HIGH COURT OF ORISSA: CUTTACK W.P.(C) No. 19255 of 2011 In the matter of an application under Articles 226 and 227 of the Constitution of India. --------
M/s K.J. Ispat Ltd.
A Company having its registered Office and Factory at Kalinga Nagar Industrial Complex, Dist. Jajpur, Represented through its Director, P.L. Kandoi.
... Petitioner -Versus- The Commissioner of Commercial Taxes, Orissa, Vanijya Kar Bhawan, Cantonment Road, Cuttack and another. ... Opp. Parties For Petitioner : M/s. Subas Ch. Lal, Sr. Adv. Sumit Lal, Sujit Lal & M. Agrawal. For Opp. Parties : Mr. R.P. Kar, Sr. Standing Counsel (Commercial Tax Deptt.) ---------- P R E S E N T:
THE HONOURABLE THE CHIEF JUSTICE SHRI V.GOPALA GOWDA AND THE HONOURABLE SHRI JUSTICE B.N.MAHAPATRA Date of Judgment: 08.05.2012 B.N.MAHAPATRA,J. This writ petition has been filed challenging the impugned order of assessment dated 25.06.2011 passed under Section 43 2 of the Orissa Value Added Tax Act, 2004 (in short, "OVAT Act") and the demand raised thereunder for the period from 01.04.2006 to 31.03.2010 vide Annexure-9 and praying for quashing of the said assessment order and the demand notice on the ground that the computation of demand has not been made on the basis of the books of account maintained in the regular course of business and that no computation on the basis of SION formula can be made to work out the quantum of raw material required to produce one tonne of sponge iron. Further prayer of the petitioner is to quash the direction issued by the Special 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 3 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 appearance and production of books of account. The order of assessment reveals that opposite party no.2 had issued the above two separate notices in Form VAT-307(Annexures-1 & 2) under Section 43 of the OVAT Act in view of two tax evasion reports; one received from the Sales Tax Officer, Vigilance, Bhubaneswar Division, Bhubaneswar for the period 2006-07 and another from the Deputy Commissioner, Sales Tax, Vigilance, Bhubaneswar Division, Bhubaneswar for the period 2006-07 to 2009-10. Pursuant to said notices, the petitioner appeared before opposite party no.2 through its authorized representative on four different dates. In course of assessment proceeding though the petitioner was confronted with the contents of two vigilance reports, the copy of the vigilance report was not supplied to the petitioner for giving effective reply. However, the petitioner denied the allegations made in the said two reports. Opposite party no.2 passed the impugned assessment order under Section 43 of the OVAT Act for the period from 1.4.2006 to 31.3.2010 raising a tax demand of Rs.6,25,02,224.00. Hence, the present writ petition.
3. Mr. S.C. Lal, learned Senior Advocate appearing for the petitioner submitted that although there exists an alternative remedy of appeal, the same would be futile in view of the direction of Special Commissioner of Commercial Taxes as well as the letter of the Dean, NIT 4 prescribing the method of computation of production of Sponge Iron on the ground of specified quantum of raw material. This is binding on opposite party no.2 as well as the appellate authority.
