2008 (12) TMI 687 - HC - VAT and Sales Tax

Whether a dealer is entitled to be supplied with the materials intended to be used against him in the assessment proceeding for his rebuttal? Whether, on the facts and in the circumstances of the case, the assessing officer is justified in insisting upon production of books of account for verification before issuing certified copies of the seized documents, i.e., three written slips and thirty-six written pages of the diary seized from the business premises of the petitioner during surprise inspection? Held that - A dealer is entitled to be supplied with the materials intended to be used against him in assessment proceeding for rebuttal and the dealer s explanation with regard to those materials is bound to be considered by the assessing officer in the assessment order either accepting or rejecting the same. We make it clear that where in the course of inspection the inspecting officer seizes incriminating materials as well as regular books of account from the business premises of a dealer, the assessing officer or the inspecting officer shall supply copies of the seized regular books of account and incriminating material(s) to the dealer if he asks for the same before asking the dealer for furnishing his explanation in connection with any proceeding under the OVAT Act.Since the learned counsel for the petitioner submits that he has already appeared before the assessing officer with books of account, we direct the assessing officer to verify the books of account of the relevant years with reference to the seized materials and the report. While doing so he will confront the report and the seized materials to the petitioner and record a preliminary statement with regard to such verification.

Issues Involved:
1. Entitlement of a dealer to be supplied with materials intended to be used against him in the assessment proceeding for rebuttal.
2. Justification of the assessing officer in insisting upon the production of books of account for verification before issuing certified copies of seized documents.

Detailed Analysis:

Issue 1: Entitlement of a Dealer to be Supplied with Materials for Rebuttal
The court emphasized that it is a well-settled principle of law that any person likely to be affected by the use of any material against him must be given notice of such material for rebuttal, adhering to the principles of natural justice. These principles are based on two pillars:
1. Nobody shall be condemned unheard (audi alteram partem).
2. Nobody shall be a judge of his own cause (nemo debet esse judex in propria sua causa).

The court cited several precedents to reinforce this principle:
- Basudeo Tiwary v. Sido Kanhu University: The requirement of natural justice is implied even if the statute is silent, especially when a party's rights are adversely affected.
- Delhi Transport Corporation v. D.T.C. Mazdoor Congress: The 'audi alteram partem' rule applies to administrative orders affecting a party prejudicially unless explicitly excluded by the statute.
- State of Kerala v. K.T. Shaduli Yusuff: Tax proceedings, though quasi-judicial, must be based on materials known to the assessee, who must be given a chance to rebut them.
- C. Vasantlal and Co. v. Commissioner of Income-tax, Bombay City: The assessee must be informed of any material collected against him and given an adequate opportunity to explain it.
- Kishinchand Chellaram v. Commissioner of Income-tax, Bombay City II: The Income-tax authorities must produce any material they rely on before the assessee for rebuttal.

The court concluded that a dealer is entitled to be supplied with materials intended to be used against him in the assessment proceeding, and the dealer's explanation regarding those materials must be considered by the assessing officer.

Issue 2: Justification of the Assessing Officer in Insisting Upon Production of Books of Account Before Issuing Certified Copies of Seized Documents
The court highlighted the importance of fiscal statutes in preventing revenue leakage through measures like surprise visits, audits, and inspections. It is common for unscrupulous businessmen to maintain duplicate accounts in slips or secret records, which inspecting officers aim to uncover during inspections.

The court noted that if the assessing officer finds prima facie evidence of suppression of transactions, he must disclose the materials to the dealer for rebuttal. The court referred to Kanak Cement Pvt. Ltd., which held that mere views of an inspector without substantiating materials cannot form the basis for adverse inferences.

In the present case, the petitioner did not produce the books of account during the inspection on March 12, 2008, claiming they were with the accountant. This violated Section 61(2) of the OVAT Act, which mandates keeping books of account at the business premises. The petitioner later produced books for 2007-08 but not for 2005-06 and 2006-07.

The court cited GKN Driveshafts (India) Ltd. v. Income-tax Officer, which held that the noticee must file a return and seek reasons for notices under Section 148 of the Income-tax Act, and the assessing officer must furnish reasons within a reasonable time.

The court concluded that the assessing officer was justified in insisting on the production of books of account before issuing certified copies of seized documents to prevent manipulation of accounts. However, if regular books of account and incriminating materials are seized, copies must be supplied to the dealer before seeking explanations.

The court directed the assessing officer to verify the books of account with the seized materials and report, confront the petitioner with the report and materials, and record a preliminary statement. If the assessing officer concludes that the dealer engaged in clandestine business, certified copies of seized materials must be provided to the petitioner, allowing reasonable opportunity for rebuttal.

Conclusion:
The writ petition was disposed of with directions for the assessing officer to verify the books of account against the seized materials, confront the petitioner, and allow certified copies of materials intended to be used against the petitioner, ensuring the principles of natural justice are upheld.

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