Fair procedure in penalty proceedings requires disclosure of third-party material and cross-examination before adverse action is sustained.

Penalty founded on books and statements recovered from a third party's premises could not be sustained where the dealer was denied a meaningful opportunity to test that material. The court held that, when adverse action is based on material gathered behind the dealer's back, fair procedure requires disclosure of the relied-upon material and, where necessary, cross-examination of the person connected with it. Because the denial caused prejudice, the proper course was not final annulment by the appellate authority but remand for fresh consideration by the primary authority after affording an effective opportunity to respond and cross-examine.

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Issues: Whether the penalty imposed under the sales tax law could be sustained when the assessment was founded on books and statements recovered from a third party's premises without granting the dealer an opportunity to cross-examine the person whose statement was relied upon, and whether the matter required remand for fresh consideration.

Analysis: The penalty proceedings were initiated and concluded by relying materially on books of account recovered from the residence of an employee and on the statement associated with that recovery. The dealer consistently disputed the use of that material and sought an opportunity to cross-examine the person concerned. The denial of that opportunity was examined against the nature of the proceeding, the seriousness of the penalty consequence, and the fact that the material had been collected behind the dealer's back. In such circumstances, fair procedure required that the relied-upon material be put to the dealer and that cross-examination be permitted if the Revenue intended to use that material as the foundation for penalty. The appellate authority's complete annulment of the penalty was also found unsustainable because the proper course, where prejudice flowed from denial of fair opportunity, was reconsideration by the primary authority.

Conclusion: The penalty orders could not stand. The denial of an effective opportunity to meet the material relied upon caused prejudice, and the matter had to be remitted for fresh decision after granting opportunity to respond and cross-examine as necessary.

Final Conclusion: The revision and connected appeals were allowed, the impugned orders were set aside, and the matters were sent back for fresh disposal in accordance with law after observance of fair procedure.

Ratio Decidendi: Where penalty proceedings are founded on material recovered from outside the dealer's custody and that material is the basis of adverse action, denial of a meaningful opportunity to cross-examine the person connected with that material can vitiate the action for breach of fair procedure and resulting prejudice.

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