Denying Opportunity to Cross-Examining the Parties is Violation of Natural Justice: Madras HC [Read Judgment]

The Madras High Court has held that an opportunity of cross-examining the representatives of the co-operative societies upon whose statement reliance is intended to be placed should be granted at the request of the assessee for determination of assessment of income.

The petitioner National Handloom Development Corporation Ltd. (NHDCL) has challenged assessments for the periods 2011-12 and 2012-13 in terms of the Tamil Nadu Value Added Tax, 2006. The Assessing Officer, according to the order of assessment, verified the records, noticing purchases of silk yarn from one, Salsar Corporation in Bangalore. The said Salsar Corporation, as seen from extracts of the website available in the records that have been summoned and produced before the Court, is an importer and trader in Chinese Silk. Certain bills of purchase and sale transactions between Salsar and the units were noticed wherein the commodity was stated to be ‘silk yarn in hank’.

The Assessing Authority submitted that the nexus in regard to the purchase of the imported yarn from Salsar by the petitioner and sale of the same yarn to the co-operative societies in Tamil Nadu on identical valuation was clearly established. The goods were sent directly from Salsar Bangalore to the concerned society upon instructions from NHDCL. Freight in respect of the transactions was remitted by the recipient societies. The sale of the imported silk to the societies constituted a first sale within the State of Tamil Nadu, liable to tax. He concluded, on the basis of the enquiries that such purchase and sale transactions involving exempted goods (local silk hank yarn) were clandestine and engaged in with the intention of avoiding payment of tax thereupon.

The petitioner submitted that the yarn bought from Salsar was only indigenous silk yarn in the hank. The petitioner had no margin of profit on the sales effected to the societies. The petitioner requested that in the event of the Assessing Officer intending to conclude the matter adverse to its interest; it should be granted an opportunity of cross-examining the representatives of the co-operative societies but the officer negates the same, stating that such opportunity was only academic.

The single bench of Justice Anita Sumanth held that it appears very apparent that the principles of natural justice have been given a go-by in the present case. The extracts from the website relied upon by the Department no doubt reveal that Salsar was a trader and importer of yarn. However, this, by itself cannot lead to the inference of clandestine sales by the petitioner to the societies. The statements recorded from the co-operative societies have not been supplied to the petitioner and this also against the principles of natural justice. It is necessary that a copy of such materials, including statements that are relied upon by the Assessing Officer be furnished to the petitioner, and an opportunity to be granted to it to cross-examine the parties upon whose statement reliance is intended to be placed. The impugned orders are set aside.