4. Mr. Lal, learned Senior Advocate further submitted that the present assessment order has been passed violating the principle of natural justice by depriving the petitioner an opportunity to produce expert opinion on the ratio production pattern of sponge iron in the factory of the petitioner on the basis of grade of iron ore, grade of coal consumed and dolomite used. Opposite party no.2 on the basis of communication of the Dean of NIT, Rourkela adopted the hypothetical and theoretical formula of the SION to arrive at total production. Opposite Party no.2 without scrutinizing the books of account of the petitioner and the statement regarding generation of fines and consumption of iron ore fed to the Kiln drew his conclusion adopting the SION formula. Had opposite party no.2 examined the 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
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 backed by any authority of law, is unreasonable and is contrary to Article 265 of the Constitution. In the instant case, since the assessment has been done on the basis of direction of the Special Commissioner as well as the report of the Dean of NIT, Rourkela adopting the SION method, the same does not have statutory support as the same constitutes arbitrary exercise of power and is hit by Articles 14 & 265 of the Constitution of India. The petitioner was not allowed to produce expert opinion with regard to the SION formula. The vigilance report is based on the direction given by Special Commissioner of Commercial Taxes (Enforcement) dated 31.10.2009 for adopting the norms prescribed in the said letter while investigating into the business activities of sponge iron units. Report of the Vigilance officials and its conclusion having been based on the hypothetical formula prescribed by the Special Commissioner of Commercial Taxes (Enforcement), the same is not at all reliable for determining the actual production and sale figures of the 6 petitioner. The entire assessment with regard to the alleged sale suppression of sponge iron is based on imaginary and hypothetical formula which is devoid of realities and as such the order of assessment is liable to be quashed. Opposite party no.2 has abdicated the exercise of his discretion by blindly accepting the report of the Vigilance officials wherein the SION formula has been adopted for arriving at the production and sale of sponge iron and the alleged sale suppression. No evidence has been produced about the sale suppression or any clandestine sale to any buyer to avoid payment of OVAT. Placing reliance on the judgment of the Hon'ble Supreme Court in the case of Oudh Sugar Mills Ltd. V. UOI, 1978 (2) ELT (J172) (SC) Mr.Lal submitted that the demand of duty cannot be on the basis of assumption and presumption and charge of sale suppression of sponge iron has to be established by the Department by producing tangible, acceptable, cogent and convincing evidence. SION norms do not have any statutory force for making an assessment. The petitioner maintains all the books of account as required under the Central Excise Laws and Sales Tax Laws. In fact, Sales Tax Officer, Jajpur Road has seized various records from the factory of the petitioner relating purchase of iron ores, iron ore fines, coal, coal fines and dolomite. The registers 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 7 '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 Rs.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 Rs.7,19,733/-, it was argued that it does not have any transaction with M/s.Jai Maa Bhawani and the petitioner does not receive any cash from any buyer and all transactions are carried on by cheques and drafts. Therefore, if there is any entry in the books of account of a stranger, namely, M/s. Jai Maa Bhawani, same cannot be utilized against the petitioner.
6. Due to non-supply of copies of the Vigilance report to the petitioner containing adverse materials against the petitioner which have been relied upon by opposite party no.2 for completing the assessment and raising huge tax demand even after production of books of account amounts to violation of principles of natural justice. In support of his contention, learned counsel relied upon the judgment of this Court in 8 Lakhiram Jain v. STO, (2009) 21 VST 280. Opposite party no.2 having completed the audit assessment for the period 2006-07 and being fully satisfied with the books of account relating to purchase of raw materials and sales of finished products, the re-opening of the assessment on the basis of vigilance reports amounts to change of opinion and no assessment is permissible by changing the opinion of the assessing officer.
7. Per contra, Mr. R.P. Kar, learned Senior Standing Counsel for Commercial Taxes Department raised objection regarding maintainability of the writ petition on the ground that against the assessment order remedy by way of appeal is provided under the OVAT Act. He submitted that sufficient opportunity was given to the petitioner before passing the impugned order of assessment. Further placing reliance on the judgment of this Court in Kanak Cement Pvt. Ltd. vs. Sales Tax Officer, Assessment Unit, Rajgangpur,  105 STC 112, Mr. Kar submitted that the petitioner is not entitled to get a copy of the tax evasion report No.20 dated 29.4.2009 submitted by the Vigilance Wing of the Commercial Taxes Department and tax evasion report No.51 dated 31.10.2010 submitted by the Vigilance Official, Commercial Tax Department. Concluding his argument, Mr.Kar submitted for dismissal of the writ petition.
8. On the above rival contentions, the following questions fall for consideration by this Court:
(i) Whether in the present case, the completed assessment has been reopened by mere change of opinion ?9
(ii) Whether the assessing officer has passed the impugned assessment order on the dictate of his higher 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 Circle, Cuttack in W.P.(c) No.14234 of 2009 disposed of on 16.3.2012, held that assessment by change of opinion means, in respect of a particular income/transaction if the Assessing Officer after application of mind, takes a view that the particular goods or income is not liable to tax and accordingly completed the assessment, subsequently reopening of said 10 assessment is not permissible by mere change of opinion of the Assessing Officer to levy tax on such goods or income. As stated above, in earlier assessment order, the adverse material utilized against the petitioner in impugned assessment order had not been utilized. Hence, the question of change of opinion of Assessing Officer does not arise in the facts and circumstances of the case.
