B.N. Mahapatra, J.
1. In this Sales Tax Revision Petition (earlier SJC No. 186 of 1995) this Court vide Order Dated 14.07.1998 directed the Orissa Sales Tax Tribunal (hereinafter called 'the Tribunal') to refer the following questions for adjudication:-
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?
Subsequently, the said SJC has been converted to Sales Tax Revision No. 161 of 2008.
2. The facts & circumstances giving rise to the present revision petition are that the Petitioner during the relevant time was a registered dealer under the Orissa Sales Tax Act, 1947 (hereinafter called 'the OST Act') & carrying on business in fertilizer, kerosene oil, salt, M.S. rod etc. at Rampur in the district of Bolangir. For the year 1981 -82, the Petitioner was assessed under Section 12(4) of the OST Act. On receipt of a fraud report No. 6 of 83-84 from Vigilance Wing of Sambalpur, the original assessment was reopened by the Sales Tax Officer, Bolangir I Circle, Bolangir (hereinafter called 'the assessing officer') under Section 12(8) of the OST Act. In response to the said notice, the Petitioner appeared before the assessing officer. In course of assessment proceeding, the assessing officer confronted the Petitioner to the extract of account of M/s Radheshyam Satyanarayan of Kantabanji (hereinafter called 'M/s RSK') alleging that the Petitioner carried on paddy transaction with said firm as there was mention of 'Babulal' in the said seized document & the same was not disclosed to the Department. In reply, the Petitioner denied to have any such transaction with M/s RSK. The Petitioner further stated before the assessing officer that there were so many 'Babulals' in Bolangir district. He demanded confrontation with M/s RSK from whom books of account were seized wherein 'Babulal' had been mentioned. The Petitioner further explained to the assessing officer that he did not appear before the vigilance authority in response to notice under Section 16 (1) of the OST Act as that authority was not the sales tax authority. The assessing officer without affording any confrontation with M/s RSK as demanded by the Petitioner & further utilizing statement of one Sri Mahajan Sahu of Salepalli passed the assessment order on 23.05.1985 utilizing the allegation made in the fraud case report submitted by the Vigilance authority raising extra demand of Rs. 20,000.
Being aggrieved, the Petitioner filed first appeal before the Assistant Commissioner of Sales Tax, Bolangir Range, Bolangir (hereinafter called 'the first Appellate authority') challenging the assessment order. Before the First Apellate Authority, the Petitioner denied the allegation of doing paddy business with M/s RSK & demanded confrontation with said M/ s RSK & Sri Mahajan Sahu. It was further contended that statement of Sri Mahajan Sahu recorded behind the back of the Petitioner was never confronted to him before that was utilized in the assessment order. Learned First Appellate Authority vide Order Dated 17.09.1986 passed in Appeal No. AA 42 (BP I) of 85-86 sent back the order of assessment to the assessing officer for fresh assessment after giving an opportunity to the dealer-Appellant for confrontation with the alleged seized documents & the firm M/s RSK & Sri Mahajan Sahu who gave statements regarding alleged business activities of Babulal Agrawal in paddy.
Being dissatisfied with the order of the first Appellate authority, the Department carried the matter to the Tribunal. The Petitioner filed a cross objection supporting the order of the first Appellate authority. The Learned Tribunal held that there was no justification for the First Appellate Authority to direct confrontation with purchasing dealer M/ s if RSK & their books of account & Sri Mahajan Sahu, as no such confrontation was ever prayed for by the assessee at the investigation stage before the Vigilance Wing, Sambalpur, which is prior to initiation of proceedings under Section 12(8) of the OST Act by assessing officer.
3. Mr.M.Agrawalla, Learned Counsel for the Petitioner submits that the assessing officer can not pass any assessment order arbitrarily violating the cardinal principles of natural justice. Before any adverse material is utilized against a dealer & asking him to shoulder a tax burden, the assessment must have been made in a fair manner. The assessee should be given an opportunity to rebut the allegations so made before the same are utilized against him. Mr. R.P.Kar, Learned Addl. Standing Counsel appearing for the Revenue on the other hand supports the order of the Learned Tribunal.
