JUDGMENT Rajes Kumar, J.
1. Present revision under Section 11 of U.P. Trade Tax Act (hereinafter referred to as "Act") is directed against the order of Tribunal dated 22nd August, 1998.
2. Brief facts of the case are that the applicant was engaged in the business of manufacture and sales of Smokeless Fuel and Coal tar. Coal is one of the raw material. Applicant applied for exemption under Section 4-A of the Act and eligibility certificate was issued on 25th March, 1992 granting exemption on the turnover of manufactured goods w.e.f. 5.9.1989 for the period of five years. Commissioner of Trade Tax issued notice under Section 4-A (3) of the Act for the cancellation of the eligibility certificate mainly on the ground that at the time of survey dated 10.1.1990 difference in the stock as per stock register and physical verification was found. At the time of aforesaid survey, it was also found that on 9.1.1990 at Naubatpur check post, 12 Forms 31 were passed for 12 trucks of coal, but by the time of survey only 6 trucks were shown by 6.40 P.M. Thus, it has been inferred that the applicant was involved in selling the coal and according to the Commissioner of Trade Tax it amounts to misuse of eligibility certificate. Applicant filed reply stating therein that at the time of survey, the stock was taken by estimate and without physical verification. It was also explained that by the time of survey only six trucks were arrived and rest of the six trucks arrived after the survey and entries of all the 12 trucks were duly made in the books of account. It was submitted that the under-sized coal, which was obtained in the process of manufacturing was not useable in the manufacturing of smokeless fuel and were sold. It was further submitted that merely because the under-sized coal were sold, the inference of misuse of eligibility certificate cannot be drawn Commissioner of Trade Tax. however, did not accept the plea of the applicant and vide order dated 8.1.1997 cancelled the eligibility certificate w.e.f. 10.1.1990 on the ground that the applicant was involved in misusing the eligibility certificate inasmuch as the coal which was raw material, was sold.
3. Being aggrieved by the order of the Commissioner of Trade tax under Section 4-A (3) of the Act, applicant filed appeal before the Tribunal. Tribunal by the impugned order, confirmed the order passed under Section 4-A (3) of the Act.
4. Heard learned Counsel for the parties.
5. Learned Counsel for the applicant submitted that in the assessment year. 1989-90 certain coal which were not useable were sold after taking the permission from the Coal India Limited vide letter dated 10.1.1990. He submitted that only those coal which were under-sized and were not useable in the manufacturing of smokeless fuel and coaltar were sold and the turnover of sale of coal were disclosed. He submitted that adverse inference drawn from the fact that out of 12 trucks coal imported against Form 31 entry of six trucks could not be made by the time of survey and were sold is based on no material inasmuch as the plea of the applicant in this regard has been accepted by this Court in Trade Tax Revision No. 1153 of 1995. He further submitted that in the case of Kamal Fuels, Muzaffarnagar v. Commissioner, Trade Tax, U.P., Lucknow reported in STI 2005 Allahabad High Court, 70, this Court held that merely because the dealer was found selling raw material, eligibility certificate cannot be cancelled. He submitted that in case if there is any material which leads to the inference of suppression of turnover, books of account and the turnover can be enhanced, but on this ground, eligibility certificate cannot be cancelled. Learned Standing Counsel relied upon the order of the Tribunal.
6. Having heard the learned Counsel for the parties, I have perused the order of the Tribunal and the authorities below.
7. In Trade Tax Revision No. 1153 of 1995, in the case of the dealer itself arising from the assessment proceeding for the assessment year, 1989-90, this Court held as follows:
So far as rejection of books of account is concerned, I do not find any illegality in the order of Tribunal. Tribunal has given sufficient reason for rejection of books of account. However, I do not agree with the view of Tribunal that some of the coal have been sold as such, instead of using in the manufacturing process. Reasons given for such inference that at the time of survey dated 10.1.1990 it was found that on 9.1.1990 twelve trucks were passed against Form 31 from the check post while, entry of six trucks were only made in the books of account on 09.1.1990 is not justified. It is not the case of Department that the balance Trucks have not been entered in the books of account. According to the applicant, they were entered on 10.1.1990 on their arrival. Thus, inference drawn by the Tribunal and the authorities below that the coal have been sold as such, are based on no material and merely on surmises and conjectures.
So far as revision filed by the Commissioner of Trade Tax, I find force in the argument of learned Standing Counsel. In the assessment order, it is clearly mentioned that some of the coal imported by the dealer were of small size of coal and they were not useable and rejected coal and permission for their sale was obtained from the Coal India Limited which was given vide letter dated 19.1.1990. Applicant submitted that such coal were collected and were burnt and such coal are called as SSF rejected coal, therefore, such coal could not be treated as wastes product obtained during the process of manufacturing of smokeless fuel and coal tar. They were coal of smaller size which were not useable in the manufacturing of smokeless fuel and coal tar and therefore, they were sold and is accordingly liable to tax. Tribunal has illegally treated sale of such rejected coal as wastes product.
