Natural justice breach in excise demand: reliance on undisclosed statements vitiated the notice and penalties were set aside.

A duty demand and penalties based on statements not properly supplied to the assessee were held unsustainable because the assessee was denied an effective opportunity to meet the case. The proprietor's own statement showed that duty-free molasses had been used to manufacture cattle fodder, and did not contain the admission attributed to him by the department. A further statement relied upon in the show cause notice was not listed as a relied-upon document and was not furnished to the assessee. This breach of natural justice vitiated the notice, and the defect could not be cured at the appellate stage, so the demand and penalties were set aside.

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Issues: Whether the duty demand and penalties could be sustained when the show cause notice relied on a statement not supplied to the assessee and the alleged admission was not borne out by the assessee's own statements.

Analysis: The statements recorded from the proprietor showed that the duty-free molasses had been used for manufacture of cattle fodder and did not contain the admission attributed to him by the department. The notice also relied upon the statement of another person, but that statement was not included in the list of relied upon documents and was not supplied to the assessee. In such circumstances, the foundation of the notice suffered from a denial of reasonable opportunity to meet the case set up against the assessee. The defect was not capable of being cured at the appellate stage.

Conclusion: The duty demand and the penalties could not be sustained and were set aside in favour of the assessee.

Ratio Decidendi: A demand founded on a statement relied upon in the notice but not supplied to the assessee, resulting in denial of an effective opportunity to defend, is vitiated for breach of natural justice.

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