Amritha Marketing Vs Joint Commissioner of CGST & Central Excise (Madras High Court)
Summary: The Madras High Court allowed writ petitions filed by wholesale dealers engaged in the supply of groceries and Fast Moving Consumer Goods (FMCG), challenging GST assessment orders passed under Section 74 of the CGST Act, 2017. Acting on information alleging substantial under-reporting of sales turnover, the GST authorities conducted searches, seized billing computers and sales records on 11 May 2023, and recorded statements of the proprietors and other persons under Section 70 of the CGST Act. Show cause notices dated 29 June 2024 proposed tax demands, interest and penalties for different financial years. The assessments relied on electronic sales data retrieved by FDI Labs, Chennai, from seized computer systems. The petitioners challenged the refusal to permit cross-examination of the person who retrieved the data and contended that the authorities had unlawfully extrapolated sales information available for only a limited period to determine turnover for the entire assessment period. The respondents relied on admissions made by the assessees and also questioned the maintainability of the writ petitions on the ground of an alternative appellate remedy.
On the issue of cross-examination, the High Court held that rejection of such a request during assessment proceedings could be challenged while contesting the final assessment order, even though earlier writ petitions against the rejection had been dismissed as infructuous. Referring to Kores (India) Ltd. v. Bank of Maharashtra and Vallabh Textiles v. Additional Commissioner, Central Tax, the Court observed that cross-examination forms part of the principles of natural justice, but an assessee must establish specific reasons for seeking it and demonstrate prejudice caused by its denial. In the present case, the petitioners had not disputed the authenticity of the electronic data retrieved from their systems, had certified the retrieval process and had admitted during statements recorded under Section 70 that the entries originated from their own records. Accordingly, the Court held that refusal to permit cross-examination of the technical person who retrieved the data was justified and had caused no prejudice. However, the Court accepted the petitioners’ principal contention that Section 74 does not empower GST authorities to undertake best-judgment assessment by extrapolating limited-period sales data across an entire assessment period.
The High Court explained that Sections 62 and 63 CGST assessment” target=”_blank” rel=”noopener”>Sections 62 and 63 of the CGST Act expressly authorise best-judgment assessment in specified circumstances, whereas Section 74(9) merely empowers the proper officer to determine tax, interest and penalty after considering the taxpayer’s representation. Relying on Union of India v. Rajeev Bansal, P.S. Subramaniam Chettiar & Sons v. Joint Commercial Tax Officer III, Dindigul, and Article 265 of the Constitution, the Court held that taxation powers must have an express statutory foundation and cannot be inferred from legislative silence. The Court also referred to discussions at the sixth GST Council meeting, where the legal difficulty of extrapolating short-period data without supporting evidence had been recognised. It rejected the respondents’ reliance on Rule 31 of the CGST Rules, 2017, observing that the provision concerns valuation of supplies and does not authorise best-judgment assessment. Consequently, the impugned assessment orders were quashed and the writ petitions were allowed without costs. Nevertheless, the Court cautioned that the assessees remained legally obliged to maintain and retain statutory accounts and could face prosecution for non-compliance. The assessees could not rely on the absence of records to defeat estimation while adopting an inconsistent position regarding their record-maintenance obligations.
Cases Discussed
- Kores (India) Ltd. v. Bank of Maharashtra — (2009) 17 SCC 674.
- Vallabh Textiles v. Addl. Commissioner, Central Tax (GST) — 2025 (4) TMI 1154.
- Union of India v. Rajeev Bansal (Supreme Court)— 2024 SCC OnLine SC 2693.
- P.S. Subramaniam Chettiar & Sons v. Joint Commercial Tax Officer III, Dindigul — (1966) 18 STC 357 (Mad).
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Heard both sides.
2. The writ petitioners are wholesale dealers engaged in the supply of groceries and Fast Moving Consumer Goods items. The respondents received information that the writ petitioners / assessees have been grossly under- reporting their sales turnover in the GST returns. Search operations were conducted. The computer systems used for billing and the documents 4/16 containing sales data were seized from the premises vide mahazar dated 11.05.2023. Statements of the manager, accountant, software supplier, customers etc., were recorded under Section 70 of CGST Act. The proprietors were arrested. Show cause notices dated 29.06.2024 under Section 74 of the CGST Act were issued proposing tax demand for different financial years together with penalty and interest.
3. The writ petitioners submitted their replies. Enquiry was held. Since the respondents relied on the data retrieved by a private agency (FDI Labs), the writ petitioners sought leave to cross examine the person who retrieved the data. This request was rejected. Questioning the same, the petitioners filed WP(MD)Nos.1053 to 1056 of 2025. Since during the pendency of the writ petitions, the impugned final orders came to be passed, they were dismissed as infructuous. Challenging the final assessment orders, these writ petitions have been filed.
