1971 (7) TMI 144 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Rejection of the assessee's accounts by sales tax authorities.
2. Denial of the opportunity to cross-examine a third party.
3. Interpretation of "reasonable opportunity of being heard" under section 17(3) of the Kerala General Sales Tax Act, 1963.
4. Applicability of principles of natural justice in tax assessments.

Issue-wise Detailed Analysis:

1. Rejection of the Assessee's Accounts by Sales Tax Authorities:
The petitioner was assessed to sales tax for the years 1965-66, 1966-67, and 1967-68. The sales tax authorities rejected the assessee's accounts and assessed him under section 17(3) of the Kerala General Sales Tax Act, 1963. The rejection was based on the non-inclusion of goods allegedly purchased from a third party, Janab Haji P.K. Usmankutty. The authorities relied on bill books maintained by Usmankutty and statements allegedly furnished by the assessee at a check post. The assessee denied these purchases and sought to cross-examine Usmankutty, which was denied.

2. Denial of the Opportunity to Cross-examine a Third Party:
The core issue was whether the denial of the opportunity to cross-examine Usmankutty vitiated the assessment proceedings. The court examined precedents, including M. Appukutty v. State of Kerala, which emphasized that relying on third-party accounts without providing the assessee an opportunity to cross-examine the third party was unjust. The court noted that the principles of natural justice require that any material used against the assessee must be disclosed, and the assessee must be given a chance to rebut it.

3. Interpretation of "Reasonable Opportunity of Being Heard" under Section 17(3) of the Kerala General Sales Tax Act, 1963:
Section 17(3) and related rules mandate that the dealer must be given a reasonable opportunity to prove the correctness or completeness of their return. The court highlighted that what constitutes a "reasonable opportunity" depends on the facts and circumstances of each case. It was emphasized that the opportunity should include the right to cross-examine third parties whose accounts are used against the assessee.

4. Applicability of Principles of Natural Justice in Tax Assessments:
The court referred to several judgments, including those by the Supreme Court, to underline that tax authorities are not bound by technical rules of evidence but must adhere to principles of natural justice. This includes informing the assessee of any material used against them and providing an opportunity to explain or rebut it. The court cited cases like C. Vasantlal and Co. v. Commissioner of Income-tax and Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, which established that while tax officers can use material not admissible under strict evidence rules, they must still ensure the assessee is aware of and can contest this material.

Conclusion:
The court concluded that the refusal to allow the assessee to cross-examine Usmankutty, whose accounts were used against him, violated principles of natural justice and section 17(3) of the Kerala General Sales Tax Act, 1963. The court set aside the assessments and directed the assessing authority to reassess the assessee, ensuring compliance with the principles of natural justice and the observations made in the judgment. The revision cases were allowed, with no order as to costs.

Outcome:
Petitions allowed. The assessing authority was directed to reassess the petitioner in light of the court's observations.