10. In view of the above, the first ground of challenge that the competed assessment has been reopened under Section 43 of the OVAT Act by mere change of opinion fails, the same being misconceived.
11. Question no. (ii) is as to whether opposite party no.2 has passed the impugned assessment order on the dictate of his higher authority i.e. Special Commissioner as well as on the report of the Dean, NIT prescribing the SION method. Law is well settled that the Assessing Officer has to apply his own mind for making the assessment 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 (see the judgment of this Court in Indure Limited v. Commissioner of Sales tax, Orissa & others, (2006) 148 STC 61 and the decision of the Hon'ble Supreme Court in State of U.P. v. Maharaja Dharmandar Prasad Singh, AIR 1989 SC 997). 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, 11 initiated the reassessment proceeding. The Assessing Officer applied his mind and examined the case of the assessee with reference to his contention made. He has not mechanically reopened the completed assessment and abdicated and surrendered to the report of the higher authority.
12. In view of the above, we are of the considered opinion that on receipt of report of the Additional Commissioner of Commercial Taxes, the learned Assessing Officer applied his 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 Rs.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. 12
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 incriminating evidence has been unearthed by them during their raids in the premises of M/s. Prinik Steels Pvt. Ltd. on 22.8.2006. As per the said report, M/s. Prinik Steels Pvt. Ltd. had been maintaining two separate accounts; one in the name of M/s. Prinik Steels Pvt. Ltd. which was its own regular books of account and another, in the name of M/s Jai Maa Bhawani which was its clandestine and undisclosed account. Mr. Ghanashyam Das Agarwal, the shareholder and the constituted Attorney of M/s. Prinik Steels Pvt. Ltd. in his statement dated 22.8.2006 admitted that all the documents recovered from the premises related to M/s. Prinik Steels Pvt. Ltd. and no excise duty had been paid on the sales that were effected in the name of M/s Jai Maa Bhawani and finally agreed for payment of Central Excise duty on that score. M/s. Prinik Steels Pvt. Ltd. had effected unaccounted purchases from M/s. K.J. Ispat Ltd. in the name of M/s Jai Maa Bhawani during the year 2006-07 showing therein details of purchases of sponge iron and payments made thereto. Subsequently, M/s. K.J. Ispat Ltd. was noticed by the Vigilance officials to verify as to whether the unaccounted purchases of M/s. Prinik Steels Pvt. Ltd. in the name of M/s Jail Maa Bhawani had been reflected in the sales Register of M/s. K.J. Ispat Ltd.13
Thus, in the tax evasion report No.20 dated 29.04.2009, the allegation is that the petitioner M/s. K.J. Ispat Limited has effected unaccounted sale to M/s. Prinik Steels Pvt. Ltd. which were recorded in the fake name of M/s. Jai Maa Bhawani. The Assessing Officer utilized the said allegation against the petitioner-assessee for making the assessment without confronting the 3rd party with the petitioner.
15. In the tax evasion report No.51 dated 30.10.2010 the following allegations were raised against the petitioner on the basis of vigilance officials' visit to the premises of the factory as well as office of the petitioner on 04.05.2010:
(i) The Vigilance Officials discarded the quantity of production shown by the petitioner company in its books of account with reference to the raw materials consumed applying SION norms. According to them, considering the quantity of iron ore utilized for production of sponge iron, the petitioner has suppressed quantity of finished products and sold the suppressed quantity of finished products to the tune of Rs.51,89,16,210.00 during 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 Rs.13,11,609/- on being 14 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 Rs.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 Rs.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 Alloys Limited with whom the petitioner has sale transactions on different occasions from 10.04.2009 to 17.04.2009 through Mr. Sunil Kumar Agarwal for which he had received a commission of Rs.15,000/-. In absence of any satisfactory explanation, the Vigilance Officials treated the said transactions as sales suppression by the petitioner.
