Natural justice in tax assessment requires disclosure of third-party material and cross-examination before rejecting accounts.

Rejection of a dealer's accounts and best judgment assessment based on third-party books and statements must comply with natural justice by giving the dealer a real opportunity to rebut the material relied on. Where the assessing authority uses outside material to test the return, that material must be disclosed to the assessee, and a specific request to cross-examine the person whose records or statements are used against him cannot be ignored. Denial of that opportunity deprives the assessee of an effective defence and vitiates the assessment proceedings.

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Issues: Whether rejection of the assessee's accounts and best judgment assessment under section 17(3) of the Kerala General Sales Tax Act, 1963 was vitiated by denial of an opportunity to cross-examine the third-party whose books and statements were relied upon.

Analysis: Section 17(3) and the connected rules require the assessing authority to give the dealer a reasonable opportunity of being heard and, where a return is filed, to prove its correctness or completeness. Where the authority proposes to reject the assessee's accounts on the basis of material collected from outside sources, natural justice requires that such material be brought to the assessee's notice so that he may explain or rebut it. The assessee is ordinarily entitled to choose the form of rebuttal evidence, and when he specifically seeks cross-examination of the person whose books or statements are relied upon against him, denial of that request deprives him of an effective opportunity to meet the case against him. The rule is consistent with the principles applied in tax assessment proceedings that, although strict rules of evidence do not govern, the assessment cannot rest on undisclosed material or mere suspicion.

Conclusion: The refusal to allow cross-examination in the circumstances of the case vitiated the assessment proceedings.

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