State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977 Equivalent citations: 1977 AIR 1627, 1977 SCR (3) 233, AIR 1977 SUPREME COURT 1627, 1977 2 SCC 777, 1977 TAX. L. R. 2031, 1977 UPTC 363, 1977 SCC (TAX) 347, 1977 3 SCR 233, 39 STC 478, 1977 2 SCJ 324, 1977 U J (SC) 318 Author: P.N. Bhagwati Bench: P.N. Bhagwati, Ranjit Singh Sarkaria, Syed Murtaza Fazalali PETITIONER: STATE OF KERALA Vs. RESPONDENT: K.T. SHADULI YUSUFF ETC. DATE OF JUDGMENT15/03/1977 BENCH: BHAGWATI, P.N. BENCH: BHAGWATI, P.N. SARKARIA, RANJIT SINGH FAZALALI, SYED MURTAZA CITATION: 1977 AIR 1627 1977 SCR (3) 233 1977 SCC (2) 777 ACT: Kerala General Sales Tax Act, 1963 --S. 17(3) --Scope of--Best judgment assessment made relying on entries in account books of other dealers--Assessee --If entitled to cross-examine the dealers. Natural justice--Scope in tax matters--Best Judgment assessment made relying on entries in account books of other dealers---Cross-examination of dealers--If part of principles of natural justice. HEADNOTE: Section 17(3) of the Kerala General Sales Tax Act 1963 provides that if the return submitted by an assessee appears to be incorrect or incomplete. the assessing authority may State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  1 assess the dealer to the best of its judgment. The proviso to the sub-section enacts that before taking action under the sub-section, the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted, to prove the correctness to completeness of such return. Relying on the evidence furnished by entries in the books of account of some other dealers, the Sales Tax Officer disbelieved the assessee's accounts and came to the conclusion that the return field by him was incorrect and incomplete and made a best judgment assessment under s. 17(3). The assessee's request to cross-examine the deal- ers in regard to the correctness of their accounts was rejected by the Sales Tax Officer. In revision the High Court quashed the order of the Sales Tax Officer. Dismissing the State's appeal, (Per Bhagwati and Sarkaria. JJ) HELD . The assessee was entitled to cross-examine the dealers under the second part of the proviso to s. 17(3). The Sales Tax Officer's refusal to summon the dealers for cross-examination by the. assessee constituted infraction of the right conferred on the assessee by the second part of the proviso and that vitiated the order of assessment made against him. [239 F] (1) The rule which requires an opportunity to be heard to be given to a person likely to be affected by a decision is not an inflexible rule having a fixed connotation. It has a variable content depending on the nature of the in- quiry, the framework of the law under which it is held, the constitution of the authority holding the inquiry, the nature and character of the right affected and the coil- sequences flowing from the decision. The rule of audi alterem partem does not require in every case a specified procedure to be followed. In a given case, the rule of audi alterem partem may import a requirement that witnesses, whose statements are sought to be relied upon by the author- ity holding the inquiry, should be permitted to be cross- examined by the party affected while in some other cases it may not. The procedure required to be adopted for giving an opportunity to a person to be heard must necessarily depend on the facts and circumstances of each case. [237 B-D] (2) (a) It is only on the existence of one of two condi- tions, namely, that no return is .submitted by the assessee or the return submitted appears to be incorrect or incom- plete that the Sales Tax Officer gets the jurisdiction to make a best judgment assessment. [237 H] 234 (b) The second part of the proviso lays down that where a return has been submitted, the assessee should be given a reasonable opportunity to prove the correctness or complete- ness of such return. "To prove" means to establish the correctness or completeness of the return by any mode per- missible under law. The opportunity to prove would, there- State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  2 fore, necessarily carry with it the right to examine wit- nesses and that would include equally the right to cross- examine witnesses examined by the Sales Tax Officer. [238 G-H] In the instant case, the assessee could prove the cor- rectness and completness of his return only by showing that the entries in the books of account of the dealers on which the Sales Tax Officer relied, were false, bogus or manipu- lated and that his return should not be disbelieved on the basis of such entries. This could not be done unless an opportunity to cross examine the dealers was given. [239 B] Murlimohan Prabhudayal v. State of Orissa, 26 S.T.C. 22 and M. Appukutty v. State of Kerala, 14 S.T.C. 489 approved. Fazal Ali, J. (concurring). Section 17(3) with the proviso thereto and r. 15, have given a statutory right to the assessee to prove the cor- rectness of his return and the assessee was entitled to cross-examine the wholesale dealers, relying on whose ac- counts the Sales Tax Officer made a best judgment assess- ment. [247 E] (1) The well-settled rules in regard to best judgment assessment are (i) The taxing authority must not act dis- honestly or vindictively or capriciously. He must make what he honestly believes to be a fair estimate, of the proper figures of assessment and for this purpose, he must be able to take into consideration all matters which he thinks will assist him in arriving at a fair and proper estimate. Though it must necessarily be guess work it must be honest guess work. [241 E] (ii) Although tax proceedings are quasi-judicial and the Sales Tax Officer is not bound strictly by rules of evi- dence, yet he must base his order on materials