TaxTMI 
TaxTMI 
1972 (3) TMI 69
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....e assessments of the assessee to sales tax for three assessment years, the returns filed by him on the basis of his books of account appeared to the Sales Tax Officer to be incorrect and incomplete since certain sales appearing in the books of account of one Haji P.K. Usmankutty as having been effected by the assessee in his favour were not accounted for in the books of account maintained by the assessee. The assessee applied to the Sales Tax Officer for affording him an opportunity to cross-examine Haji Usmankutty in regard to the correctness of his accounts, but this opportunity was denied to him and the Sales Tax Officer proceeded to make a best judgment assessment under section 17, sub-section (3), of the Kerala General Sales Tax Act, 1963. The assessee appealed but without success and this was followed by a revision application to the High Court. The High Court took the view that the assessee was entitled to an opportunity to cross-examine Haji Usmankutty before any finding could be arrived at by the Sales Tax Officer that the returns filed by the assessee were incorrect and incomplete so as to warrant the making of the best judgment assessment and since no such opportunity ha....
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....of natural justice which have been from time to time used, but, whatever standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case." One of the rules which constitutes a part of the principles of natural justice is the rule of audi alteram partem which requires that no man should be condemned unheard. It is indeed a requirement of the duty to act fairly which lies on all quasi-judicial authorities and this duty has been extended also to the authorities holding administrative enquiries involving civil consequences or affecting rights of parties because, as pointed out by this Court in A.K. Kraipak v. Union of India [1970] 1 S.C.R. 457., "the aim of the rules of natural justice is to secure justice or to put it negatively to prevent mis-carriage of justice" and justice, in a society which has accepted socialism as its article of faith in the Constitution, is dispensed not only by judicial or quasi-judicial authorities but also by authorities discharging administrative functions. This rule which requires an opportunity to be heard to be given to a person likely to be affected by a decision is also, like the genus of ....
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.... two prerequisites is, therefore, a condition precedent to the assumption of jurisdiction by the Sales Tax Officer to make assessment to the best of his judgment. Now, where no return has been submitted by the assessee, one of the two conditions necessary for the applicability of section 17, sub- section (3), being satisfied, the Sales Tax Officer can, after making such inquiry as he may consider necessary and after taking into account all relevant materials gathered by him, proceed to make the best judgment assessment and, in such a case, he would be bound under the proviso to give a reasonable opportunity of being heard to the assessee. But in the other case, where a return has been submitted by the assessee, the Sales Tax Officer would first have to satisfy himself that the return is incorrect or incomplete before he can proceed to make the best judgment assessment. The decision-making process in such a case would really be in two stages, though the inquiry may be continuous and uninterrupted: the first stage would be the reaching of satisfaction by the Sales Tax Officer that the return is incorrect or incomplete and the second stage would be the making of the best judgment a....
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....includes oral evidence of witnesses. The opportunity to prove the correctness or completeness of the return would, therefore, necessarily carry with it the right to examine witnesses and that would include equally the right to cross-examine witnesses examined by the Sales Tax Officer. Here, in the present case, the return filed by the assessee appeared to the Sales Tax Officer to be incorrect or incomplete because certain sales appearing in the books of Haji Usmankutty and other wholesale dealers were not shown in the books of account of the assessee. The Sales Tax Officer relied on the evidence furnished by the entries in the books of account of Haji Usmankutty and other wholesale dealers for the purpose of coming to the conclusion that the return filed by the assessee was incorrect or incomplete. Placed in these circumstances, the assessee could prove the correctness and completeness of his return only by showing that the entries in the books of account of Haji Usmankutty and other wholesale dealers were false, bogus or manipulated and that the return submitted by the assessee should not be disbelieved on the basis of such entries, and this obviously, the assessee could not do....
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.... his sales tax returns before the Sales Tax Officer who on an examination of the accounts found that the returns submitted by the assessee were both incorrect and incomplete inasmuch as certain entries in the books of account of Haji P.K. Usmankutty revealed certain transactions which were not accounted for in the assessee's books of account. The Sales Tax Officer, after hearing the assessee, made an assessment to the best of his judgment under section 17(3) of the Act read with rule 15 made under the Act. The Sales Tax Officer thus rejected the accounts of the assessee as they did not reflect the goods said to have been purchased by Haji P.K. Usmankutty. The assessee sought an opportunity to cross-examine Haji Usmankutty with respect to the correctness of his accounts which were relied upon by the Sales Tax Officer, but this opportunity was refused to him by the Sales Tax Officer as also the other appellate authorities. Similarly in the case of the respondent, Nallakandy Yusuff, in Civil Appeal No. 575 of 1972, the return filed by the assessee was rejected by the Sales Tax Officer on the ground that certain transactions shown in the accounts of some wholesale dealers were not refl....
