2009 (4) TMI 865 - HC - VAT and Sales Tax

Whether the Tribunal was justified in holding that in the absence of prayer for confrontation at the investigation stage, such a prayer could not have been made before the Assistant Commissioner? Held that - No doubt, the sales tax authorities under the Sales Tax Act are not precluded from collecting materials behind the back of a dealer and they may not disclose the source to the dealer. However, if they want to utilize any material collected behind the back of the dealer against him they are bound to confront the same to the dealer giving him opportunity to rebut the same. On such confrontation, if the dealer denies the allegation and demands for cross-examination of any witness, he must be afforded opportunity of cross-examination as cross-examination is one of the most effective methods of establishing the truth and exposing falsehood. In view of the above, learned Tribunal is not justified in holding that there is no justification for the first appellate authority to direct for confrontation to the purchasing dealer-M/s. Radheshyam Satyanarayan of Kantabanji and Sri Mahajan Sahu as no such confrontation was prayed for by the assessee at investigation stage. The question referred answered in negative, i.e., in favour of the dealer and against the Department.

Summary

Issues Involved:
1. Justification of Tribunal's decision regarding confrontation at the investigation stage.
2. Violation of principles of natural justice.
3. Opportunity for cross-examination of witnesses.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Decision Regarding Confrontation at the Investigation Stage:
The Tribunal held that the first appellate authority's direction for confrontation with M/s. Radheshyam Satyanarayan (M/s. RSK) and Sri Mahajan Sahu was unjustified as the assessee did not request such confrontation during the investigation stage before the Vigilance Wing. The Tribunal's stance was that the absence of a confrontation request at the investigation stage precluded such a request before the Assistant Commissioner.

2. Violation of Principles of Natural Justice:
The petitioner, a registered dealer under the Orissa Sales Tax Act, 1947, was assessed for the year 1981-82. Upon reopening the assessment based on a fraud report, the assessing officer used materials and statements against the petitioner without providing an opportunity for confrontation. The petitioner denied the allegations and requested confrontation with M/s. RSK and Sri Mahajan Sahu, which was denied. The first appellate authority allowed the request, but the Tribunal overruled it. The court emphasized that the principles of natural justice require that any material collected behind the back of a dealer, if used against him, must be disclosed to him, and he must be given an opportunity to rebut it.

3. Opportunity for Cross-Examination of Witnesses:
The petitioner demanded confrontation with M/s. RSK and Sri Mahajan Sahu, whose statements were used against him. The court cited several precedents, including the Supreme Court's ruling in State of Kerala v. K.T. Shaduli Yusuff, which affirmed the right to cross-examine witnesses whose statements are used against an assessee. The court held that the refusal to allow cross-examination constituted a violation of natural justice principles. The court also referenced other judgments, such as Kishinchand Chellaram v. Commissioner of Income-tax and Ferro Alloys Corporation Ltd. v. State of Orissa, reinforcing the necessity of providing an opportunity to rebut adverse materials through cross-examination.

Conclusion:
The court concluded that the Tribunal erred in its decision by not allowing the petitioner the opportunity for confrontation and cross-examination, which are fundamental to ensuring a fair assessment process. The question referred was answered in favor of the dealer, and the sales tax revision was disposed of accordingly, with no costs.