4. The learned counsel appearing for the petitioners reiterated all the contentions set out in the affidavit filed in support of these writ petitions and called upon this Court to set aside the impugned orders and grant relief as prayed for.
5. The respondents have filed counter affidavits and the learned standing counsel took me through its contents. My attention was drawn to the statements of the writ petitioners recorded under Section 70 of the Act. The learned standing counsel submitted that in view of the admissions made by the assessees in the said statements, no relief deserves to be granted to them. He added that the writ petitions are not maintainable since the appeal remedy has not been exhausted. He pressed for dismissal of the writ petitions.
6. I carefully considered the rival contentions and went through the materials on record. The following issues arise for determination:
a) Whether rejection of the request to cross-examine the persons who retrieved the data amounts to violation of the principles of natural justice and whether the impugned final orders stand vitiated on that ground?
b)Whether the respondents were justified in resorting to best judgement assessment ?
7. The learned standing counsel for the respondent submitted that in view of the dismissal of WP(MD)Nos.1053 to 1056 of 2025 filed by the petitioners, the first point need not be taken up for determination. I cannot sustain this objection. It is true that the order rejecting the request for cross examination 6/16 was made during the pendency of the assessment proceedings. It is akin to an intermediate order. I refrain from calling it an interlocutory order since it has a bearing on the rights of the assessee. If the assessee did not mount a challenge to the rejection order which was passed during the pendency of the proceedings, it can be made as one of the grounds of attack while assailing the final order. In Kores (India) Ltd. v. Bank of Maharashtra (2009) 17 SCC 674, it was held that a litigant is not bound to appeal against every interlocutory order passed against him; he can wait until the final order is passed and in appeal against that final order, challenge all orders leading to the final order and affecting that decision. This principle enunciated in the context of civil proceedings can equally be applied in the case of tax assessment proceedings also. If the litigant had filed an appeal or revision against the interlocutory or intermediate order and suffered an affirmation, it would operate as res judicata and cannot be re-agitated in the appeal against the final order. But where there was no conscious adjudication of an issue on merits, the doctrine of res judicata will not get attracted. In the case on hand, the writ petitions filed by the petitioners questioning the orders rejecting the request for cross examination were closed as infructuous and the said orders were not tested on merits. Therefore, the petitioners are at liberty to raise the issue of violation of principles of natural justice once again in these writ proceedings.
8. It is not in dispute that the assessment order relies on the report of the staff of M/s. FDI Labs, Chennai who retrieved the data from the electronic devices seized during the search operation. The technical rules of evidence may not be applicable as such to assessment proceedings. But when the report which forms the basis of the order itself is questioned, the proper officer is obliged to make available the author of the report for cross-examination. Failure to do so may render the assessment order vulnerable for having breached the principles of natural justice provided that the assessee is able to show prejudice on account of such denial. It is well settled that though the right to cross examine a given witness may not be provided by or under the statute, it being a part of the principles of natural justice should be held to be an indefeasible right. But the assessee must still make out a case for cross examination. It will not be “Ask, and it shall be given”. The assessee seeking cross-examination ought to give specific reasons why cross-examination is needed in a particular situation and that too of specific witnesses. A blanket request to cross-examine all persons whose statements have been recorded by the department, cannot be sustained (vide 2025 (4) TMI 1154, Vallabh Textiles v. Addl. Commissioner, Central Tax (GST).
9. Applying the above principle, the petitioners may not have a case for cross-examining the author of the report containing the data recovered from the electronic devices of the assessees. This is because, the assessees had nowhere questioned the veracity of the data retrieved from the systems maintained by them. It is seen that the retrieval took place very much in their presence. The assessees themselves duly certified the process of retrieval. While the retriever who was only a technical person might not have been competent to describe the nature of the data retrieved from the systems as “actual sales data”, that may not really make much of a difference. The assessees were examined and their statements were recorded under Section 70 of the Act. To specific questions, they admitted that the data retrieved from the systems was actually entered by them. I, therefore, hold that the request to cross-examine the retriever of data was rightly denied and in any case, it did not cause any prejudice to the petitioners.
10. The primary contention of the learned counsel for the assessees is that the proper officer could not have passed an order by adopting best judgment assessment method under Section 74 of the CGST Act, 2017. During inspection, the officials did not obtain the sales data for the entire assessment period. What was retrieved from the electronic devices was only a data for a 9/16 limited period. This was extrapolated by the proper officer to encompass the entire assessment period. The stand of the proper officer is that since sales and turnover data for the entire period had not been made available by the assessees, he had to resort to what is known as best judgment assessment. The question of law thrown up for consideration is whether he had the jurisdiction to do so when the statute did not expressly provide for the same. Sections 62 and 63 of the CGST Act, 2017 are the provisions that provide for best judgement assessment. Section 62(1) of CGST Act, 2017 states that where a registered person fails to furnish the return under Section 39 or Section 45, even after the service of a notice under Section 46, the proper officer may proceed to assess the tax liability of the said person to the best of his judgment taking into account all the relevant material which is available or which he has gathered. Section 63 of the Act states that where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled, the proper officer may proceed to assess his tax liability to the best of his judgment for the relevant tax periods. Rule 100(2) of the CGST Rules, 2017 is the corresponding rule.
