Limitation defence and natural justice require notice before deferment of assessment; arbitrary action was quashed.

The Karnataka High Court held that the three-year limitation under section 12(5) of the Karnataka Sales Tax Act creates an accrued defence for the assessee, and any deferment of assessment under section 12(6) must be exercised fairly and not arbitrarily. Because the deferment order was made without material showing prior notice or a pre-decisional hearing, it offended natural justice and Article 14's non-arbitrariness requirement. The pre-assessment notice and deferment were therefore quashed, and the assessee's petition was allowed.

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Issues: Whether the pre-assessment notice and the deferment of assessment were liable to be quashed for being beyond limitation and for having been made without notice to the assessee, in the light of section 12(5) and section 12(6) of the Karnataka Sales Tax Act.

Analysis: The limitation prescribed under section 12(5) is three years from the date of the return, and the power to defer assessment under section 12(6) cannot be exercised arbitrarily. Where the period of limitation has expired, a valuable right accrues to the assessee, and before depriving the assessee of that position, the Commissioner must act consistently with the principles of natural justice. In the absence of any material showing that notice was given before the deferment order was made, the order of deferment could not be sustained. The action was also tested against the constitutional prohibition on arbitrariness under Article 14 of the Constitution of India.

Conclusion: The notice initiating assessment proceedings was quashed, and the petition was allowed in favour of the assessee.

Ratio Decidendi: Where a statutory deferment of assessment affects an accrued limitation defence, the affected assessee must be given a pre-decisional hearing, and an arbitrary deferment order passed without notice is unsustainable.

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