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....he best of his judgment and determine the sum payable by the assessee on the basis of such assessment and, in the case of a firm, may refuse to register it or may cancel its registration if it is already registered: Provided........................................................." Describing the nature and character of a best judgment assessment, Lord Russell of Killowen in delivering the judgment of the Privy Council in Income-tax Commissioner v. Badridas Ramrai Shop, Akola [1937] 5 I.T.R. 170 at 180 (P.C.); 64 I.A. 102 at 114-115., observed as follows: "The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him....
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....e of the integral parts of the materials on the basis of which the order by the taxing authorities can be passed. The admissibility of a document or a material in evidence is quite different from the value which the authority would attach to such material. The Privy Council has held that the taxing authorities can even base their conclusion on their private opinion or assessment provided the same is fully disclosed to the assessee and he is given an opportunity to rebut the same. In these circumstances, therefore, we do not agree with Mr. Gupte that merely because the technical rules of evidence do not strictly apply, the right of cross-examination cannot be demanded by the assessee in a proper case governed by a particular statute. This Court further fully approved of the four propositions laid down by the Lahore High Court in Seth Gurmukh Singh v. Commissioner of Income- tax, Punjab [1944] 12 I.T.R. 393. This Court was of the opinion that the taxing authorities had violated certain fundamental rules of natural justice in that they did not disclose to the assessee the information supplied to it by the departmental representatives. This case was relied upon by this Court in a....
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....o turn upon the scope, interpretation and content of section 17(3) of the Act, the proviso thereto and rule 15 framed under the Act. It is true that the words "opportunity of being heard" are of very wide amplitude but in the context the sales tax proceedings which are quasi-judicial proceedings all that the Court has to see is whether the assessee has been given a fair hearing. Whether the hearing would extend to the right of demanding cross-examination of witnesses or not would naturally depend upon the nature of the materials relied upon by the sales tax authorities, the manner in which the assessee can rebut those materials and the facts and circumstances of each case. It is difficult to lay down any hard and fast rule of universal application. We would, therefore, first try to interpret the ambit of section 17(3) and the proviso thereof in order to find out whether a right of cross-examination of witnesses whose accounts formed the basis of best judgment assessment is conferred on the assessee either expressly or by necessary intendment. Section 17(3) of the Act runs thus: "If no return is submitted by the dealer under sub-section (1) within the prescribed period, or if the....
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.... he should not be conceded this opportunity. Apart from anything else, the second part of the proviso itself confers this specific right on the assessee. It is difficult to conceive as to how the assessee would be able to disprove the correctness of the accounts of Haji P.K. Usmankutty or the other wholesale dealers, unless he is given a chance to cross-examine them with respect to the credibility of the accounts maintained by them. It is quite possible that the wholesale dealers may have mentioned certain transactions in their books of account either to embarrass the assessee or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be cross-examined by the assessees. This does not mean that the assessing authority is bound to examine the wholesale dealers as witnesses in the presence of the assessees: it is sufficient if such wholesale dealers are merely tendered by the sales tax authorities for cross-examination by the assessees for whatever worth it is. In view of the express provision of the second part of the proviso, we are fully s....
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....that the assessee had at any time made a specific prayer for cross-examining the representatives of the firm of M/s. A. Alibhai & Co. In these circumstances, therefore, Jayantilal Thakordas's case [1969] 23 S.T.C. 11., does not appear to be of any assistance to the appellant. We might, however, state that we are not prepared to go to the extent to which the Gujarat High Court has gone even in interpreting the content and ambit of an opportunity given to the assessee of being heard so as to completely exclude the right of cross-examination. We have already held that whether the reasonable opportunity would extend to such a right would depend upon the facts and circumstances of each case. We feel that the correct law on the subject has been laid down by a Division Bench of the Orissa High Court in Muralimohan Prabhudayal v. State of Orissa [1970] 26 S.T.C. 22., where the High Court, while adumbrating the fourth proposition, namely, as to how the assessee was to rebut the material used by the department against him, observed as follows: "It is the amplitude and ambit of this fourth proposition which needs examination. There cannot be any controversy that the assessee can addu....
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....d by it determine the turnover of the dealer to the best of its judgment, and fix provisionally the annual tax or taxes payable at the rate or rates specified in section 5 or notified under section 10. Before determining the turnover under this rule, the dealer shall be given a reasonable opportunity of being heard and also to prove the correctness or completeness of the return submitted by him." The rule clearly shows that where the return of the assessee is incorrect or incomplete he must be called upon to prove the correctness or completeness of the same. It also enjoins that a reasonable opportunity of being heard should be given to the assessee to prove the correctness or completeness of the return submitted by him. Thus the requirement of the second part of the proviso to section 17(3) is reiterated in rule 15. We understand that such a provision in the Act is peculiar to the Kerala Act and is not to be found in other sales tax statutes which provide for best judgment assessment. Thus on a true interpretation of section 17(3), the proviso thereto and rule 15, the inescapable conclusion would be that the assessee has been given a statutory right to prove the correctness of ....