Fair notice in tax assessments: denial of compounded rate benefit cannot rest on a new ground not stated in the notice.

An assessment denying compounded tax treatment under the Tamil Nadu Value Added Tax Act was held unsustainable where the authority relied on a ground not stated in the show cause notice. The notice proceeded on inter-State purchases, but the final denial rested on the alleged absence of documentary proof of exercise of option for compounded rate payment. A taxpayer must be given fair notice of the precise basis of proposed adverse action so it can meet the case effectively; a decision based on a new and undisclosed ground violates natural justice. The assessment order was therefore liable to be set aside.

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Issues: Whether the assessment order could be sustained when the authority introduced a new ground for denying the benefit of payment of tax at compounded rates, which was not part of the show cause notice.

Analysis: The assessment proceedings concerned entitlement to compounded taxation under Section 6 of the Tamil Nadu Value Added Tax Act, 2006. The petitioner's objection was that the authority initially proceeded on the basis of inter-State purchases, but later confirmed the denial on a different basis, namely absence of documentary proof of exercise of option for compounded rate payment. That basis was not proposed in the original notice. A decision founded on a ground not disclosed to the assessee in the notice offends fair procedure and deprives the assessee of an effective opportunity to answer the case.

Conclusion: The impugned assessment order could not be sustained and was liable to be set aside for violation of natural justice.

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