4. Rule-31 of the OST Rule deals with order of assessment. It provides that after considering any objection raised by the dealer either personally or through an agent or by means of a representation in writing & also any evidence produced in support thereof & the report, if any, of the Inspector deputed under Rule 29, the Commissioner shall assess the amount of tax & penalty, if any, payable by the dealer, & shall also record an order of assessment.
In State of Kerala v. K. T.Shaduli Yusuff, (1977) 9 STC 478 (SC), during assessment proceedings, the returns filed by the assessee on the basis of his books of account appeared to the Sales Tax Officer to be incorrect & incomplete since certain sales.appearing in the books of account of one H as having been effected by the assessee in his favour were not accounted for in the books of account maintained by the assessee. The assessee applied to the Sales Tax Officer for affording him an opportunity to cross-examine H in regard to the correctness of his accounts, but this opportunity was denied to him & the Sales Tax Officer made a best Judgment assessment under Section 17(3) of the Kerala General Sales Tax Act, 1963. The assessee appealed without success, but the High Court, on revision, took the view that the assessee was entitled to have an opportunity to cross-examine H before the Sales Tax Officer arrives at any finding &, accordingly, quashed the order of the sales tax authorities & remanded the case to the Sales Tax Officer for making fresh assessments according to law after giving an opportunity to the assessee to cross-examine H. On appeal, the Hon'ble Supreme Court held that since the evidentiary material procured from or produced by H was sought to be relied upon for showing that the return submitted by the assessee was incorrect & incomplete, the assessee was entitled to have H summoned as witness for cross-examination inasmuch as cross-examination is one of the most efficacious methods of establishing the truth & exposing falsehood. The act of the Sales Tax Officer in refusing to summon H for cross-examination by the assessee clearly constituted infraction of the right conferred on the assessee by the second part of the proviso to Section 17(3) & that vitiated the orders of assessment made against the assessee.
In Kishinchand Chellaram v. Commissioner of Income-tax, Bombay City-ll, : (125) 1980 ITR 713 (SC), the Hon'ble Apex Court held that it was true that proceedings under the income-tax law were not governed by the strict rules of evidence, &, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the income- tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him.
This Court in M/s Ferro Alloys Corporation Limited v. State of Orissa, represented through the Secretary, Department of Finance and Ors. 77 (1994) CLT248 (Ori), held that where a material is sought to be utilized against an assessee, adequate opportunity has to be granted to it to rebut the same before the material can be utilized against the assessee. For that purpose, it is open to the assessee to make prayer for summoning a person who has nexus with the material sought to be utilized, so that the witness can throw light on the materials. For example, if a third party's accounts are sought to be utilized the assessee can pray the Sales-tax Officer to issue summon to the party whose accounts are sought to be relied upon. Denial to accept the prayer would amount to violation of the principles of natural justice. The person whose accounts are sought to be utilized against the assessee stands in the footing of a witness for the revenue. Utilisation of any entry in his account against the assessee without accepting prayer for summoning him would vitiate the assessment. The action of the assessing authority in refusing to summon the third party constituted an infraction, & vitiated the orders of assessment.
In Kanak Cement Pvt. Ltd. v. Sales Tax Officer, Assessment Unit, Rajgangpur (1997) 105 STC 112 (Ori), it has been held that it is a fundamental requirement of the principles of natural justice that if arty person is likely to be affected by the useof any material collectedly the Revenue those are to be brought to his notice, & disclosed to him. The requirement of natural justice is to disclose by way of confrontation the materials collected & proposed to be used agains't a dealer. The strict principles or rules of evidence under the Indian Evidence Act, 1872 do not apply to proceedings under the Orissa Sales Tax Act, 1947. Authorities under the Act can collect materials behind the back of an assessee. But they are not required to disclose the source. However, any materials sought to be utilized against the assessee are to be brought to his notice.
In Muralimohan Prabhudayal v. State of Orissa (1970) 26 STC 22, this Court held that it cannot be said that ample & reasonable opportunity to be given to the assessee would not include within its sweep the right of cross-examination. An assessee would have the right of cross-examination if the facts & circumstances so justify.