known to the assessee and after he has been given a chance to rebut the same. [244 E] (iii) Admissibility of a document or material in evi- dence is quite different from the value which the authority would attach to such material. The tax authority can even base its conclusion on private opinion or assessment provid- ed the same is fully disclosed to the assessee and he is given an opportunity to rebut the same. [242 E] Income-tax Commissioner v. Badridas Ramrai Shop, Akola (1937) 64 I.A. 102, 114, 115 and Dhakeswari Cotton Mills Ltd. v. Commissioner of Incometax, West Bengal, [1955] 1 S.C.R. 941 followed. Raghubar Mandal Harihar Mandal v. State of Bihar 8 S.T.C. 770 and C. Vasantilal & Co. v. C.I.T. Bombay City 45/.T.R. 206 referred to. Seth Gurmukh Singh v. Commissioner of Income-tax Punjab, [1944] 12 I.T.R. 393 approved, 2(a) The words "opportunity of being heard" in s. 17(3) are of very wide amplitude. All that the court has. to see is whether the assessee had been given a fair hearing. Whether the hearing would extend to the right of demanding State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  3 cross-examination of witnesses or not, would depend upon the nature of the materials relied upon by the tax authorities, the manner in which the assessee can rebut those materials and the facts and circumstances of each case. [234F-G] 235 The second part of the proviso confers benefit on the asses- see for giving him an opportunity not only of being heard but also of proving the correctness or completeness of his return. Secondly, r. 15 clearly shows that where the return of the assessee is incorrect or incomplete he must be called upon to prove. the correctness or completeness of the same. It also enjoins on the Sales Tax Officer that a reasonable opportunity of being heard should be given to the assessee to prove the correctness and completeness of the return. The requirement of the second part of the proviso to s. 17(3) is reiterated in r. 15. [244 F; 247 D] In the instant case, if the assessee desired the dealers whose accounts were used against him to be cross-examined to prove that his return was not incorrect or incomplete, he could not be denied this opportunity. The dealers might have made the entries to embarrass the assessee or they might have animus or business rivalry with the assessee. The assessee could establish the correctness of his return only if he was allowed to cross examine the dealers. [244 H] Jayantilal Thakordas v. State of Gujarat 23 S.T.C. 11 dis- tinguished. M. Appukutty v. State of Kerala, 14 S.T.C. 489 and Muralimohan Prabhudayal v. State of Orissa, 26 S.T.C. 22 approved. JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 572-574 and 575 of 1972. (Appeals by Special Leave from the Judgment and Order dated 13-7-1971 of the Kerala High Court in Tax Revision Cases Nos. 42, 45, 58 and 44 of 1970.) S.V. Gupte (In CA No. 572/72), K. M, K. Nair and A. C.I Pudissery for the appellant in all the appeals T. A. Ramachandran, for the respondents in all the appeals. The Judgment of P.N. Bhagwati and R.S. Sarkaria, JJ. was delivered by Bhagwati, J., S. Murtaza Fazal Ali, J. gave a separate opinion. BHAGWATI, J. The facts giving rise to these appeals are set out in the judgment about to be delivered by our learned brother S. Murtaza Fazal Ali and we do not think it necessary to reiterate them. So far as Civil Appeals 572-574 of 1972 are concerned, it would be sufficient to state briefly the following facts as these are the only facts necessary for appreciating the question of law which arises for determination in these appeals. In the assessments of the assessee to sales tax for three assessment years. the returns filed by him on the basis. of his books of account appeared to the Sales Tax Officer to be incorrect and incomplete since certain sales appearing in the books of account of one Haji P.K. Usmankutty as having been effected by the assessee in his favour were not accounted State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  4 for in the books of account maintained by the assessee. The assessee applied to the Sales Tax Officer for affording him an oppor- tunity to cross-examine Haji Usmankutty in regard to the correctness of his accounts, but this opportunity was denied to him and the Sales Tax Officer proceeded to make a best judgment assessment under section 17, sub-section (3) of the Kerala General Sales Tax, 1963. The assessee ap- pealed but without success and this was followed by a revi- sion application to the High Court. The High Court took the view that the assessee was entitled to an opportunity to cross-examine Haji Usmankutty before any finding could be arrived at by the Sales Tax Officer that the returns filed by the assessee were incorrect and incomplete so as warrant the making of 'the best judgment assessment and since no such opportunity had been given to the assessee, the High Court quashed the order of the Sales Tax authorities and 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 Haji Usmankutty. The facts in Civil Appeal No. 575 of 1972 are almost identical, save that instead of Haji Usmankutty, certain wholesale dealers were sought to be cross-examined in that case and the opportunity to cross-examine them was denied by the Sales Tax authorities. Since the High Court quashed the orders of assessments in both cases, the State preferred an appeal by special leave in each case challenging the correctness of the view taken by the High Court. Now, the law is well settled that tax authorities entrusted with the power to make assessment of tax discharge quasi- judicial functions and they are bound to observe principles of natural justice in reaching their conclusions. It is true, as pointed out by this Court in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax, West Bengal(1) that a taxing officer "is not lettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a court of law", but that does not absolve him from the obligation to comply with the fundamental rules of justice which have come to be known in the jurisprudence of administrative law as principles of natural justice. It is, however, necessary to remember that the rules of natural justice are not a con- stant: they are not absolute and rigid rules having univer- sal application. It was pointed out by this Court in Suresh Koshy George v. The University of Kerala & Ors.