TMI Blog2013 (7) TMI 863X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment on the basis of the books of account maintained and any material in his possession after confronting the same to the assessee. He should not mechanically complete the assessment and abdicate and surrender to the report of any higher authority. Perusal of the impugned order clearly reveals that the Assessing Officer after applying his mind and being satisfied that the alleged turnover had escaped from assessment, initiated the reassessment proceeding. See Indure Limited v. Commissioner of Sales tax, Orissa & others (2006 (7) TMI 572 - ORISSA HIGH COURT)and State of U.P. v. Maharaja Dharmandar Prasad Singh (1989 (1) TMI 315 - SUPREME COURT). Also though the AO utilized the adverse materials on the basis of which fraud case report Nos.20/29.04.2009 and report No.51/30.10.2010 were submitted he has not supplied the copy of the said adverse materials to the petitioner before passing the impugned order. Before utilizing the aforesaid two allegations against the petitioner, principle of natural justice demands that the 3rd party must be summoned and confronted with the petitioner and in case the petitioner demands for cross-examination of third party, he must be allowed to do s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial Commissioner (Investigation) as the same does not have statutory force. 2. Petitioner s case in a nutshell is that it is a Company registered under the Companies Act, 1956 having its registered office at Kalinga Nagar Industrial Complex in the district of Jajpur. The petitioner-Company has established a Sponge Iron Factory for manufacturing Sponge Iron at Kalinga Nagar Industrial Complex which started its commercial production from 15.3.2006. It has been registered under the OVAT Act and the Central Sales Tax Act, 1956 (for short, CST Act ) and under the Orissa Entry Tax Act, 1999 (for short, E.T. Act ). For the period 1.4.2005 to 31.3.2006 audit assessment was completed resulting in nil demand. Subsequently, opposite party no.2 Deputy Commissioner of Sales Tax, Jajpur Range, Jajpur Road issued notice dated 15.12.2010 (Annexure-1) under sub-rule (1) of Rule 50 in Form VAT-307 for assessment of tax on escaped turnover for the period 01.04.2006 to 31.03.2007. Another notice dated 05.01.2011 (Annexure-2) in Form 307 of the OVAT Act for assessment of tax on alleged escaped turnover for the tax period 1.4.2007 to 31.3.2010 was also issued fixing the date to 7.2.2011 for appeara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of account particularly the sale account of fines arising out of crushing of iron ores as aforesaid, his conclusion would have been different. The assessment has to be done on the basis of actual books of account and not on hypothetical formula. Authenticity of SION formula given by the Dean of NIT, Rourkela was not confronted to the petitioner. Opposite party no.2 has entirely proceeded on the basis of vigilance report in which the SION formula has been adopted to arrive at the calculation relating to production of alloys and sale suppression, which are absurd. 5. The report of the Dean of NIT, Rourkela clearly shows that the production of sponge iron will vary from plant to plant depending on consumption and quality of raw materials and the operating conditions. Perusal of SION report of the Dean would show that same is at variance with the letter of the Special Commissioner of Commercial Taxes in respect of inputs required for production of 1 tonne of sponge iron. Placing reliance on the case of Larsen Tubro Limited Vs. State of Orissa and Ors., (2008) 12 VST 31 (Orissa), Mr. Lal submitted that taxation by way of administrative instructions, which are not ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egisters seized on 4.5.2010 are still in the custody of the Sales Tax Officer. Had opposite party no.2 scrutinized the aforementioned documents, he would have found the truth instead of applying the SION norms. On the basis of a slip recovered from the factory premises of the petitioner containing the words Saurabh and Sunil Babu Rs.15,000/-, no adverse inference should have been drawn without allowing the petitioner to examine the third party as requested by the petitioner. Without affording an opportunity of confrontation, opposite party no.2 on the basis of the said slip treated a sum of ₹ 12,15,922/- as sale suppression. Thus, there has been violation of principles of natural justice. In support of his contention the petitioner relied upon the judgment of the Hon ble Supreme Court in the case of State of Kerala v. K.T. Shaduli Yusuf reported in 1977 (39) STC 478 and the decisions of this Court in Murli Mohan Prabhu Dayal v. State of Orissa reported in 1970 (26) STC 22 (Orissa) and Dredging Corporation of India v. State of Orissa, 1995 (97) STC 10. With regard to allegation of under-invoicing to M/s. Prinik Steels Pvt. Ltd. to the tune of ₹ 7,19,733/-, it was ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gher authority i.e. on the basis of the direction of the Special Commissioner as well as the report of the Dean of NIT prescribing the SION method ? (iii) Whether the assessment order has been passed in violation of principles of natural justice ? 9. So far as question no.(i) is concerned, undisputedly the audit assessment for the period 2006-07 was completed on the basis of books of account maintained by the petitioner relating to purchase of raw material, sales of finished products etc. But in the said assessment order the adverse material utilized against the petitioner in the impugned assessment order had not been utilized. The Hon ble Supreme Court in the case of Binani Industries Ltd. V. Asst. Commissioner of Commercial Taxes, (2007) 6 VST 783 (SC) held that reopening of assessment is not permissible by mere change of opinion of the Assessing Officer. Merely because, the Assessing Officer changes his opinion that cannot have any effect on the assessment, which has been completed on the basis of the view taken on the turn over considered in the earlier assessment. This Court in the case of M/s. Bharat Petroleum Corporation Ltd. V. The Sales Tax Officer, Cuttack-I East ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind and initiated the reassessment proceedings after examining the documents, returns etc. filed by the petitioner and passed the impugned reassessment order. The decision of this Court in (2008) 12 VST-31 (Orissa) has no application to the present case. 13. Question No.