Personal hearing and factual enquiry are mandatory before applying ad hoc manufacturing loss and reversing input tax credit.

Denial of a specifically requested personal hearing in assessment proceedings involving disputed facts breached natural justice and warranted setting aside the assessment orders. A uniform or ad hoc percentage for manufacturing loss or invisible loss could not be mechanically applied; the Assessing Officer had to conduct a factual enquiry into the actual manufacturing process and the quantum of loss before considering any reversal of input tax credit under the Tamil Nadu VAT framework. On both issues, the impugned assessments were set aside and remanded for fresh consideration, with inspection, supplementary notices if needed, objections, and personal hearing.

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Issues: (i) Whether the assessment orders were liable to be set aside for failure to grant personal hearing despite a specific request; (ii) Whether adoption of a uniform percentage for manufacturing loss or invisible loss, and consequential reversal of input tax credit, was legally sustainable.

Issue (i): Whether the assessment orders were liable to be set aside for failure to grant personal hearing despite a specific request.

Analysis: The objections submitted by the dealer specifically sought an opportunity of personal hearing and also stated that further materials could be furnished if required. Where factual issues arise in assessment proceedings, a request for personal hearing must ordinarily be considered so that the Assessing Officer can examine the materials and arrive at a proper conclusion. Denial of such hearing, despite an express request, amounts to breach of natural justice.

Conclusion: This issue was answered in favour of the petitioner.

Issue (ii): Whether adoption of a uniform percentage for manufacturing loss or invisible loss, and consequential reversal of input tax credit, was legally sustainable.

Analysis: A uniform or ad hoc percentage cannot be mechanically applied to manufacturing loss or invisible loss without examining the actual manufacturing process and the factual basis for the loss. The Assessing Officer is required to undertake a fact-finding exercise to ascertain the quantum of loss and then examine whether the claim falls within the restrictions under Section 19 of the Tamil Nadu Value Added Tax Act, 2006. Since the assessments were made by adopting a flat percentage without such enquiry, the approach was unsustainable.

Conclusion: This issue was also answered in favour of the petitioner.

Final Conclusion: The impugned assessment orders were set aside and the matters were remanded for fresh consideration after inspection, issuance of supplementary notices where necessary, consideration of objections, and grant of personal hearing.

Ratio Decidendi: In assessment proceedings involving disputed factual matters such as manufacturing loss, the authority must afford personal hearing when specifically requested and must determine the issue on the basis of an actual fact-finding enquiry rather than by applying a uniform ad hoc percentage.

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