Natural justice in sales tax assessments: denial of cross-examination and untested third-party material could not sustain bogus transaction findings.

Assessment and penalty under the Tamil Nadu General Sales Tax Act were held unsustainable because the assessee was denied an effective opportunity to cross-examine and rebut the departmental material. The authorities had relied on inspection findings, non-response to third-party summons, and inferences from stock availability to treat the transactions as bogus, but they were required to independently evaluate the evidence and follow natural justice. The assessee's offer to produce the sellers was not properly considered, and the claim could not be rejected merely because the sale bills did not mention purchasers' names. Relief granted by the appellate authorities was therefore upheld in favour of the assessee.

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Issues: Whether the assessment and penalty could be sustained when the assessee was denied an effective opportunity of cross-examination and the authorities relied upon inspection findings and third-party summons to treat the transactions as bogus.

Analysis: The assessment authorities under the Tamil Nadu General Sales Tax Act, 1959 exercise quasi-judicial powers and are vested with powers analogous to a civil court for summoning witnesses, compelling production of documents, and gathering information. The denial of cross-examination, when the assessee had offered to produce the concerned sellers, was inconsistent with the principles of natural justice. The finding that the assessee was operating bogus transactions was based on inferences from non-availability of stock at inspection and non-response to summons, without affording a fair opportunity to rebut the departmental material. The authorities were required to independently evaluate the evidence and could not reject the assessee's claim merely because the sale bills did not mention purchasers' names.

Conclusion: The assessment and penalty were not sustainable, and the relief granted by the appellate authorities was upheld in favour of the assessee.

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