Natural justice in tax assessment: rejection of dealer documents without disclosure of material or fair rebuttal vitiated the demand.

An assessment and penalty under the Taxes on Entry of Goods into Calcutta Metropolitan Area Act, 1972 were found unsustainable where the dealer had produced declaration forms and tax receipts, yet the assessing authority rejected those very documents as fabricated or tampered without disclosing any independent material supporting the assessment. The authority also relied on particulars taken from the disputed documents to identify consignments and value of goods, while failing to show a proper basis for concluding that no tax had been paid. The proceedings were further vitiated by breach of natural justice, as the dealer's requests for inspection of records, relevant documents, and production of officials were not met. The assessment, penalty, and demand notice were set aside.

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Issues: (i) Whether the assessment and penalty under section 14(3) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Act, 1972 could be sustained when the dealer had produced declaration forms and tax receipts and the assessing authority relied on those very documents while discarding them as fabricated or tampered without disclosing the material relied upon for assessment; (ii) Whether the impugned assessment and penalty were vitiated for breach of natural justice by denial of inspection of relevant records, non-production of check-post officials, and failure to meet the dealer's specific requisitions during the hearing.

Issue (i): Whether the assessment and penalty under section 14(3) of the Taxes on Entry of Goods into Calcutta Metropolitan Area Act, 1972 could be sustained when the dealer had produced declaration forms and tax receipts and the assessing authority relied on those very documents while discarding them as fabricated or tampered without disclosing the material relied upon for assessment.

Analysis: The statutory scheme required assessment after inspection and verification, or where that was not possible, a best-judgment assessment on the basis of books, documents, records, and submissions made by the dealer under rule 16 of the Rules. The assessing authority rejected the dealer's declaration forms and tax receipts as fabricated and tampered, yet used the particulars in those very documents to identify the consignments, lorries, and value of goods for assessment. No independent source of information supporting the assessment was disclosed to the dealer, and no proper basis was shown for the conclusion that no tax had been paid for the disputed consignments.

Conclusion: The assessment on this issue was unsustainable and was held against the Revenue.

Issue (ii): Whether the impugned assessment and penalty were vitiated for breach of natural justice by denial of inspection of relevant records, non-production of check-post officials, and failure to meet the dealer's specific requisitions during the hearing.

Analysis: The dealer had specifically sought the relevant declaration forms, tax receipts, gate passes, lorry challans, office records, and the presence of the officers who had signed the documents, but these requisitions were not met. The assessing authority did not adequately disclose the material used against the dealer, did not produce the relevant officials, and did not provide a fair opportunity to test the alleged discrepancies. In these circumstances, the proceedings lacked the procedural fairness required by the statute and the rules of natural justice.

Conclusion: The assessment and penalty were vitiated for breach of natural justice and were held against the Revenue.

Final Conclusion: The impugned assessment and demand could not stand, and the application succeeded with the assessment, penalty, and demand notice being set aside.

Ratio Decidendi: Where an assessing authority rejects a dealer's documents as fabricated or tampered, it must disclose the material relied upon, permit effective rebuttal, and conduct the assessment in conformity with the statutory procedure and the rules of natural justice; otherwise the assessment cannot be sustained.

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