Natural justice in assessment demands prior notice of the computation basis and reasoned consideration of objections.

An assessment order is unsustainable where it is founded on a computation method not disclosed in the show-cause notice and where the assessing authority fails to deal with the assessee's objections by recording reasons. The Madras HC held that introducing a proportionate input tax credit refund formula for zero-rated sales without prior notice violated natural justice, because the assessee was not informed of the basis on which liability was proposed to be computed. It also found that the objections on the amended input tax credit provision were not meaningfully considered in relation to the assessee's manufacturing activity. The order was quashed and the matter remitted for fresh consideration after personal hearing.

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Issues: Whether the assessment order was vitiated for travelling beyond the show-cause notice and for failure to deal with the assessee's objections, thereby violating natural justice.

Analysis: The assessment introduced a formula for proportionate input tax credit refund on zero-rated sales, but that basis had not been disclosed in the show-cause notice. The assessee was therefore not put to notice of the method by which the liability was proposed to be computed. The order also did not deal with the objections on the amended input tax credit provision in any meaningful manner and did not assign reasons on the applicability of the provision to the assessee's manufacturing activity. An assessment order that proceeds on an undisclosed basis and does not consider the objections with reasons suffers from serious procedural infirmity.

Conclusion: The assessment order was unsustainable and was quashed for violation of natural justice, with the matter remitted for fresh consideration after affording personal hearing.

Ratio Decidendi: An assessment cannot rest on a basis not disclosed in the show-cause notice, and the assessing authority must consider the assessee's objections with reasons before finalising liability.

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