Assessment must precede tax demand where liability is disputed; penalty notices cannot survive an unsustainable demand.

Where turnover tax liability is not admitted in the returns, the assessing authority must first complete assessment in accordance with law before issuing a demand notice. A demand cannot be founded on an unascertained liability, and proposed penalty proceedings cannot stand independently when the underlying demand is procedurally unsustainable. The notices were contrary to fair procedure and natural justice and were liable to be quashed.

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Issues: Whether demand notices and show cause notices for turnover tax and penalty could be issued without completing assessment when the liability was not admitted in the returns, and whether such action violated the principles of natural justice.

Analysis: Where the assessee does not admit liability for the amount demanded, the assessing authority must first complete the assessment in accordance with law before proceeding to raise a demand. A demand notice cannot rest on an unadmitted or unascertained liability, and the proposed penalty proceedings cannot independently survive when the demand itself is procedurally unsustainable. The notices were therefore contrary to the requirement of fair procedure and natural justice.

Conclusion: The demand notices and the show cause notices were unsustainable and liable to be quashed. The petition was allowed.

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