Natural justice in tax assessment: reversal of input tax credit set aside for notice defects and unverified C-Forms.

Assessment reversing input tax credit was vitiated because it was made before the time granted for objections in the show-cause notice expired and relied on grounds not disclosed in that notice. The HC held that such action breached natural justice, as the taxpayer was denied a proper opportunity to respond. It also found that the C-Forms produced by the taxpayer should have been accepted and verified before any final adverse decision was taken. The impugned assessment order was set aside, and fresh action would require a specific notice and effective hearing.

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Issues: Whether the assessment order reversing input tax credit and proceeding on grounds beyond the show-cause notice was liable to be set aside for violation of natural justice, and whether the C-Forms produced by the petitioner were to be accepted and verified before further action.

Analysis: The assessment order was passed before the expiry of the time granted in the show-cause notice for filing objections, and the respondent also proceeded on additional grounds not disclosed in the notice. The petitioner had produced C-Forms both before and after the impugned order, and the Court found that the respondent ought to have accepted and verified those forms before taking a final view. An assessment affecting input tax credit and concessional treatment without proper notice and adequate opportunity could not be sustained.

Conclusion: The impugned assessment order was set aside as being in violation of principles of natural justice, and the petitioner succeeded.

Ratio Decidendi: An assessment or reversal of tax benefit made before expiry of the time allowed in the show-cause notice, or on grounds beyond the notice, is vitiated for breach of natural justice and must be preceded by a fresh, specific notice and effective opportunity of hearing.

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