Natural justice and proper notice defeated the demand and director penalty where relied upon documents were withheld

Denial of relied upon documents essential to the defence, including orders, invoices and purchase records, was held to vitiate the adjudication because it deprived the manufacturer of a fair opportunity to rebut allegations of under-valuation, trading activity, manufacture of parts and inclusion of warranty charges. The matter was therefore remanded for de novo adjudication after supply of the documents and an effective hearing. Personal penalty on the director was also found unsustainable because the show cause notice did not propose any penalty against him and was not served on him, leaving the penalty without a proper notice foundation.

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Issues: (i) Whether the demand and penalties imposed on the manufacturer were liable to be set aside and the matter remanded for fresh adjudication on account of denial of relied upon documents and breach of natural justice; (ii) Whether the penalty imposed on the director was sustainable when the show cause notice did not propose penalty against him and was not served on him.

Issue (i): Whether the demand and penalties imposed on the manufacturer were liable to be set aside and the matter remanded for fresh adjudication on account of denial of relied upon documents and breach of natural justice.

Analysis: The defence to the allegations of under-valuation, trading activity, manufacture of parts, and inclusion of warranty charges depended upon inspection and use of documents such as customer orders, invoices, purchase invoices, and other records resumed by the department. Those documents had been sought repeatedly and were necessary to test the department's allegations and to meet the finding that addition of peripherals and software amounted to manufacture. Denial of such material deprived the appellant of a reasonable opportunity to rebut the case against it.

Conclusion: The impugned order against the manufacturer was vitiated by violation of natural justice and was set aside, with the matter remanded for de novo adjudication after supplying the relied upon documents and granting an effective hearing.

Issue (ii): Whether the penalty imposed on the director was sustainable when the show cause notice did not propose penalty against him and was not served on him.

Analysis: The record showed the noticee as only the company, and the department did not controvert the contention that no proposal for penalty was made against the director and that the notice was not served upon him. In the absence of a proper notice and service, the foundation for imposing personal penalty was lacking.

Conclusion: The penalty on the director was not sustainable and was set aside.

Final Conclusion: The appeal of the manufacturer succeeded to the extent of remand for fresh adjudication, and the director obtained complete relief against the penalty.

Ratio Decidendi: Denial of relied upon documents essential to the defence violates natural justice and invalidates the adjudication, and a penalty cannot be sustained against a person who was neither proposed in the notice nor served with it.

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