Natural justice and factual enquiry govern input tax credit reversal; ad hoc process-loss estimates cannot replace records-based assessment.

Tax assessments affecting input tax credit must be made after a meaningful opportunity of hearing and proper consideration of the dealer's records; the assessments were set aside for violation of natural justice. Reversal of input tax credit on alleged process loss cannot rest on an ad hoc percentage, because the extent of loss must be determined from the manufacturing process, books of account, and year-specific factual enquiry; the uniform percentage approach was not sustained. The matters were remitted for fresh consideration with personal hearing and a speaking order on the merits.

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Issues: (i) Whether the assessment orders were vitiated for breach of principles of natural justice for want of proper opportunity of hearing and consideration of the materials filed by the dealer. (ii) Whether reversal of input tax credit on process loss could be sustained on the basis of an ad hoc percentage without proper factual enquiry.

Issue (i): Whether the assessment orders were vitiated for breach of principles of natural justice for want of proper opportunity of hearing and consideration of the materials filed by the dealer.

Analysis: The assessment proceedings were completed in a summary manner after repeated notices and replies, but without a proper dialogue with the dealer. The materials on record showed that documents were furnished and a request for hearing had been made, yet the orders were passed shortly thereafter without adequate opportunity to explain the transactions or reconcile the details. In such circumstances, the fairness of the assessment process was found to be lacking.

Conclusion: The assessment orders were held to be vitiated by violation of natural justice and were liable to be set aside.

Issue (ii): Whether reversal of input tax credit on process loss could be sustained on the basis of an ad hoc percentage without proper factual enquiry.

Analysis: The dispute on process loss required examination of the manufacturing process, books of accounts and factual particulars for each assessment year. A uniform or ad hoc percentage could not be mechanically adopted, since the question depended on the actual nature and extent of loss established from the dealer's records. The assessment did not reflect such an enquiry.

Conclusion: Reversal on the basis of an ad hoc process-loss percentage was not sustained in the manner adopted by the assessing authority.

Final Conclusion: The impugned assessments were set aside and the matters were remitted for fresh consideration after giving personal hearing and calling for the relevant records, with a speaking order to be passed on merits.

Ratio Decidendi: A tax assessment affecting input tax credit cannot be finalised summarily or on an ad hoc basis without affording a meaningful opportunity of hearing and making the factual enquiry required by the statute.

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