Natural justice in sales tax penalty proceedings requires confronting adverse statements before sustaining liability.

Under section 7-A of the A.P. General Sales Tax Act, the assessee had the initial burden to show that rice purchases had already suffered tax at the first sale point. That burden was treated as discharged through invoices, affidavits and challan details. Once such material was produced, the assessing authority had to examine the claim fairly and confront the assessee with any adverse material collected by the department. Reliance on statements recorded behind the assessee's back, without effective opportunity for rebuttal or cross-examination, breached natural justice. The penalty order and the revisional order were therefore not sustainable, and the appellate order cancelling the penalties stood restored.

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Issues: Whether the penalty imposed on the assessee for alleged failure to prove that the rice purchases had already suffered tax at the first sale point could be sustained when the department relied on statements and enquiries made behind the assessee's back without affording an effective opportunity to rebut them.

Analysis: Under section 7-A of the A.P. General Sales Tax Act, the initial burden lay on the assessee to show that the first sale had already suffered tax. The assessee produced invoices, affidavits and details of challans to discharge that burden. Once that material was placed before the assessing authority, it was necessary to investigate the claim fairly and to give the assessee an effective opportunity to meet any adverse information collected by the department. Reliance on statements recorded behind the assessee's back, without confronting the assessee with those statements or offering an opportunity for cross-examination, offended basic principles of natural justice. The revisional authority likewise restored the penalty without curing this defect.

Conclusion: The penalty order and the revisional order could not be sustained, and the assessee was entitled to restoration of the appellate order cancelling the penalties.

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