In State of Tamil Nadu v. Sri Rajalakshmi Colour Company (1995) 99 STC 154 (Mad.), it has been held that where the dealer categorically repudiates the statements of third parties it is the duty of the authorities to afford to the dealer an opportunity to cross-examine the third parties.
In L. Abdulla Kunhi v. State of Kerala : (2001) 122 STC 461 (Ker.), it has been held that though under Section 17(3) of the Kerala General Sales Tax Act, 1963 the officer is empowered to make best Judgment assessment that assessment should be based on reasonable conclusions & it should not be arbitrary. The principles of natural justice also apply to such proceedings. The assessee in his objections has clearly stated that he wanted an opportunity to cross-examine the witnesses who provided information to the department. There has been a violation of the principles of natural justice in denying that opportunity to the assessee. Accordingly, the impugned order is liable to be set aside.
In Prakash Chand Nahta V. Commissioner of Income-tax, : [2008] 301 ITR 134 (MP), it has been held that as the assessing officer had not summoned R in spite of the request made under Section 131 of the Act, the evidence of R could not have been used against the assessee & in the absence of affording a reasonable opportunity of being heard by summoning the said witness the assessment order was vitiated.
This Court in Income Tax Appeal No. 5 of 2002 (Commissioner of Income Tax, Sambalpur, Orissa v. M/s Utkal Alloys Limited, Rourkela) disposed of on 19.03.2009 held that the procedure of assessment is quasi judicial in nature & in making the assessment the assessing officer must observe the judicial principles. Accounts regularly maintained in course of business have to be relied upon unless there are strong & sufficient reasons to disbelieve them.
5. The issue involved in the present case is to be examined in the light of the above legal propositions.
6. Admittedly, in response to notice under Section 12(8) of the OST Act issued by the assessing officer, the Petitioner appeared before him & denied the allegations of sale suppression of paddy made in the fraud case report submitted by vigilance authority. The Petitioner also demanded confrontation wuh M/s RSK from whom the Vigilance authority seized books of account wherein 'Babulal' had been mentioned. However, without allowing confrontation, the assessing officer utilized the same against the Petitioner in the assessment order. The assessing officer has also utilized the statement of one Mahajan Sahu against the Petitioner in the assessment order, which was recorded behind the back of the Petitioner & was not disclosed to him before they were utilized in the assessment order. The Petitioner made similar prayer for confrontation with M/s RSK & books of account seized from them & Sri Mahajan Sahu before the First Appellate Authority which was allowed. However, the Learned Tribunal did not agree with the view of the First Appellate Authority that such opportunity of confrontation should be given to the Petitioner, as he had not asked for the same before the Vigilance authority. The case of the Petitioner is that since in response to notice issued under Section 16(1) of the OST Act he did not appear before the Vigilance authority there was no occasion for him to ask for confrontation with Ml s RSK. The statement of Mahajan Sahu had been recorded in course of the assessment proceeding behind the back of the Petitioner & he came to know about it only after the assessment order was passed. Hence, there was no occasion for the Petitioner to request for any confrontation with Sri Mahajan Sahu either before the Vigilance authority or the assessing officer. However, before the First Appellate Authority, the Petitioner requested for confrontation with the firm M/s RSK along with its seized books of account & Mahajan Sahu. The Petitioner filed an affidavit of Sri Mahajan Sahu before the First Appellate Authority wherein Sri Sahu categorically stated that one Sales Tax Officer took his signature on a statement without disclosing the facts of the statement, stating that he would be cited as witness & he also did not know any person namely Babulal Agrawala of Rampur personally or about his business activities.
7. No doubt, the sales tax authorities under the Sales Tax Act are not precluded from collecting materials behind the back of a dealer & 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 & 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 & exposing falsehood.
8. 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 & Sri Mahajan Sahu as no such confrontation was prayed for by the assessee at investigation stage.
9. In the result, the question referred to above is answered in negative, i.e., in favour of the dealer & against the Department. The Sales Tax Revision is disposed of accordingly.
No costs.
B.S. Chauhan, C.J.
I agree.