Audit assessment must stay within the audit visit report and allow a fair opportunity before adverse material is used.

Audit assessment under rule 12(3) must be completed strictly on the basis of the audit visit report and the material contained in it; the assessing authority cannot import material from a vigilance report or other source. The limitation for escaped assessment does not control audit assessment, and the one-year period from receipt of the audit visit report remains applicable. The assessment was also held to have breached natural justice because the assessee was not given a reasonable opportunity to meet voluminous adverse material, and the dealer's stock transfer claim could not be rejected by generalising from selected transactions. The assessment was set aside and remanded for fresh audit assessment confined to the audit visit report.

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Issues: (i) Whether, in audit assessment under rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957 read with section 42 of the Orissa Value Added Tax Act, 2004, the assessing authority could rely on material other than the audit visit report. (ii) Whether the limitation applicable to audit assessment governed the attempt to use the vigilance report. (iii) Whether use of the vigilance report dated 2 May 2011 in completing the assessment on the basis of the audit visit report was permissible. (iv) Whether the assessment was made in violation of natural justice and the earlier direction of the Court. (v) Whether the dealer's stock transfer claim could be rejected by generalising from selected transactions.

Issue (i): Whether, in audit assessment under rule 12(3) of the Central Sales Tax (Orissa) Rules, 1957 read with section 42 of the Orissa Value Added Tax Act, 2004, the assessing authority could rely on material other than the audit visit report.

Analysis: The statutory scheme treated audit assessment and escaped assessment as distinct. Audit assessment under rule 12(3) was to proceed on the basis of the audit visit report and the materials contained in it. The Court held that the assessing authority had no authority to travel beyond that report or to import materials from another source while completing an audit assessment.

Conclusion: The assessing authority could not rely on material other than the audit visit report for audit assessment.

Issue (ii): Whether the limitation applicable to audit assessment governed the attempt to use the vigilance report.

Analysis: The Court held that audit assessment under rule 12(3) and escaped assessment under rule 12(4) operate in separate fields, with different statutory limits. The five-year period for escaped assessment could not be used to enlarge or alter the audit-assessment framework. The relevant limitation for audit assessment remained one year from receipt of the audit visit report.

Conclusion: The limitation applicable to escaped assessment did not govern audit assessment, and the audit-assessment time limit remained controlling.

Issue (iii): Whether use of the vigilance report dated 2 May 2011 in completing the assessment on the basis of the audit visit report was permissible.

Analysis: Since audit assessment had to be confined to the audit visit report, reliance on the vigilance report was outside the statutory scheme. The Court therefore disapproved the use of the vigilance report for the audit-assessment exercise.

Conclusion: Use of the vigilance report in the audit assessment was not permissible.

Issue (iv): Whether the assessment was made in violation of natural justice and the earlier direction of the Court.

Analysis: The vigilance report ran into 20 volumes and more than 4,000 pages, yet the assessee was given only eight days to respond. The Court held that this was not a reasonable opportunity. It further held that the earlier direction requiring reasonable opportunity had not been meaningfully followed.

Conclusion: The assessment was passed in violation of natural justice and the earlier judicial direction.

Issue (v): Whether the dealer's stock transfer claim could be rejected by generalising from selected transactions.

Analysis: The Court reiterated that each transaction must be examined independently when determining whether a claimed stock transfer is genuine. A blanket conclusion drawn from some transactions alone was impermissible. The taxing authority bore the burden of proving exigibility to tax transaction-wise.

Conclusion: The stock transfer claim could not be rejected by generalising from selected transactions.

Final Conclusion: The impugned assessment was set aside and the matter was sent back for fresh audit assessment confined to the audit visit report, with reasonable opportunity to the assessee and independent examination of the stock-transfer claim.

Ratio Decidendi: An audit assessment must be completed strictly on the basis of the audit visit report and the material contained in it, and the assessee must be afforded a fair and reasonable opportunity before adverse material is relied upon.

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