the chilling plant without production. The Tribunal further
held that separate account for the job work had not been produced and it had
not been shown as to which production relates to the job work. The Tribunal
accordingly sustained the rejection of the assessee's books of account and B
estimate of tum over on the basis of the higher consumption of electricity.

7. Shri Dinesh bwivedi, learned senior counsel for the appellant submitted
).. that the higher consumption of electricity is not a good ground for rejection
of the books of accounts. On the other hand, learned counsel for the
respondent submitted that the appellant had not maintained proper books of C
accounts.

8. 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:
D
9. Assessment Year Production Electricity consumed

2001-01 402MT 5,13,596

2001-02 268MT 6,38,164

2002-03 314 MT 6,68,736 E

I 0. 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
y
reasonable inference can be drawn that the production will also have gone F
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. The Deputy Commissioner (Appeals) observed that in spite of the G
several opportunities being given for verification of production from the
production register, the labour attendance register and the payment made to
the labour the same was not done by the assesse, and the closure of the
manufacturing also could not be got verified from the labour attendance
register and labour payment register. The appellant also had not maintained
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44 SUPREME COURT REPORTS (2007] 2 S.C.R.

A separate accounts for its own manufacturing and the job work, and it could
not inform which raw materials have been used in the manufacturing of job
work and which goods have been used on the assessee's own manufacturing.

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

13. Shri Dinesh Dwivedi, learned senior counsel for the appellant,
however, submitted that earlier the appellant was manufacturing goods of 23
micron which required less electricity consumption, whereas subsequently it
C had started manufacturing goods of 12 micron which required more electricity
consumption as stated above.

14. In our opinion this submission cannot be accepted. It may be noted
from the orders of the Deputy Commissioner (Appeals), the Tribunal and the
High Court that the assessee's books of accounts have been rejected on
D several grounds. For example, the assessee had not produced the relevant
books showing the payment of wages to the workers. This book was very
important because had it shown that the total wage bill of the unit was going
up, it would be a reasonable inference to draw that production was also going
up. Non production of such a book despite several opportunities being given
by the authorities indicates that the assessee was trying to suppress its
E production. Similarly, non production of the production register also leads
to the same inference.

15. We have carefully perused the order of the Tribunal which is the last
fact finding authority and we note that there were relevant considerations and
relevant material on the basis of which the books of the assessee were
F rejected. The Tribunal has given various reasons for upholding the rejection
of the assessee books. For example, there was no verification of the raw
materials used and the work done on job work basis has not been verified.
The Tribunal also considered the assessee's submission regarding the
difference in the production of 23 microns and 12 microns. The Tribunal has
G also observed that the appellant has nowhere mentioned that the chilling
plant has ever remained closed and similar is the position with regard to the
supply of electricity for labour.:rs. Various other reasons have given for
rejecting the books of accounts including the imbalance in the production on
the basis of electricity consumption, non verification of job work etc.

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MELTON INDIA v. THE COMMNR. TRADE TAX, U.P. [MARKANDEY KAT JU, J.] 45

16. The High Court has considered these reasons and has not interfered A
with the findings of the Tribunal about non maintenance of proper accounts
and suppression of production and tum over. These are findings of fact and
hence the High Court, which could only interfere if there an error of law,
rightly rejected the revision. Thus there is no force in this appeal and hence
it is dismissed.
B
D.G. Appeal dismissed.