16. On being confronted the authorized representative of the dealer-petitioner stated that they did not know any one in the name of Sunil Kumar Agarwal, who had received payment of Rs.15,000/- as commission. Further, it was stated that the slip in question was not seized from the factory premises which might have been fetched from Cuttack Office during the visit of the vigilance officials on 04.05.2010. The case of the Assessing Officer is that irrespective of the place of seizure since the 15 slip in question belongs to the assessee-petitioner which was seized by the vigilance officials with the signature of MD of M/s. K.J. Ispat Ltd. on it at the time of recovery, the assessee is duty bound to explain the said slip. Finally, the assessee appeared on 25.06.2011 along with Advocate Sri Raj Kishore Chapolia and filed hazira praying therein for third party confrontation. The reports were again confronted to brush the memory of the authorized-person as well as for knowledge of the learned Advocate. The authorized person in consultation with the advocate contended that there cannot be any standard formula for production since it depends on a lot of factors like quality of raw-materials, quality of machinery, un-interrupted power supply etc. It was further narrated that the process of manufacturing goes like - CLO (iron ores)are received from the mines, then crushed in their crushing unit for production of desired size of Iron ore to be put to the furnace for production of sponge iron. The learned Assessing Officer disbelieved the explanation furnished by the authorized person and adopting the SION norms held that the petitioner has suppressed sales to the tune of Rs.51,89,16,210/-.
17. With regard to allegation of sales suppression of Rs.12,15,922/-, the learned Assessing Officer came to the conclusion that since the slip was seized from the business premises of the petitioner- assessee, the onus of explaining the said slip lies on the assessee. In absence of any plausible explanation, the learned Assessing Officer accepted the report of the vigilance officials that the petitioner has 16 suppressed sales to the tune of Rs.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 No.2, it is stated that the petitioner was present along with its advocate and its books of account in response to the said notice issued by opposite party no.2. In the said letter it is further stated that "in the interest of justice, kindly allow confrontation to 3rd party involved in the allegation and issue summons to them for appearance and allow us for cross examination". 17
20. Law is well settled that if any dealer is likely to be affected by the use of any material collected by the revenue against him in the assessment proceedings, those are to be brought to his notice for refutal. This is the requirement of the natural justice. The principle of natural justice is based on two basic pillars, i.e, nobody shall be condemned unheard (audi alteram partem), nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa).
21. The Hon'ble Supreme Court in C. Vasantlal and Co. v. Commissioner of Income-tax, Bombay City  45 ITR 206 observed as follows:
"... The Income Tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it."
22. The Hon'ble Supreme Court in State of Kerala V.
K.T.Shaduli Yusuff (1977) 39 STC 478 held as under :
"... The tax proceedings are no doubt quasi-judicial proceedings and the sales tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same..."
23. In Kishinchand Chellaram V. Commissioner of Income-tax, Bombay City-II, (1980) 125 ITR 713, the Hon'ble Suprme Court held that it was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter 18 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.
24. In Delhi Transport Corporation v. D.T.C. Mazdoor Congress  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 party- in-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,  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 being taken does not exclude hearing -- it may be implied from the nature of the power -- particularly when the right of a party is affected adversely. The justification for reading such a requirement is that the Court merely supplies omission of the Legislature.19
26. This Court in J.S. Refineries Ltd. V. Commissioner of Sales Tax, (1998) 109 STC 16 held that any material sought to be utilized against the dealer has to be brought to his notice.
27. This Court in Mitra Trading Company (OJC No.252 of 1968 dated November 9, 1971 -- Orissa High Court) held as follows:
"4. The main question for consideration is whether the petitioner should be given opportunity to take copy of the seized account book. The answer to such a question would depend upon whether principle of natural justice would be violated unless such opportunity is given. It is well-settled that principle of natural justice cannot be confined within close jackets. What would be the principle in a particular case would depend on the facts and circumstances of that case. One thing, however, is certain that in an assessment proceeding if any particular material is used against an assessee then the assessee must be given full opportunity to rebut any adverse inference that could be drawn from user of that particular material. This was fully discussed by us in Muralimohan Prabhudayal v. State of Orissa  26 STC 22 (Orissa) wherein a question arose as to whether the assessee could be given opportunity for cross- examination with reference to account books of third party used against the assessee. In paragraph 5 of our judgment we referred to the fourth proposition as follows:
'In case he proposes to use against the assessee the result of any private enquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilized to such extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it, if possible."
