Natural justice bars reliance on material outside the show cause notice; pre-notice duty payment defeats penalty and interest.

An adjudicatory order cannot be sustained where it relies on material outside the show cause notice or the original adjudication, because such reliance breaches natural justice by denying the assessee a fair opportunity to respond. Penalty and interest were also held unsustainable on the Larger Bench principle that where duty is paid before issuance of the show cause notice, the statutory provisions for penalty and interest are not attracted. On these grounds, the impugned orders were set aside and consequential relief was granted.

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Issues: (i) Whether the appellate order could be sustained when it relied upon material not forming part of the show cause notice or the original adjudication, and (ii) whether penalty and interest were leviable in the circumstances of the case.

Issue (i): Whether the appellate order could be sustained when it relied upon material not forming part of the show cause notice or the original adjudication.

Analysis: The order under challenge introduced and relied upon a statement that was not part of the show cause notice and had not been relied upon in the original adjudication. Such reliance went beyond the scope of the notice and deprived the assessee of a fair opportunity to meet the case made against it. A finding founded on material outside the notice was treated as a violation of natural justice.

Conclusion: The finding based on extraneous material could not be sustained and the order was liable to be set aside on this ground.

Issue (ii): Whether penalty and interest were leviable in the circumstances of the case.

Analysis: The Tribunal applied the Larger Bench principle that where duty is paid before issuance of the show cause notice, the statutory provisions for penalty and interest are not attracted. On that basis, the penalty and interest confirmed against the assessee were held unsustainable.

Conclusion: Penalty and interest were not leviable and were liable to be expunged.

Final Conclusion: The impugned orders of the lower authorities were set aside and the assessee was granted consequential relief.

Ratio Decidendi: An adjudicatory order cannot be sustained if it relies on material outside the show cause notice, and penalty or interest under the excise law is not attracted where the duty has been paid before the notice is issued.

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