2025 (11) TMI 1950 - HC - GST

Best judgment assessment lacks statutory basis under Section 74, so such orders are quashed while cross examination denial required prejudice.

Denial of cross-examination of the technical person who retrieved electronic data did not vitiate proceedings because the retrieval was certified in the ... Principles of natural justice - right to cross-examine - reliance on third party electronic data retrieval - best judgment assessment - statutory basis for assessment u/s 74 of the CGST Act, 2017 - statutory provisions authorising assessment (Sections 62 and 63; Rule 100(2)) - extrapolation of sales data - constitutional requirement for taxation under Article 265 - HELD THAT:- It is not in dispute that the assessment order relies on the report of the staff of M/s.FDI Labs, Chennai who retrieved the data from the electronic devices seized during the search operation. The technical rules of evidence may not be applicable as such to assessment proceedings. But when the report which forms the basis of the order itself is questioned, the proper officer is obliged to make available the author of the report for cross-examination. Failure to do so may render the assessment order vulnerable for having breached the principles of natural justice provided that the assessee is able to show prejudice on account of such denial. It is well settled that though the right to cross examine a given witness may not be provided by or under the statute, it being a part of the principles of natural justice should be held to be an indefeasible right. But the assessee must still make out a case for cross examination. It will not be “Ask, and it shall be given”. The assessee seeking cross-examination ought to give specific reasons why cross-examination is needed in a particular situation and that too of specific witnesses. A blanket request to cross-examine all persons whose statements have been recorded by the department, cannot be sustained (Vallabh Textiles v. Addl. Commissioner, Central Tax [2025 (4) TMI 1154 - DELHI HIGH COURT] (GST). Applying the above principle, the petitioners may not have a case for cross-examining the author of the report containing the data recovered from the electronic devices of the assessees. This is because, the assessees had nowhere questioned the veracity of the data retrieved from the systems maintained by them. It is seen that the retrieval took place very much in their presence. The assessees themselves duly certified the process of retrieval. While the retriever who was only a technical person might not have been competent to describe the nature of the data retrieved from the systems as “actual sales data”, that may not really make much of a difference. The assessees were examined and their statements were recorded under Section 70 of the Act. To specific questions, they admitted that the data retrieved from the systems was actually entered by them. Therefore, hold that the request to cross-examine the retriever of data was rightly denied and in any case, it did not cause any prejudice to the petitioners. Best judgment assessment - statutory basis for assessment under Section 74 of the CGST Act, 2017 - It is not the case of the proper officer that the impugned orders against the writ petitioners have been passed by invoking either Sections 62 or 63 of the Act. It is obvious and plain that those provisions are inapplicable to the case on hand. The impugned orders have been passed under Section 74 of the Act. But in Section 74, not able to find any provision conferring the power on the proper officer to assess the tax liability of the noticee or the assessee to the best of his judgment. Section 74(9) of the Act states that the proper officer shall after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. There has to be a statutory basis for any action to be taken by the assessing officer. The enabling power must flow from the statute. Only mystics can materialise objects from thin air. The proper officer is not endowed with such powers. Article 265 of the Constitution not only talks about levy of tax but also collection of tax. Levy as well as collection can be done only by the authority of law. The constitutional mandate is therefore that what is not envisaged by law directly cannot be done indirectly in the matter of tax collection. The Hon'ble Full Bench of the Madras High Court in the PS. Subramaniam Chettiar & Sons vs. Joint Commercial Tax Officer III, Dindigul [1966 (8) TMI 50 - MADRAS HIGH COURT], while considering the unamended Section 16 of the Madras General Sales Tax Act, 1959, held that there is no room for holding that there is an implied power to assess by best judgment when the Section does not expressly provide for the same. Therefore, uphold the contention of Shri. S. Jaikumar, the assessees that while passing an order under under Section 74 of the CGST Act, 2017, the proper officer cannot resort to best judgment assessment. To reiterate, without an express statutory provision empowering the proper or assessing officer to resort to best judgment assessment, the authority would not have the jurisdiction to do so. Thus, the orders impugned in these writ petitions stand quashed. Issues: (i) Whether rejection of the request to cross-examine the person who retrieved electronic data breached the principles of natural justice; (ii) Whether the assessing authority could resort to best judgment assessment under Section 74 of the Central Goods and Services Tax Act, 2017.Issue (i): Whether denial of cross-examination of the technical person who retrieved data vitiated the assessment on natural justice grounds.Analysis: The report of the data retriever was challenged; however the retrieved data was certified in the presence of the assessees and the assessees admitted in statements under Section 70 that the data was entered by them. While cross-examination of a report author may be necessary where prejudice is shown, a blanket request without specific grounds is not sufficient. The entitlement to cross-examine is subject to demonstrating necessity and potential prejudice.Conclusion: The denial of cross-examination did not amount to a breach of natural justice and caused no prejudice to the assessees; the rejection of the request was correctly upheld.Issue (ii): Whether the proper officer had jurisdiction to make a best judgment assessment while issuing orders under Section 74 of the Central Goods and Services Tax Act, 2017.Analysis: Sections 62 and 63 expressly empower best judgment assessment in specified circumstances; Section 74 does not contain an express provision authorising best judgment assessment. Taxing powers must be rooted in statutory authority and construed strictly. The omission of best judgment powers in Section 74 is deliberate and cannot be supplied by the court. Reliance on provisions (such as Rule 31 or other rules) not germane to Section 74 does not validate resort to extrapolation or best judgment under that Section.Conclusion: The assessing officer lacked statutory jurisdiction to adopt best judgment assessment under Section 74; orders made by resorting to best judgment under Section 74 are quashed.Final Conclusion: The assessees' challenge to the assessments succeeds in part because the use of best judgment assessment under Section 74 was without jurisdiction, while the denial of cross-examination of the technical retriever did not vitiate the proceedings due to absence of prejudice.Ratio Decidendi: In the absence of an express statutory provision authorising best judgment assessment under a specific assessment provision, an assessing authority cannot lawfully adopt best judgment methods; taxing powers must be expressly conferred and construed strictly.