Penalty order set aside for lack of natural justice violations

The court found that the penalty order issued under section 5B(2)(ii) of the Andhra Pradesh General Sales Tax Act, 1957, violated the principles of natural justice as the petitioner was not given an opportunity to respond before the penalty was imposed. The court set aside the order, emphasizing the importance of providing notice and an opportunity to be heard. The respondent was permitted to re-initiate proceedings with proper adherence to procedural fairness.

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Issues:
Violation of principles of natural justice in passing penalty order under section 5B(2)(ii) of the Andhra Pradesh General Sales Tax Act, 1957.

Analysis:
The petitioner, a company registered under the Companies Act, 1956, engaged in the manufacture of biscuits, was declared eligible for incentives under G.O. Ms. No. 108, Industries and Commerce Department, dated May 20, 1996, entitling it to a tax holiday benefit. The petitioner also undertook job-work for manufacturing branded products of other companies. The respondent issued a show cause notice proposing a penalty of Rs. 1,42,13,160 under section 5B(2)(ii) of the Act, alleging a violation in the purchase and use of light diesel oil for manufacturing biscuits. The petitioner contended that the use of light diesel oil did not violate the Act and promptly filed an explanation. The impugned order, however, held the use of light diesel oil as a deemed sale, imposing a penalty without prior notice or opportunity for the petitioner to respond, thus violating the principles of natural justice.

The court found that the conclusion drawn by the authority in the impugned order was not part of the grounds alleged in the show cause notice, and the petitioner was not given notice of this aspect. This lack of opportunity to respond before the penalty order was passed was deemed a violation of the principles of natural justice. Consequently, the court set aside the impugned order, allowing the writ petition and emphasizing that the respondent could re-initiate proceedings after providing the petitioner with proper notice and an opportunity to be heard.

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