(iii) is as to whether the assessment order has been passed in violation of principles of natural justice. Mr. Lal, learned Senior Advocate submitted that for passing the assessment order, opposite party no.2-Assesing Officer has utilized two numbers of tax evasion reports against the petitioner. Out of the two reports, tax evasion report no.20 dated 29.4.2009 for the period of 2006-07 was submitted by the Sales Tax Officer, Bhubaneswar Division, Bhubaneswar alleging sales suppression of ₹ 7,19,733/-. Another tax evasion report no. 51 dated 30.10.2010 was received from the Deputy Commissioner of Sales tax, Vigilance, Bhubaneswar for the periods from 2006-07 to 2009-10. 14. Tax evasion report No.20 dated 29.4.2009 was submitted on the basis of information received from the officials of the Director General of Central Excise, Intelligence, Regional Unit, Rourkela according to which a lot of incrimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the years 2006-07 to 2009-10. When this allegation was confronted to the authorized representative of the dealer, he stated that he does not have any technical expertise and he would come with a technical person on the next date of hearing to make the clarification and submit his explanation on that point. (ii) The Assessing Officer dropped the second allegation on purchase of suppression of coal to the tune of ₹ 13,11,609/- on being satisfied with the explanation of the petitioner arising out of the sundry creditors list of Audit Reports. (iii) The third allegation relates to sales suppression of ₹ 12,15,922/- on the basis of written slip No.96 of enclosure-7 which was seized from the factory premises of the dealer-assessee on 04.05.2010 in course of inspection. On scrutiny of the slip, it was inferred by the Vigilance Officials that the slip reflects sale transaction of different qualities of sponge iron to Sunil Babu (Sourav) for which Sunil Kumar Agarwal had received a sum of ₹ 15,000/- towards commission from M/s. K.J. Ispat Ltd. From the said slip, the Vigilance Official further drew inference that Sourav appearing in the slip stands for M/s. Sourav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer accepted the report of the vigilance officials that the petitioner has suppressed sales to the tune of ₹ 12,15,922/-. The Assessing Officer further held that there is no need for 3rd party confrontation i.e. with M/s. Sourav Alloys Ltd. or so called alleged Sri Sunil Kumar Agarwal, whose address is not mentioned in the report as prayed for by the authorized person Sri Sharma as well as Petitioner s Advocate Sri Chapolia. According to the Assessing Officer, a clear-cut case of suppression has been established. 18. Mr. S.C. Lal, vehemently submitted that without following the principles of natural justice, the impugned assessment order has been passed. It was further argued that in response to the notice, the petitioner produced its books of account and asked for the copy of the tax evasion reports and the same being not provided to the petitioner, he was deprived of his right to refute the allegation raised against him. 19. Undisputedly, in the present case the allegations made in two tax evasion reports are utilized and huge demand of tax and penalty has been imposed on the petitioner-assessee. In letter dated 25.05.2011 addressed to opposite party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bank with reference to the statements made by him. 24. In Delhi Transport Corporation v. D.T.C. Mazdoor Congress [1991] Supp 1 SCC 600; the Hon ble Supreme Court held as follows: It is now well-settled that the audi alteram partem rule which in essence, enforces the equality clause in article 14 of the Constitution is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially the partyin- question unless the application of the rule has been expressly excluded by the Act or Regulation or Rule which is not the case here. Rules of natural justice do not supplant but supplement the Rules and Regulations. Moreover, the rule of law which permeates our Constitution demands that it has to be observed both substantially and procedurally .. 25. In Basudeo Tiwary v. Sido Kanhu University, [1998] 8 SCC 194, the Hon ble Supreme Court held that in order to impose procedural safeguards, this Court has read the requirement of natural justice in many situations when the statute is silent on this point. The approach of this Court in this regard is that omission to impose the hearing requirement in the statute under which the impugned action is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound to be disclosed to the assessee. In appropriate cases, the assessee can also demand for cross-examination of any person, who stated something adverse to him, and the assessing authority wants to utilize against the assessee. 29. In the instant case though the Assessing Officer utilized the adverse materials on the basis of which fraud case report Nos.20/29.04.2009 and report No.51/30.10.2010 were submitted he has not supplied the copy of the said adverse materials to the petitioner before passing the impugned order. 30. On the basis of the tax evasion report No.20/29.04.2009, the Assessing Officer came to the conclusion that the petitioner has suppressed sale materials to the tune of ₹ 7,19,733/- made to M/s. Prinik Steels Pvt. Ltd. in the name of M/s. Jay Maa Bhawani. Such allegation has been made on the basis of the books of account seized from the premises of M/s. Prinik Steels Pvt. Ltd. and statement made on behalf of the said company. Similarly, on the basis of the tax evasion report No.51/30.10.2010, learned Assessing Officer came to the conclusion that during the years from 2006- 07 to 2009-10 the petitioner has suppressed sale to the tune of ₹ 51,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to get H summoned as a witness for cross-examination inasmuch as cross-examination is one of the most efficacious methods of establishing the truth and exposing falsehood. The act of 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) and that vitiated the order of assessment made against the assessee. 34. In view of the above, the Assessing Officer is not justified in denying the prayer for confrontation of the 3rd party with the petitioner-assessee and not allowing it to cross-examine the 3rd party before utilizing the materials recovered or procured from said party and utilized against the assessee. 35. From the tax evasion report No.51/30.10.2010, it is further noticed that the Vigilance Officials in course of inspection conducted on 04.05.2010 found a slip from the premises of the petitioner-company wherein ₹ 15,000/- had been written. On the basis of said slip, it is alleged by the revenue that different quantities of sponge iron were sold to Sourav for which Sunil Agarwal had received a payment of ₹ 15,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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