(2) that "the rules of natural justice are not embodied rules" and in the same case this Court approved the following observations from the judgment of Tucker, L.J. in Russel v. Duke of Norfolk and Ors.(3): "There are in my view, no words which are of universal application to every kind of inquiry and every kind of domestic tribunal. The requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter that is being dealt with, and so forth. Accordingly, 1 do not' derive much assistance from the definitions of natural justice which have been from time to time used, but, whatev- er standard is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case." One of the rules which constitutes a part of the prin- ciples of natural justice is the rule of audi alterem partera which requires that (1) [1955] 1 S.C.R. 941. (2) [1969] 1 S.C.R. 317. State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  5 (3) [1949] 1 All. England Reports 108. no man should be: condemned unheard. It is indeed a re- quirement of the duty to act fairly which lies on all quasi judicial authorities and this duty has been extended also to the authorities holding administrative enquiries involving civil consequences or affecting rights of parties because, as pointed out by this Court in A.K. Kraipak and Ors. v. Union of India,(1) "the aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice" and justice, in a society which has accepted socialism _as its article of faith in the Constitu- tion, is dispensed not only by judicial or quasi judicial authorities but also by authorities discharging administra- tive functions. This rule which requires an opportunity to be heard to be given to a person likely to be affected by a decision is also, like the genus of which it is a species, not an inflexible rule having a fixed connotation. It has a variable content depending on the nature of the inquiry, the framework of the law under which it is held, the constitu- tion of the authority holding the inquiry, the nature and character of the rights affected and the consequences flow- ing from the decision. It iS, therefore, not possible to say that in every case the rule of audi alterem partem requires [that] a particular specified procedure to be followed. It may be that in a given case the rule of audi alterem partem may import a requirement that witnesses whose statements are sought to be relied upon by the authority holding the in- quiry should be permitted to be cross-examined by the party affected while in some other case it may not. The procedure required to be adopted for giving an opportunity to a person to be heard must necessarily depend on the facts and circumstances of each case. Now, in the present case, we are not concerned with a situation where the rule of audi alterem partem has to be read _into the statutory provision empowering the taxing authorities to assess the tax. Section 17, sub-section (3), under which the assessment to sales tax ha's been made on the assessee provides as follows: "If no return is submitted by the dealer under subsection (1) within the pre- scribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing author- ity shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment: Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted, to prove the correctness or completeness of such return." It is clear on a plain natural construction of the language of this provision that it empowers the Sales Tax Officer to make a best judgment assessment only where one of two condi- tions is satisfied: (1) [1970] 1 S.C.R. 457. either no return is submitted by the assessee or the return submitted by him appears to the Sales Tax Officer to be incorrect or incomplete. It is only on the existence of one of these two conditions State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  6 that the Sales Tax Officer gets the jurisdiction to make a best judgment assessment. The ful- filment of one of these two pre-requisites is, therefore, a condition precedent to the assumption of jurisdiction by the Sales Tax Officer to make assessment to the best of his judgment. Now, where no return has been submitted by the assessee, one of the two conditions necessary for the applicability of section 17, subsection (3) being satisfied, the Sales Tax Officer can, after making such inquiry as he may consider necessary and after taking into account all relevant materials gathered by him, proceed to make the best judgment assessment and in such a case, he would be bound under the proviso to give a reasonable opportunity of being heard to the assessee. But in the other case, where a return has been submitted by the assessee, the Sales Tax Officer would first have to satisfy himself that the return is incorrect or incomplete before he can proceed to make the best judgment assessment. The decision making process in such a case would really be in two stages, though the in- quiry may be continuous and uninterrupted: the first stage would be the reaching of satisfaction by the Sales Tax Officer that the return is incorrect or incomplete and the second stage would be. the making of the best judgment assessment. The first