11. It is not the case of the proper officer that the impugned orders against the writ petitioners have been passed by invoking either Sections 62 or 63 of 10/16 the Act. It is obvious and plain that those provisions are inapplicable to the case on hand. The impugned orders have been passed under Section 74 of the Act. But in Section 74, I am not able to find any provision conferring the power on the proper officer to assess the tax liability of the noticee or the assessee to the best of his judgment. Section 74(9) of the Act states that the proper officer shall after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.
12. The omission in Section 74(9) conferring power to make determination to the best of judgment of the authority appears to be conscious. What has been deliberately and consciously left over by the legislature cannot be supplied by the Courts. Assessment is a quasi-judicial function. The expression “assessment” comprehends the entire procedure for ascertaining and imposing liability upon tax payers. The process of assessment involves computation of income of the assessees, determination of tax payable by them, and the procedure for collecting and recovering tax (UOI v. Rajeev Bansal, (2024 SCC OnLine SC 2693). It is well settled that the provisions of a taxing statute have to be construed strictly. When the method of assessment has been prescribed, the assessing officer cannot travel beyond the said norms. There are different kinds of assessment, ie., self-assessment (Section 59), provisional 11/16 assessment (Section 60), scrutiny assessment (Section 61), best judgment assessment (Sections 62 and 63), summary assessment (Section 64) etc., The assessment to be made by the officer has to be based on material either filed by the assessee or gathered by the authority. If the material is scanty or the assessee suppresses or withholds the same, the authority can opt for best judgment assessment. But then, the statute must authorise him to tread that path. In matters relating to taxation, the principle “what is not prohibited is permitted” cannot be invoked. There has to be a statutory basis for any action to be taken by the assessing officer. The enabling power must flow from the statute. Only mystics can materialise objects from thin air. The proper officer is not endowed with such powers. Article 265 of the Constitution not only talks about levy of tax but also collection of tax. Levy as well as collection can be done only by the authority of law. The constitutional mandate is therefore that what is not envisaged by law directly cannot be done indirectly in the matter of tax collection. The Hon’ble Full Bench of the Madras High Court in the decision reported in (1966) 18 STC 357 (Mad) (PS. Subramaniam Chettiar & Sons vs. Joint Commercial Tax Officer III, Dindigul) while considering the unamended Section 16 of the Madras General Sales Tax Act, 1959, held that there is no room for holding that there is an implied power to assess by best judgment when the Section does not expressly provide for the same.
13.The learned counsel for the petitioners drew my attention to the discussion that took place in the 6th GST Council Meeting held on 11th December, 2016. When it was suggested to include a clause to permit extrapolation of short levy where the taxpayer was not furnishing the details, the then Commissioner, GST Council explained that the settled legal position was that Tax Department could raise demand only to the extent that it had evidence and that extrapolation would not stand legal scrutiny. This also fortifies the conclusion that the omission is conscious and deliberate.
14. I, therefore, uphold the contention of Shri. S. Jaikumar, the learned counsel for the assessees that while passing an order under under Section 74 of the CGST Act, 2017, the proper officer cannot resort to best judgment assessment. To reiterate, without an express statutory provision empowering the proper or assessing officer to resort to best judgment assessment, the authority would not have the jurisdiction to do so.
15. The learned standing counsel tried to justify the impugned orders by invoking Rule 31 of the CGST Rules, 2017. It pertains to determination of the value of supply of goods or services which cannot be determined under Rules 27 to 30. This provision has no relevance to the question posed for consideration. 13/16
16.For the foregoing reasons, the orders impugned in these writ petitions stand quashed.
17.The matter cannot rest there. As rightly pointed out by the learned standing counsel for the respondent, as per the provisions set out in Chapter VIII of the Act, the assessee is obliged to maintain the accounts and retain them for six years. Having taken the stand that the foundational materials are not available and the proper officer cannot make best judgment assessment, they probably risk being prosecuted. There is a fable attributed to Aesop. The Birds and the Beasts declared war against each other. Many animals took sides and some even died. However, the Bat family had not joined either side. When they saw the birds winning, they claimed that they were birds. But when the tide of battle turned, they immediately sided with the Beasts. “Are we not mammals?”, they asked. The assessees cannot behave likewise. They must face the ball with a straight bat. They cannot indulge in cross-batting (pun intended). They cannot take one stand now and a contra stand in future. 14/16
18.With these observations, these writ petitions are allowed. No costs. Consequently, connected miscellaneous petitions are closed.
