2006 (2) TMI 618 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of reinitiating reassessment proceedings after the initial reassessment was set aside due to irregularity.
2. Requirement for the department to produce a third party for cross-examination when relying on third-party entries to determine escaped turnover.

Issue-wise Detailed Analysis:

1. Validity of Reinitiating Reassessment Proceedings:

The Tribunal's conclusion that reassessment proceedings could not be reinitiated on the same facts after the initial reassessment was set aside due to irregularity in the issuance of the notice was found to be without legal basis. The Tribunal failed to distinguish between an omission or inadvertent mistake and a change of opinion based on material that was initially overlooked. The court clarified that material collected during a survey, if not considered in the original assessment due to oversight or negligence, could still be used in subsequent reassessment proceedings. The court cited precedents, including *State of Orissa v. Nanda Sahu and Padan Sahu* and *Shyam Babu Vaishya & Co. v. Assistant Commissioner, Trade Tax*, to support the view that reassessment can be initiated on the basis of material already in possession but not utilized in the original assessment. The court emphasized that the policy of law is to ensure finality in legal proceedings but allows reopening of assessments under specific conditions to safeguard revenue interests.

2. Requirement for Third Party Cross-Examination:

The Tribunal's reliance on the principle that the department must produce a third party for cross-examination when relying on third-party entries was found to be misplaced. The court noted that the principles of natural justice require that the dealer be informed of the material against them and given an opportunity to rebut it. However, it is not an absolute rule that the third party must always be produced for cross-examination. The court highlighted that the dealer-opposite party did not dispute the correctness of the entries found in the documents during the survey nor requested the production of the third party for cross-examination at any stage of the proceedings. The court referred to the Supreme Court's judgment in *State of Kerala v. K.T. Shaduli Yusuff* and subsequent cases, which established that the applicability of natural justice principles depends on the facts and circumstances of each case. The court concluded that in the absence of a request for cross-examination or production of the third party, the department was justified in relying on the third-party entries. The Tribunal's failure to appreciate this distinction led to an erroneous decision.

Conclusion:

The court set aside the Tribunal's order, allowing the department's revision. The reassessment proceedings were deemed valid, and the department's reliance on third-party entries without producing the third party for cross-examination was upheld. The dealer-opposite party was ordered to pay costs of Rs. 1,000 to the department.