2014 (1) TMI 620 - SC - VAT and Sales Tax

Supreme Court emphasizes fair hearing in tax assessment cases, sets aside lower court orders

Narani Stores Versus Deputy Commissioner of Sales Tax

The Supreme Court ruled in favor of the appellant, emphasizing the importance of providing a fair hearing and adequate opportunity to respond in tax ... Denial of tax revision - Discrepancy in the turn-over reflected in the books of accounts and the actual stock - Imposition of penalty - Held that:- matter requires to be remanded back to the Deputy Commissioner for fresh consideration pursuant to the notice issued by him under Section 35 of the Act. We say so for the reason that the Deputy Commissioner in his order issued under Section 35 of the Act, inter alia, directed the appellant to show cause why the orders passed by the assessing authority, dated 27.11.1990 should not be revised. For multifarious reasons, the assessee could not file the reply in time - Deputy Commissioner ought to have given some more time to the appellant to file his reply and explain in detail as to why the order passed by the assessing authority should not be modified. The right to file a reply has been considered to be an indispensible facet of right to proper hearing. The maxim of audi alteram partem is an epitome of general principles governing fair hearing. The principle of fair hearing has two justiciable elements. In a case where huge tax liability is being imposed on an assessee, he has a right to file a reply and represent his case before the adjudicating authority. Should such sufficient opportunity not be afforded to the assessee, he would be deprived of his valuable right. In the facts of the instant case, sufficient time was not granted to the assessee by the Deputy Commissioner who had passed the ex-parte order, dated 27.7.1995 imposing a huge tax liability on the assessee and since the same is opposed to the principles of natural justice, in our considered opinion, the order of the Deputy Commissioner requires to be set aside - Therefore, High Court was not justified in allowing the revenue's revision petition - Decided in favour of assessee. Issues:Appeal against High Court judgment setting aside Tribunal's order and allowing tax revision for assessment year 1988-89.Detailed Analysis:1. The appellant, a dealer in provisional stores, challenged the High Court's decision setting aside the Tribunal's order. The assessing authority had issued a demand notice for tax payment after completing assessments for the year 1988-89. The First Appellate Authority modified the assessment order, leading to a fresh assessment order by the assessing authority.2. An intelligence officer found a turnover discrepancy during an inspection, imposing a penalty. The Deputy Commissioner issued a show cause notice under Section 35 of the Act, allowing the appellant additional time to respond due to health reasons of the Managing Director. However, as the appellant failed to reply within the extended period, an ex-parte order was passed setting aside the assessment order and remanding the matter for re-assessment.3. The Tribunal allowed the appellant's appeal, granting all reliefs sought. The State appealed to the High Court, which upheld the revenue's revision, reinstating the Deputy Commissioner's order. The appellant challenged this decision before the Supreme Court, arguing against the High Court's judgment.4. The Supreme Court noted that the Deputy Commissioner should have granted the appellant more time to respond to the show cause notice. The right to file a reply is crucial for fair hearing, as per the principles of natural justice. Insufficient time given to the appellant to represent their case against a significant tax liability violates these principles.5. The Court emphasized that the opportunity to file a reply and present one's case before the decision-making authority is a fundamental aspect of fair hearing. Denial of adequate time for response deprives the appellant of a valuable right. The Deputy Commissioner's ex-parte order imposing a substantial tax liability without affording sufficient opportunity for a reply goes against natural justice.6. The Tribunal and High Court did not adequately address this issue, leading the Supreme Court to set aside both lower courts' orders. The matter was remanded to the Deputy Commissioner for a fresh review, emphasizing the importance of providing the appellant with a reasonable opportunity to respond and ensuring compliance with the law.7. In conclusion, the Supreme Court ruled in favor of the appellant, highlighting the necessity of fair hearing and adequate opportunity to respond in tax assessment matters. The Court set aside the High Court and Tribunal orders, instructing a fresh review by the Deputy Commissioner while keeping all contentions open and awarding no costs.