Fair opportunity and proof of liability are required before issuing a tax recovery notice based on inferred admission.

A recovery notice based on an inferred admission of tax liability cannot stand where the assessee was not given a fair and effective opportunity to object and the underlying liability was not conclusively determined on the relevant material. The Madras HC noted that handing over cheques did not by itself establish admission, and that the petitioner had consistently contended the goods were capital goods taxable at a lower rate. As the notice under Section 45 of the Tamil Nadu Value Added Tax Act, 2006 was issued without sufficient opportunity and without proper factual determination, it was quashed and the matter was remanded for fresh consideration after hearing the petitioner.

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Issues: Whether the notice issued under Section 45 of the Tamil Nadu Value Added Tax Act, 2006 could be sustained when it was issued without affording the petitioner an effective opportunity and on the basis of an alleged admission inferred from the handing over of cheques.

Analysis: The petitioner disputed the tax demand and asserted that the cheques were obtained under coercion and undue influence. The Court noted that the petitioner had consistently maintained that the goods were capital goods under Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006 and that tax was payable only at 5%. It further noted that the fact of handing over cheques did not, by itself, conclusively establish admission of liability. The impugned notice had been issued under Section 45 without sufficient opportunity and without a conclusive factual determination of liability. The clarification issued under Section 48-A of the Act was also referred to as relevant for fresh consideration.

Conclusion: The notice issued under Section 45 was unsustainable and was quashed. The matter was remanded to the respondent for fresh consideration after affording the petitioner an opportunity to raise objections.

Final Conclusion: The petitioner succeeded to the extent of getting the impugned notice set aside, but the tax liability issue was left open for reconsideration by the authority in accordance with law.

Ratio Decidendi: A recovery notice based on an inferred admission of liability cannot be sustained unless the assessee is given a fair opportunity and the underlying liability is determined on a proper consideration of the relevant materials.

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