part of the proviso which requires that before taking action under sub-section (3) of section 17, the assessee should be given a reasonable opportunity of being heard would obviously apply not only at the second stage but also at the first stage of the inquiry, because the best judgment assessment, which is the action under section 17, sub-section (3), follows upon the inquiry and the "reasonable opportunity of being heard" must extend to the whole of the inquiry, including both stages. The requirement of the first part of the proviso that the asses- see should be given a "reasonable opportunity of being heard" before making best judgment assessment merely em- bodies the audi alterem partem rule and what is the content of this opportunity would depend, as pointed out above, to a great extent on the facts and circumstances of each case. The question debated before us was whether this opportunity of being heard granted under the first part of the proviso included an opportunity to cross-examine Haji Usmankutty and other wholesale dealers on the basis of whose books of accounts the Sales Tax Officer disbelieved the account of the assessee and came to the finding that the return submit- ted by the assessee were incorrect and incomplete. But it is not necessary for the purpose of the present appeals to decide this question since we find that in any event the assessee was entitled to this opportunity under the 'second part of the proviso. The second part of the proviso lays down that where a return has been submitted, the assessee should be given a reasona- ble opportunity to prove the correctness or completeness of such return. This requirement obviously applies at the first stage of the enquiry before the Sales Tax Officer comes to the conclusion that the return submitted by the assessee is incorrect or incomplete so as to warrant the making of a best judgment assessment. The question is what is the content of this provision which imposes an obligation on the Sales Tax Officer to give and confers a corresponding right on the assessee to be afforded, a reasonable opportunity "to prove the correctness or completeness of such return". Now, obviously "to prove" means to establish the correctness ,or completeness of the return by any mode permissible under law. The usual mode recognised by law for proving a fact is by production of evidence and evidence includes oral evi- dence of witnesses. The opportunity to prove the correct- ness or completeness of the return would, therefore, neces- sarily carry with it the right to examine witnesses and that would include equally the right to Cross-examine witnesses examined by the Sales Tax Officer. Here, in the present case, the return filed by the assessee appeared to the Sales Tax Officer to be incorrect or incomplete because certain State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  7 sales appearing in the books of Hazi Usmankutty and other wholesale dealers were not shown in the book's of account of the assessee. The Sales Tax Officer relied on the evi- dence furnished by the entries in the books of account of Hazi Usmankutty and other wholesale dealers for the purpose of coming to the conclusion that the return filed by the assessee was incorrect or incomplete. Placed in these circumstances, the assessee could prove the correctness and completeness of his return only by showing that the entries in the books of account of Hazi Usmankutty and other whole- sale dealers were false, bogus or manipulated and that the return submitted by the assessee should not be disbelieved on the basis of such entries, and this obviously, the assessee could not do, unless he was given an opportunity of cross-examining Hazi Usmankutty and other wholesale dealers with reference to their accounts. Since the evidentiary material procured from or produced by Hazi Usmankutty and other wholesale dealers was sought to be relied upon for showing that the return submitted by the assessee was incor- rect and incomplete, the assessee was entitled to have Hazi Usmankutty and other wholesale dealers summoned as witnesses for cross-examination. It can hardly be disputed that cross-examination is one of the most efficacious methods of establishing truth and exposing falsehood. Here, it was not disputed on behalf of the Revenue that the assessee in both cases applied to the Sales Tax Officer for summoning Hazi Usmankutty and other wholesale dealers for cross-examina- tion, but his application was turned down by the Sales Tax Officer. This act of the Sales Tax Officer in refusing to summon Hazi Usmankutty and other wholesale dealers for cross-examination by the assessee clearly constituted in- fraction of the right conferred on the assessee by the second part of the proviso and that vitiated the orders of assessment made against the assessee. We do not wish to refer to the decisions of various High Courts on this point Since our learned brother has dis- cussed them in his judgment-. We are of the opinion that the view taken by the Orissa High Court in Muralimohan Prabhudayal v. State of Orissa(1) and the Kerala High Court in M. Appukutty v. State of Kerala(2) and the present cases represents the correct law on the subject. We accordingly dismiss the appeals with no order as to costs. (1) 26 S.T,C, 22. (2) 14 S.T.C, 489. FAZAL ALl, J.