Natural justice limits sales tax disallowance where adverse material was undisclosed and cross-examination was denied to the assessee.

Deduction on sales to registered dealers under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 required proof of genuine transactions and compliance with the prescribed declaration form under rule 26(1) of the Punjab General Sales Tax Rules, 1949. Where the adverse finding rested on statements and material collected behind the assessee's back, and the assessee was denied an effective opportunity to summon the purchasing dealers and cross-examine them, the disallowance could not be sustained. The burden could not be fastened on the basis of untested and undisclosed adverse material, and the matter was decided in favour of the assessee.

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Issues: Whether the disallowance of deduction on sales to registered dealers on the basis of ST-XXII forms could be sustained when the purchasing dealers were not produced for cross-examination and the petitioner was denied effective opportunity to meet the adverse material.

Analysis: The deduction under section 5(2)(a)(ii) of the Punjab General Sales Tax Act, 1948 depended on proof of genuine sales to registered dealers and compliance with the prescribed declaration form requirement under rule 26(1) of the Punjab General Sales Tax Rules, 1949. The adverse finding rested on statements and material collected behind the petitioner's back, while the requested opportunity to summon the purchasing dealers and cross-examine them was not granted. In these circumstances, the conclusion that the petitioner had failed to prove genuineness of the transactions could not be sustained consistently with the principles of natural justice. The Court held that the burden could not be fastened on the petitioner on the basis of untested and undisclosed adverse material.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

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