Natural justice in sales tax assessment leads to quashing of ex parte demand and protects retired partners from post-retirement liability

Retired partners were not liable for sales tax for assessment years after their valid retirement, because the retirement deed and notice to the taxing authority showed that they had ceased to be partners and the remaining petitioner had become sole proprietor. An ex parte assessment was also quashed because it was made on very short notice, the request for adjournment on medical grounds was ignored, the material relied on was not supplied, and the statutory cancellation application had not been disposed of before coercive steps were taken. The authority was left free to make a fresh assessment after giving a proper hearing.

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Issues: (i) Whether the pro forma partners, having retired from the firm in 1988, remained liable for sales tax for the assessment years commencing from 1988-89; (ii) Whether the ex parte assessment made under section 9(4) was liable to be quashed for want of reasonable opportunity and for non-disposal of the application under section 10.

Issue (i): Whether the pro forma partners, having retired from the firm in 1988, remained liable for sales tax for the assessment years commencing from 1988-89.

Analysis: The deed of retirement and the letter addressed to the taxing authority showed that the three pro forma respondents had ceased to be partners and that the second petitioner had become the sole proprietor from 3 August 1988. On that factual basis, the Court found no legal foundation to fasten tax liability on the retired partners for periods after their retirement. The petitioner was held bound by her own representation and could not later deny the effect of the retirement.

Conclusion: The pro forma respondents were not liable for tax for the years commencing from 1988-89.

Issue (ii): Whether the ex parte assessment made under section 9(4) was liable to be quashed for want of reasonable opportunity and for non-disposal of the application under section 10.

Analysis: The assessment was made on very short notice, the prayer for time supported by medical grounds was not considered, and the inspector's report relied upon for assessment was not supplied to the assessee. The Court held that these circumstances violated the requirement of reasonable opportunity and the principles of natural justice. It also found that the statutory application for cancellation of assessment under section 10 had not been disposed of before coercive steps were taken, which further vitiated the assessment. The prolonged clubbing of several years into a single ex parte exercise was also treated as unfair to the assessee.

Conclusion: The ex parte assessment was vitiated and was quashed.

Final Conclusion: The tax demand could not stand in its impugned form, the retired partners were exonerated from liability for the post-retirement years, and the assessing authority was permitted to make a fresh assessment after giving the petitioner a proper opportunity of being heard.

Ratio Decidendi: A sales tax assessment made without reasonable opportunity, without supplying the material relied upon, and without first disposing of a statutory cancellation application under section 10 is liable to be quashed, and retired partners of a firm are not liable for tax periods after valid retirement.

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