28. Needless to say that an assessing authority is entitled to collect the materials behind the back of the assessee. It is not necessary that all the 20 materials so collected by the assessing authority need to be confronted to the assessee. Only those materials which the Assessing Officer wants to utilize against the assessee in doing the assessment are bound 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 Rs.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 Rs.51,89,16,210.00. To come to such conclusion, opposite party No.2- Assessing Officer relied on the formula of SION adopted by the Dean of NIT, 21 Rourkela. In course of the assessment, since the dealer-assessee is not technical person, they wanted to produce a technical person to examine the correctness of formula of SION which was not allowed to the petitioner. 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 so.
31. This Court in the case of Murlimohan Prabhudayal vs. State of Orissa,  26 STC 22, held that it cannot be said that ample and 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 and circumstances so justify.
32. This Court in the case of Dredging Corporation of India vs. State of Orissa, (1995) 97 STC 10, held that although the provisions of the Evidence Act, 1872 are not strictly applicable to proceedings under taxing statutes, unless a contrary intention appears, the procedures and principles thereof can be adopted. The applicant wanted to prove through evidence of certain officials of the Port Trust as to what was real essence of the agreement and what was really agreed upon. The parties to the contract were the best persons to say what was the intention. It was open to the Revenue to establish collusion, either by cross-examining the witness or by independent evidence, but to pre-judge that they would collude was without any material basis. Moreover, the different clauses of the 22 agreement had been interpreted differently by the members of the Tribunal. Since the applicant had not availed the chance of explaining its position on account of refusal by the authorities to summon certain officials of the Port Trust for which it had filed applications, the principle of natural justice had been violated.
33. The Hon'ble Supreme Court in the case of K.T. Shaduli Yusuf (supra) 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 and incomplete, the assessee was entitled 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 3 rd 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 23 04.05.2010 found a slip from the premises of the petitioner-company wherein Rs.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 Rs.15,000/- towards commission from M/s.K.J. Ispat Limited. Further the Vigilance Officials concluded that 'Sourav' appearing in the slip stands for M/s.Sourav Alloys Limited and the instant-dealer assessee had sale transactions with M/s. Sourav Alloys Ltd. on different occasions from 10.04.2009 to 17.04.2009 through Mr. Sunil Kumar Agarwal for which he had received commission of Rs.15,000/-. On confrontation of the said slip, the authorized person of the company stated that he does not know any person in the name of Sunil Kumar Agarwal.
36. Since the slip was recovered from the petitioner-assessee's premises, the initial burden is on the assessee to explain the slip and prove that the said slip does not relate to any purchase or sale transaction of the dealer-petitioner. However, where the dealer disowns the slip, unless it is established by the revenue that noting made in the slip relates to unaccounted business transaction of dealer no adverse inference can be drawn.
37. In the instant case, the Vigilance Officer discovered the said slip from the business premises of the petitioner-dealer and the Assessing Officer drew certain inferences from the noting made on the slip, but failed to establish such inferences.24
38. Law is well settled that no demand can be raised in an assessment on suspicion and conjecture. Therefore, before utilizing the said slip against the petitioner, the Assessing Officer has to prove that through the said noting in the slip, the petitioner has sold materials worth of Rs.12,15,922/- which was not disclosed in the books of account. In the instant case, the same has not been done.
39. For the reasons stated above, we allow the writ petition, set aside the impugned assessment order as well as the demand raised under Annexure-9 and remand the matter to the Assessing Officer to re-do the assessment in due compliance with the principles of natural justice and keeping in view the observations made in the preceding paragraphs.
V. Gopala Gowda, C.J.
Chief Justice Orissa High Court, Cuttack Dated 08th May, 2012/ss