--These appeals by special leave involve an interesting question of law as to the interpretation of s. 17(3) of the Kerala General Sales Tax, 1963--hereinafter referred to as 'the Act'--and the proviso thereof read with r. 15 framed under the Act. The assessment years in question are 1965-66, 1966-67 and 1967-68. in the case of the re- spondent K.T. Shaduli in Civil Appeals Nos. 572-574 of 1972 and 1967-68 in the case of Nallakandy Yusuff in Civil Appeal No. 575 of 1972. But both the cases involve an identical question of law. In this view of the matter, we propose to deal with all these appeals by one common judg- ment. The assessee in Civil Appeals Nos. 572-574 of 1972 filed his sales-tax returns before the Sales Tax Officer who on an examination of .the accounts found that the returns submit- ted by the assessee were both incorrect and incomplete inasmuch as certain entries in the books of account of Haji P.K. Usmankutty revealed Certain transactions which were not accounted for in the assessee's book's of account. The Sales Tax Officer, after hearing the assessee, made an assessment to the best of his judgment under s. 17(3) of the Act read with r. 15 made under the Act. The Sales Tax Officer thus rejected the accounts of the assessee as they did not re- flect the goods said to have been purchased by Haji P.K. Usmankutty. The assessee sought an opportunity to cross- examine Haji Usmankutty State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  8 with respect to the correctness of his accounts which were relied upon by the Sales Tax Offi- cer, but this opportunity was refused to him by the Sales Tax Officer as also the other appellate authorities. Simi- larly in the case of the respondent Nallakandy Yusuff, in Civil Appeal No. 575 of 1972, the return filed by the asses- see was rejected by the Sales Tax Officer on the ground that certain transactions shown in the accounts of some wholesale dealers were not reflected in his books of account and the opportunity asked for by the assessee for cross-examining the said wholesale dealers was refused to him. The order of the Sales Tax Officer was confirmed by the Appellate Author- ities under the Act. Both the assessees then filed a revi- sion application before the High Court which allowed the application of the assessees, quashed the orders of the Sales Tax Authorities and remanded the cases to the Sales Tax Officer for giving an opportunity to the respondents for cross-examining the wholesale dealers concerned and then making assessments in accordance with the law. The State having obtained special leave from this Court hence these appeals before us. The short question that fell for determination before the High Court was, whether under the provisions of the Act the opportunity of being heard which was to be given to the assessees, would include within its sweep the right of cross-examination of a third party whose accounts were the basis of the best judgment assessments made by the Sales Tax Officer and the examination of which later on showed that the returns filed by the assessees were incorrect and incom- plete. The High Court, on a consideration of s. 17(3) and the Rules made under the Act came to the conclusion that the assessees were entitled to a fair hearing and the opportuni- ty of being heard could not be said to be complete unless in the circumstances of these cases the as- sessees were allowed to cross-examine Haji P.K. Usmankutty and other wholesale dealers on whose accounts reliance was placed by the Sales Tax Authorities. A provision of law authorising the Taxing Authorities to make a best judgment assessment in default of the assessee complying with the legal requirements is not a new one, but existed in s. 23(4) of the Income-tax Act, 1922 as amended by the Indian Income-tax (Amendment) Act, 1939, the relevant part of which runs thus: If any person fails to make the return required by any notice given under sub-section (2) of section 22 and has not made a return or a revised return under sub-section (3 ) of the same section or fails t6 comply with all the terms of a notice issued under sub-section (4) of the same section or, having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of this section, the Income-tax Officer shall make. the assessment to the best of his judgment and determine the sum payable by the assessee on the basis of such assessment and, in the case of a firm, may refuse to register it or may cancel its registration if it is already registered: Provided x x x x" State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  9 Describing the nature and character of a best judgment assessment, Lord RuSsell of Killowen in delivering the judgment of the Privy Council in Income-tax Commissioner v. Badridas Ramrai Shop, Akola,(1) observed as follows: "The Officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying informa- tion. He must not act dishonestly or _vindic- tively or capriciously, because he must exer- cise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him. in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work." These observations were quoted with approval by this Court in Raghbar Mandal Harihar Mandal v. State of Bihar(2). Mr. Gupte learned counsel for the appellant submitted that the main object of the best judgment assessment was to pena- lise the (1) (1937) 64 IA. 102, 114-115. (2) 8 S.T.C.770. assessee for either not filing a return or for filing a return which was defective and if at this stage he is given a full-fledged 'hearing including the right to summon and cross-examine witnesses, then this would amount to condoning the default committed by the assessee. It was also argued that as the Income-tax authorities are not bound by the technical rules of evidence, the assessee cannot claim cross-examination of witnesses as a matter of right. In support of his submission he relied upon a decision of this Court in Dhakeswari Cotton Mills Ltd v. Commissioner of Income Tax, West Bengal(1), where agreeing with a similar argument put forward by the Solicitor-General in that case this Court observed thus: "As regards the second contention, we are in entire agreement with the learned Solici- tor-General when