Modvat credit disallowance and limitation must reflect final departmental action, with natural justice required before adverse adjudication.

Departmental correspondence that gave the assessee a reasonable impression that Modvat credit was still under reconsideration could not be treated mechanically as a final appealable order for limitation purposes, so the appeal was not time-barred on the basis adopted below. A disallowance of credit made without observance of natural justice was also unsustainable, because it could not finally determine the assessee's rights without hearing and evidence. The impugned order was therefore set aside and the matter remitted for fresh adjudication after giving the assessee an opportunity to produce evidence.

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Issues: (i) Whether the Superintendent's letter disallowing Modvat credit, read with the later correspondence, was to be treated as an appealable order so that the appeal could not be rejected as time-barred. (ii) Whether the disallowance of credit was sustainable when it was made without following the principles of natural justice.

Issue (i): Whether the Superintendent's letter disallowing Modvat credit, read with the later correspondence, was to be treated as an appealable order so that the appeal could not be rejected as time-barred.

Analysis: The Department continued correspondence with the assessee and gave the impression that the matter was under reconsideration. In those peculiar facts, the later letter of the Superintendent, read with the earlier communication disallowing credit, was treated as the operative appealable order, and the bar of limitation could not be applied in the manner adopted by the lower appellate authority.

Conclusion: The appeal was not liable to be rejected as time-barred on the footing adopted below.

Issue (ii): Whether the disallowance of credit was sustainable when it was made without following the principles of natural justice.

Analysis: The original disallowance was held to have been made without compliance with natural justice. For that reason, the communication could not be invested with the status of a valid order determining the assessee's rights finally, and the matter required reconsideration on evidence after hearing the assessee.

Conclusion: The disallowance could not be sustained and the matter had to be decided afresh after following natural justice.

Final Conclusion: The impugned order was set aside and the matter was sent back for fresh adjudication by the Superintendent in accordance with law and after giving the assessee an opportunity to produce evidence.

Ratio Decidendi: Where departmental correspondence gives a reasonable impression that a matter is still under reconsideration, the communication cannot be mechanically treated as an unassailable final order for limitation purposes, and any adverse action taken without observance of natural justice must be reopened for fresh decision.

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