Natural justice requires supply of relied-upon verification reports before confirming irregular credit disallowance and penalties.

Disallowance of irregular credit could not be sustained where the verification report forming the basis of the demand and penalties was not supplied to the assessee and was not shown to be part of the show cause notice record. Relying on undisclosed material without granting an opportunity of rebuttal violated the principles of natural justice. The order was set aside and the matter remanded for fresh decision after furnishing the verification report and giving the assessee a further hearing.

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Issues: Whether the order confirming disallowance of irregular credit could be sustained when the verification report relied upon was not supplied to the assessee and the assessee was not heard on that material, in breach of natural justice.

Analysis: The impugned demand and penalties were founded on a verification report regarding invoices and alleged non-receipt of scrap. The report had not been furnished to the assessee and was also not shown to form part of the show cause notice record. Since the decision was based on material withheld from the assessee, the procedure adopted was contrary to the principles of natural justice.

Conclusion: The order was set aside and the matter was remanded to the jurisdictional Commissioner for fresh decision after supplying a copy of the verification report and granting a further hearing.

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