he say's that the Income- tax Officer is not lettered by technical rules of evidence and pleadings, and that he is entitled to action material which may not be accepted as evidence in a Court of law, but there the agreement ends, because it is equal- ly clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23 (3)." There can be no doubt that the principle that as the tax proceedings are of quasi-judicial nature, the Sales Tax authorities are not strictly bound by the rules of evidence which means that what the authorities have to consider is merely the probative value of the materials produced before them. This is quite different from saying that even the rules of natural justice do not apply to such proceedings so as to deny the right of cross-examination to the assessee where the circumstances State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  10 clearly justify such a course and form one of the integral parts of the materials on the basis of which the order by the Taxing Authorities can be passed. The admissibility of a document or a material in evidence is quite different from the value which the authority would attach to such material. The Privy Council has held that the Taxing Authorities can even base their conclusion on their private opinion or assessment provided the same is fully disclosed to the assessee and he is given an opportu- nity to rebut the same. In these circumstances, therefore, we do not agree with Mr. Gupte that merely because the technical rules of evidence do not strictly apply, the right of crossexamination cannot be demanded by the assessee in a proper case governed by a particular statute. This Court further fully approved of the four proposi- tions laid down by the Lahore High Court in Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab(2). This Court was of the opinion that the Taxing Authorities had violated certain fundamental rules of (1) [1955] 1 S.C.R. 941. (2) (1944) 12 I.T.R. 393. natural justice in that they did not disclose to the asses- see the information supplied to it by the departmental representatives. This case was relied upon by this Court in a later decision in Raghubar Mandal Harihar Mandal's case (supra) where it reiterated the decision of this Court in Dhakeswari Cotton Mills Ltd.'s case (supra), and while further endorsing the decision of the Lahore High Court in Seth Gurmukh Singh's case(") pointed out the rules laid down by the Lahore High Court for proceeding under sub-s. (3) of s. 23 of the Income-tax Act and observed as follows: "The rules laid down in that decision were these: (1 ) While proceeding under sub-section (3) of section 23 of the Income-tax Act, the Income-tax Officer is not bound to rely on such evidence produced by the assessee as he considers to be false; (2) if he proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate; (3) he is not however debarred from relying on private sources of informa- tion, which sources he may not disclose to the assessee at all; and (4) in case he proposes to use against the assessee the result of any private inquiries made by him, he must commu- nicate to the assessee the substance of the information so proposed to be utilised to such an 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." It will thus be noticed that this Court clearly laid down that while the Income-tax Officer was not debarred from relying on any material against the assessee, justice and fair-play demanded that the sources of information relied upon by the Income-tax Officer must be disclosed to the assessee so that he is in a position to rebut the same and an opportunity should be given to the assessee to meet the effect the aforesaid information. We, however, find that so far as the present appeals are concerned, they are governed by the provisions of the Kerala General Sales Tax Act, the provisions of which are not quite identical with the provisions of the Income-tax Act and the Kerala Act appears to have fully incorporated all the State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  11 essen- tial principles of natural justice in s. 17(3) of the Act. In these circumstances, therefore, the answer to the ques- tion posed in these appeals would have to turn upon the scope, interpretation and content of s. 17(3) of the Act, the proviso thereto and r. 15 framed under the Act. It is true that the words "opportunity of being heard" are of very wide amplitude but in the context the sales-tax pro- ceedings which are quaSi-judicial proceedings all that the Court has to see is whether the assessee has been given a fair hearing. Whether the hearing would extend to the right of demanding cross-examination of witnesses or not would naturally depend upon the nature of the materials relied upon by the sales-tax authorities, the manner in which the assessee can rebut those materials and the facts and circumstances of each case. It is .difficult to lay down any hard and fast rule of universal application. We would, therefore, first try to interpret the ambit of s. 17(3) and the proviso thereof in order to find out whether a right of cross-examination of witnesses whose accounts formed the basis of best judgment assessment is conferred on the assessee either expressly or by necessary intendment. Section 17(3) of the Act runs thus: "If no return is submitted by the dealer under subsection (1) Within the prescribed period, or if the return submitted by him appears to the assessing authority to be incorrect or incomplete, the assessing author- ity shall, after making such enquiry as it may consider necessary and after taking into account all relevant materials gathered by it, assess the dealer to the best of its judgment: Provided that before taking action under this sub-section the dealer shall