Natural justice and proper stock verification are essential when survey materials are used to support tax and penalty demands.

Materials gathered in a sales tax search or survey cannot be relied on unless the statutory procedure for seizure and stock verification is followed, including proper preparation of the stock list and compliance with witness requirements. The Court treated the stock list and seizure record as unreliable because the alleged excess or shortage of taxable goods was not satisfactorily proved. It also held that, where the survey report, statement and stock list are used to levy tax or impose penalty, failure to supply those materials to the assessee before reliance on them violates natural justice and the audi alteram partem rule, rendering the orders invalid.

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Issues: (i) Whether the assessment and penalty orders were vitiated for want of a proper seizure and reliable preparation of the stock list; (ii) whether non-supply of the survey report, statement and stock list to the assessee before use of those materials against him violated natural justice and invalidated the orders.

Issue (i): Whether the assessment and penalty orders were vitiated for want of a proper seizure and reliable preparation of the stock list.

Analysis: The stock list and survey record were examined against the statutory procedure governing searches and seizures under the Rajasthan Sales Tax Act and the Rules. The list was not signed by two witnesses as contemplated, and the record did not satisfactorily establish that the alleged excess or shortage of taxable goods had been properly proved. On the materials before the Court, the finding that the seizure and related stock verification were not properly established was accepted.

Conclusion: This issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether non-supply of the survey report, statement and stock list to the assessee before use of those materials against him violated natural justice and invalidated the orders.

Analysis: The assessee had applied for certified copies of the survey report, the statement and the list, but the copies were not supplied despite repeated requests. Since those materials were used for levying tax and imposing penalty, their non-supply deprived the assessee of a fair opportunity to meet the case against him. The rule of audi alteram partem was held applicable to the proceedings and the failure to furnish the documents was treated as a fatal defect.

Conclusion: This issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The revisions failed because the impugned tax and penalty orders were held to be vitiated by procedural defects and breach of natural justice, and the Tribunal's order was maintained.

Ratio Decidendi: Where materials gathered in a sales tax search or survey are used against an assessee, the statutory procedure must be complied with and the assessee must be given a fair opportunity by supplying those materials; failure to do so can invalidate the assessment or penalty order.

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