M/s. Shanbhag Restaurant, Hubli vs Deputy Commissioner of Commercial Taxes, Assessment-ii, Hubli

The petitioner is a Hotelier, whose business premises was inspected by the Assistant Commissioner of Commercial Taxes (Intelligence), Hubli on 3rd of January, 1994. The inspection and the seized record in the opinion of the Assistant Commissioner revealed evasion of taxes under the Sales Tax Act and commission of offences punishable under Section 29 of the Karnataka Sales Tax Act. The petitioner was, accordingly, given an option to compound the offences departmentally in terms of a notice dated 8th of September, 1984. This notice was followed by a proposition notice dated 20th of October, 1994 for provisional assessment of the petitioner under Section 28(6) of the Act. On receipt of the notice, the petitioner appears to have come forward and offered to compound the offences departmentally upon payment of the compounding fee of Rs. 2,000/-. The violations were accordingly compounded on 5th of December, 1994 and the seized documents returned to the petitioner.

The respondent-assessing authority in the meantime took up regular assessment proceedings for the assessment year 1993-94 in terms of a proposition notice dated 27th of March, 1997. The notice inter alia made reference to and relied upon a report received from the Assistant Commissioner of Commercial Taxes (Intelligence), Hubli on the basis of the inspection conducted by him. The notice pointed out that the report revealed a suppressed sales and purchase turnover of Rs. 6,11,329/- and proposed to fix the suppressed turnover on best judgment basis at twice the said amount. The petitioner filed its objections, in which it was inter alia pointed out that the report referred to in the proposition notice was ex parte having been prepared without any notice to the petitioner and could not therefore be made a basis for the proposed assessment. The reply further stated that the same was provisional and subject to any further reply, which the petitioner may file after examining the report. A separate request was simultaneously made by the petitioner for the issue of the copy of the report. It is not in dispute that the said request was received by the Assessing Authority on the 5th of April, 1997 nor is it disputed that the Assessing Authority without furnishing a copy of the report concluded the assessment by his order dated 24th of April, 1997 impugned in this writ petition. Aggrieved, the petitioner has filed the present petition primarily on the ground that the order is in violation of the principles of natural justice, inasmuch as, the petitioner was denied access to the Intelligence Report submitted by the Assistant Commissioner even when the same was made a basis for completing the assessment proceedings against it.

Mr. Swamy, learned Government Pleader appearing for the respondent, argued that the non-furnishing of a copy of the Assistant Commissioner''s report was not sufficient to vitiate the order made by the respondent. It was urged that the intelligence report did not add to the material that was assembled by the Intelligence Officer and disclosed to the petitioner in the course of the proceedings pending before him. It was contended that the proposition notice for a provisional assessment and the compounding notice sufficiently informed the petitioner of the inferences drawn from the inspection and the violations allegedly committed by the petitioner in the matter of suppression of its turnover. The submission of a report by the Intelligence Officer was according to the learned Counsel only a formality, which was completed and even when a copy of the same had not been furnished to the petitioner, the order made on the basis of any such report could not be declared illegal.

It is not in dispute that the Assistant Commissioner had prepared a report on the basis of his observations made in the course of the inspection conducted by him. It is also not disputed that the observations and the report were adverse to the petitioner for the same suggested suppression of the taxable turnover by it. That the said report was made a basis for the proposed assessment in terms of the proposition notice issued to the petitioner can also not be denied nor can it be denied that the assessment eventually completed by the respondent substantially proceeded on the basis of the materials assembled in the course of the inspection. That being so, it is difficult to subscribe to the view vehemently canvassed before me by Mr. Swamy that the adverse nature of the report and the denial of a copy thereof would not be sufficient to vitiate the order of assessment made by the respondent. It is fairly well-settled that the principles of natural justice not only make an opportunity of being heard necessary for a valid order adverse to a party, but the same require the authority making any such order to disclose all such materials as is sought to be utilised against the party concerned in the course of such proceedings. The report of the Intelligence Officer was indeed one such adverse material sought to be utilised against the petitioner for completing the assessment proceedings and therefore ought to have been disclosed to the petitioner enabling it to file its objections and raise all such defences as may have been otherwise open to it in law. The position may have been different if the petitioner had not demanded a copy of the report, in which event it may have been open to the respondent to contend that the report was never considered relevant or essential for filing of objections by the petitioner, so that non-supply of a copy of the same could not be made a basis for setting aside the assessment. That, however, is not so in the present case. Not only does the reply filed by the petitioner on 31st of March, 1997 reserve liberty for the petitioner to file a further reply upon examination of the report referred to in the proposition notice, but a separate request was also made and acknowledged by the respondent for the issue of a copy thereof. It is therefore difficult to countenance the submission that the nature of the material withheld and the demand for its supply by the petitioner at the appropriate stage, notwithstanding the order of assessment could be sustained only on the ground that the report did not actually contain anything that was unknown to the petitioner. The very fact that the petitioner did not in the opinion of the assessing authority have much to say against the material utilised against it or that what was contained in the material was already known to the petitioner would not constitute a sound exception to the audi alterm partem rule, which applies with full force to statutory assessment proceedings under the Act.

In the result, this petition succeeds and is hereby allowed. The impugned order of assessment dated 24th of April, 1997 is hereby quashed. The petitioner, who has been furnished a copy of the intelligence report submitted by the Assistant Commissioner through its Counsel in the Court today shall file its supplementary objections to the proposition notice on or before the 27th of October, 1997 and present itself for a personal hearing before the Assessing Authority on the 27th of October, 1997 along with such further material as it may like to produce in support of its defence. In case the petitioner does not file objections as directed above or avail of the opportunity now being granted to it for a hearing on 27th of October, 1997, the Assessing Authority shall be at liberty to conclude the proceedings without any further notice or opportunity to the petitioner. No costs.