Natural justice in tax assessment: order set aside where relied-upon notice and audit defects were not served before demand

An adverse VAT assessment under Section 27(3)(C) was held unsustainable where the notice and defect memo relied on were not served before finalisation, and the dealer was not given an effective opportunity to respond. The Madras HC found that the order was passed without proper disclosure of the material used against the assessee and without a meaningful hearing, amounting to a breach of natural justice. The assessment order was set aside and the matter remitted for fresh consideration after furnishing the relevant particulars and hearing the dealer.

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Issues: Whether the assessment order imposing tax and penalty under Section 27(3)(C) of the Tamil Nadu Value Added Tax Act, 2006 was sustainable when the notice relied upon was not served and the dealer was not heard.

Analysis: The impugned order proceeded on a notice dated 16.06.2022 and on alleged CAG audit defects, but the record showed that neither the notice nor the defect memo had been served on the petitioner before the order dated 30.06.2022 was passed. The Court found no admission in the writ affidavit and held that the order had been made without proper disclosure of the material relied on and without affording an effective opportunity to respond.

Conclusion: The assessment order was vitiated for breach of natural justice and was unsustainable. It was set aside and the matter was remitted to the respondent for fresh consideration after furnishing the relevant particulars and granting an opportunity of hearing.

Ratio Decidendi: An adverse tax assessment cannot be sustained if the notice and relied-upon materials are not served on the assessee and no effective opportunity of hearing is granted before finalising the demand.

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