be given a reasonable opportunity of being heard and, where a return has been submitted, to prove the correctness or completeness of such re- turn." An analysis of this provision would show that this sub- section contemplates two contingencies--(1) where the asses- see does not file his return at all; and (2) where the assessee files his return which, however, is found to be incorrect or incomplete by the assessing authority. The sub-section further enjoins on the assessing authority a duty to consider the necessary materials and make an enquiry before coming to its conclusion. The proviso expressly requires the assessing authority to give to the assessee a reasonable opportunity of being heard even if the assessee had committed default in not filing the return. Since the statute itself contemplates that the assessee should be given a reasonable opportunity of being heard, we are not in a position to agree with the contention of the learned counsel for the appellant that if such an opportuni- ty is given, it will amount to condonation of default of the assessee. 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 authori- ties must base their order on materials which are known to the assessee and after he is given a chance to rebut the same. This principle of natural justice which has been reiterated by this Court in the decisions cited above has been clearly incorporated in s. 17 (3) of the Act as men- tioned above. The statute does not stop here, but the second part of the proviso confers express benefit on the assessee for giving him an opportunity not only of being heard but also of proving the correctness or completeness of such return. In view of this provision it can hardly be argued with any show of force that if the assessee desires the wholesale dealers whose accounts are used against him to be cross-examined in order to prove that his return is not incorrect or incomplete he should not be conceded this opportunity. Apart from anything else, the second part of the proviso itself confers State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  12 this specific right on the asses- see. It is difficult to conceive as to how the assessees would be able to disprove the correctness of the accounts of Haji P.K. Usmankutty or the other wholesale dealers, unless he is given a chance to cross-examine them with respect to the credibility of the accounts maintained by them. It is quite possible that the wholesale dealers may have mentioned certain transactions in their books of account either to embarrass the assessees or due to animus or business rivalry or such other reasons which can only be established when the persons who are responsible for keeping the accounts are brought before the authorities and allowed to be croSs-examined by the assessees. This does not mean that the assessing authority is bound to examine the whole- sale dealers as witnesses in presence of the assessees: it is sufficient if such wholesale dealers are merely ten- dered by the sales-tax authorities for cross-examination by the assessees for whatever worth it is. In view of the express provision of the second part of the proviso, we are fully satisfied that the respondents had the undoubted right to crosS-examine the wholesale dealers on the basis of whose accounts the returns of the assessees were held to be incor- rect and incomplete. We are fortified in our view by a decision of this Court in C. Vasantilal and Co. v. Commis- sioner of Income-tax, Bombay City(1), where this Court 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." It will be noticed that if the Sales-tax authorities refused the prayer of the assessees to cross-examine the wholesale dealers, then such refusal would not amount to an adequate opportunity of explaining the material collected by the assessing authority. Mr. Gupte learned counsel for the appellant relied on a decision of the Gujarat High Court in Jayantilal Thakordas v. Stale of Gujarat(2). In the first place the Gujarat High Court in that case was concerned with the Bombay Sales Tax Act which did not contain any .express provision like the one which is to be found in the second part of the proviso to s.17(3) of the Kerala General Sales Tax Act and, there- fore, any decision given by the Gujarat High Court would have no application to the facts of the present appeals. In Jayantilal Thakordas's case (supra) the Court was merely called upon to interpret the import of the words "reasonable opportunity of being heard" and the Judges held that as ample opportunity was given to the assessee therefore concerned to show cause why the sales said to have been suppressed (1) (1962) 45 I.T.R. 206, 209. (2) 23 S.T.C. 11. (3) 14 S.T.C. 489. by him should not be included in his turnover, the rules of natural justice were duly complied with. The Court further pointed out that the sales-tax authorities were not strictly bound by the rules of evidence nor did the Act require the assessing authorities to do more than what they had done in that case. The Gujarat High Court seems to have dissent- ed from the view taken by a single Judge of State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  13 the Kerala High Court in M. Appukutty v. State of Kerala(3). Finally, it does not appear from the facts mentioned in the judgment of the Gujarat High Court that the assessee had at any time made a specific prayer for cross-examining the representa- tives of the firm of M/s A. Alibhai & Co. In these circum- stances, therefore, Jayantilal Thakordas's case (supra) does not appear to be of any assistance to the appellant. We might, however, state that we are not prepared to go to the extent to which the Gujarat High Court has gone even in interpreting the content and ambit of an opportunity given to the assessee of being heard so as to completely exclude the right of cross-examination. We have already held that whether the reasonable opportunity would extend to such a right would depend upon the facts and circumstances of each case. We feel that the correct law on the subject has been laid down by a Division Bench of the Orissa High Court in Muralimohan Prabhudayal v. State 07 Orissa(1) where the High Court, while adumbrating the 4th proposition, namely, as to how the assessee was to rebut the.., material used by the Department against him, observed as follows: "It is the amplitude and ambit of this fourth proposition which needs examination. There cannot be any controversy that the assessee can adduce independent evidence of his own to disprove the particulars proposed to be used against him ........ A third party's accounts are proposed to be used against the assessee and if such accounts are relied on, the assessee's accounts are to be discarded .......... If the assessee gets an opportunity by cross-examination, he can establish that the accounts of the third party are wrong and manipulated to suit the interest of the third party, or that they were intended to be adversely used against the assessee with whom the third party had inimical rela- tionship. It is difficult to accept the contention in such a case, that the ample and reasonable opportunity to be given to the assessee would not include within its sweep the right of cross-examination." The High Court in the present appeals has relied on its earlier decision in Appukutty v. State of Kerala (supra) where a single Judge of the Kerala High Court pointed out that the fact that a third party maintaining some secret accounts had made certain entries in his accounts which may connect the assessee will not give jurisdiction to the assessing authority to use that information unless the assessee has been (1) 26 S.T.C. 22. given an opportunity to Cross-examine him effectively.. As no such opportunity was given, the Court held that the proceedings stood vitiated. In our opinion, the decision of the Kerala High Court was substantially correct and in consonance with the language of s. 17(3) and the proviso thereto. Other cases have also been cited before us which, howev- er, are based on the peculiar language of the statutes which the Courts were construing and which are different from the language used in the Act. Finally, apart from the provisions of s. 17(3.) and the proviso thereto, the rules further reiterate what the provi- so contemplates. Rule 15 which deals with provisional as- sessment where a return is incorrect and incomplete runs thus: State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  14 "If the return submitted by the dealer appears to the assessing authority to be incorrect or incomplete, the assessing author- ity shall, after issuing a notice to the dealer calling upon him to produce his ac- counts to prove the correctness or complete- ness of his return at time and place to be specified in the notice and after scrutiny of all the accounts if any, produced by the dealer and after taking into account all relevant materials gathered by it determine the turnover of the dealer to the best of its judgment, and fix provisionally the annual tax or taxes payable at the rate or rates speci- fied in Section or notified under Section 10. Before determining the turnover under this rule, the dealer shall be given a reasonable opportunity of being heard and also to prove the correctness or completeness of the return submitted by him." The Rule clearly shows that where the return of the assessee is incorrect or incomplete he must be called upon to prove the correctness or completeness of the same. It also en- joins that a reasonable opportunity of being heard should be given to the assessee to prove the correctness or complete- ness of the return submitted by him. Thus the requirement of the second part of the proviso to s. 17(3) is reiterated in r. 15. We understand that such a provision in the Act is peculiar to the Kerala Act and is not to be found in other sales-tax statutes which provide for best judgment assess- ment. Thus on a true interpretation of s. 17(3), the proviso thereto and r. 15, the inescapable conclusion would be that the assessee has been given stationary right to prove the correctness of his return by showing that the materials on the basis of which his return is found to be incorrect or incomplete are wrong and if for this purpose the assessee makes an expire prayer for cross-examining the wholesale dealers whose accounts formed the sheet- anchor of the notice issued to the assesee, he is undoubted- ly entitled to cross-examine such wholesale dealers. In view of the language in which the Rules are couched it seems to us that a determinative issue arises in this case--the Department taking the stand that the returns filed by the assessees are incorrect and incomplete, whereas the assessees contend that the 17--240SCI/77 returns are correct and that the accounts of the wholesale dealers which formed the basis of the information of the Sales-tax Authorities were wrong and incorrect. Such an issue can only be determined after examination of' the accounts of both the parties and after affording the asses- sees the right to cross-examine the wholesale dealers con- cerned, particularly when the assessee makes a specific prayer to this effect. For these reasons, therefore, we are convinced that the judgment passed by the High Court in all these appeals is correct in law and the High Court has rightly decided the issues involved. The appeals accordingly fail and are dismissed with no order as to costs. P.B.R. Appeals dismissed. State Of Kerala vs K.T. Shaduli Yusuff Etc on 15 March, 1977  15