8. In the case of Kamal Fuels, Muzaffarnagar v. Commissioner, Trade Tax, U.P., Lucknow (supra), this Court held as follows:
In my opinion, the inference drawn by the Commissioner of Trade Tax which has been confirmed by the Tribunal that the applicant had misused the eligibility certificate on the ground that the applicant was found not using the cement purchased at the concessional rate as a raw material in the manufacturing of the finished goods but has sold as such, is not be justified. Though the applicant tried to explain from the entries in the copies that it could not be inferred that the purchased cement were not utilized in the manufacturing of the finished goods but have been sold, but 1 am not going to adjudicate this issue. I am of the view that this aspect of the matter has to be examined by the Assessing Authority during the course of the assessment proceeding. In case, Assessing Authority on the basis of the entries come to the conclusion that the applicant had not used the cement in the manufacturing of the finished goods but had sold as such, it is open to the Assessing Authority to levy the tax on the cement. It is also open to the Assessing Authority to levy the penalty under Section 4-B (5) of the Act for not using the cement in the manufacturing of final product for which recognition certificate was issued for the violation of the condition of Section 4-B (2) of the Act but the alleged reasons can not be a basis to infer the misuse of the eligibility certificate and can not be a ground for cancellation of the eligibility certificate. It is not the case of Commissioner of Trade Tax that the applicant was not involved in the manufacturing of coal briquettes.
9. In the case of Protek Coaling Pvt. Ltd., Ghaziabad v. CTT reported in 1999 UPTC, 138. This Court held as follows:
A finding of misuse of an eligibility certificate should normally first come from the Assessing Officer before whom a dealer claims exemption from tax and in the assessment proceedings, the Assessing Officer is entitled to take into account the materials obtain during the surveys or otherwise, as well as, the books of accounts, returns and if he found that the turnover either wholly or in part is not of goods covered by the eligibility certificate and manufactured by the dealer, he has jurisdiction to deny the dealer the exemption claimed by it. For examples dealer says that he has manufactured and sold the goods manufactured by it in terms of the eligibility certificate to the extent of Rs. 20 lacs, it is possible for him on the basis of the cogent material to hold that the whole or a part of the turnover is not of goods entitled to exemption. As already stated, the exemption in respect of goods mentioned in the eligibility certificate and such goods must have been manufactured by the dealer holding the certificate. An eligibility certificate does not debar a dealer from manufacturing other goods or from trading in other goods. Therefore, it is in the assessment proceeding that the Assessing Officer has to be satisfied that the dealer is entitled to exemption of certain turnover by virtue of the eligibility certificate and he can tax the turnover that according to his finding is not covered by the eligibility certificate for any reasons whatsoever.
10. In the case of Saberina Oil Industries Pvt. Ltd., Shikohabad v. State of U.P. and Ors. reported in 1996 UPTC, 341, dealer was found importing the goods from outside the State in an attempt to evade the tax. On this ground exemption was refused under Section 4-A of the Act. Division Bench of this Court held as follows:
The second ground for rejecting the review application is that the petitioner made an attempt to evade tax at the check post. This, in any case, cannot be a ground to reject the review application. If the petitioner made an attempt to evade tax or evaded tax, then a different consequence will flow and for that reason the review application cannot be rejected.
11. In the case of Mala Roller Flour Mills, Meerut v. CTT reported in 1999 UPTC 953 this Court held that provision to cancel the eligibility certificate under Section 4-A (3) of the Act is discretionary, which should be exercised judiciously and not arbitrarily. This Court further held that action for the cancellation of the eligibility certificate under Section 4-A (3) of the Act should be taken promptly. Though no limitation is provided under Section 4-A (3) of the Act but in the absence of fraud on the part of the dealer, action under Section 4-A (3) of the Act should be taken in a reasonable time.
12. In the present case the ground taken for cancellation of eligibility certificate that the applicant had sold the coal is not sufficient, in view of the above principles of law laid down by this Court and facts and circumstances of the case. Thus, the orders of the Tribunal and the Commissioner of Trade Tax under Section 4-A (3) of the Act are not sustainable and are liable to be set aside.
13. In the result, revision is allowed. Order of the Tribunal 22nd August, 1998 and the order of the Commissioner of Trade Tax dated 8th January, 1997 under Section 4-A(3) of the Act are set aside.