PRINCIPLES OF NATURAL JUSTICE VIS-À-VIS ASSESSMENT UNDER MVAT/CST ACTS

INTRODUCTION

Assessment under taxation laws is considered to be
a quasi-judicial process. The Department authorities are expected to act in a
just and fair manner, including compliance with the principles of natural
justice.

Not calling records lying with department

There are a number of instances where the
investigation authorities may visit the place of business of an assessee.
Through such a visit, the Department may acquire possession of full / part
records of the assessee. The assessing authorities subsequently initiate
assessment proceedings. And the burden is on the assessee to produce records.
But strangely, no action is taken to call for the records lying with the
investigation authorities!

Often, adverse orders are passed based on reports
received from investigation authorities, or based on (their) own assumptions
without going into the actual records with the authorities.

Judgement of the Bombay High Court in the case of Insta Exhibitions Pvt. Ltd. (Writ Petition No. 6751
of 2019 dated 8^th August, 2019)

One such case came before the Hon’ble Bombay High
Court recently. The facts narrated by the Court are as under:

‘3. The
grievance of the Petitioner is that both the impugned orders dated 14^th
March, 2019 have been passed in breach of principles of natural justice
inasmuch as no sufficient opportunity to present their case was given to the
Petitioner. In particular, it is pointed out that the Petitioner had received a
notice for personal hearing from the Assessing Officer for the hearing
scheduled on 11^th March, 2019. On that date, i.e. 11^th
March, 2019, the Petitioner’s representative attended the office of the
Assessing Officer and filed a letter seeking an adjournment of eight days and
the respondents were requested to make available to the Petitioner its own
documents relevant for the assessment relating to financial year 2014-2015,
which were with the Assistant Commissioner of Sales Tax, Investigation Branch,
Bhayander (evidence in the form of receipt was also enclosed with the
Petitioner’s letter dated 11^th March, 2019). The impugned orders do
record that the Petitioner’s representative was present at the hearing and the
filing of letter dated 11^th March, 2019. It is submitted that the
assessment were (sic) finalised without giving the Petitioner the
documents in the possession of the Revenue. Thus, the Petitioner did not have
an opportunity to establish its case before the authority.’

The respondents opposed the writ petition on
grounds of alternative remedy and also on the ground that the submission of the
assessee is otherwise considered.

However, the Bombay High Court did not approve of
the action of the Department authorities and observed as under:

‘5. It is an undisputed position that the
Petitioner’s documents relating to the period 2014-2015 and necessary for the
Petitioner’s assessment, in particular to support its claim for branch transfer
and exhibition activity, were in the possession of the Department with effect
from 18^th April, 2017. In spite of the Petitioner’s seeking copies
of the same, the same were not granted by the Assessing Officer as he did not
call for the necessary proceedings and papers from the Assistant Commissioner
of Sales Tax, Investigation Branch, Bhayander, who was in possession of the
papers relating to the assessment year 2014-15. In these circumstances, it was
impossible for the Petitioner to establish its claim for branch transfer as
also the exhibition activity as the documents relevant, according to the
Petitioner, in support of its aforesaid two claims, were amongst the documents
which were in the possession of the Assistant Commissioner of Sales Tax,
Investigation Branch, Bhayander. This non-giving of documents certainly
handicapped the Petitioner in the assessment proceedings. This certainly
amounts to a breach of principles of natural justice.

6. In the above view, there
is a flaw in the decision-making process which goes to the root of the matter.
Therefore, we set aside the impugned orders dated 14^th March, 2019
passed under the MVAT Act and the CST Act. We restore the Petitioner’s
assessment proceedings to respondent No. 3 – Deputy Commissioner of State Tax –
for fresh consideration of the assessment for the period 2014-15 after
furnishing to the Petitioner all the documents relating to the assessment year
2014-15 which are in possession of the Assistant Commissioner of Sales Tax,
Investigation Branch, Bhayander, since 18^th April, 2017.’

Thus, the Hon’ble High Court has remanded the
assessment for fresh orders after providing a proper opportunity to the
petitioner.

CONCLUSION

Compliance with the principles of natural justice
is a very important part of assessment. Non-compliance results in invalid
orders. However, the assessee is also required to be alert about his rights. It
is necessary that the issue about the requirement of following the principles
of natural justice is raised in due course. If not, then non-compliance will be
fatal to the validity of the orders passed. The above judgement will be useful
for reference in future proceedings.