Natural justice bars adverse rectification orders in tax matters when passed without prior notice or hearing.

A rectification order imposing tax, penalty and interest was quashed because it was passed without prior notice or opportunity of hearing. The court held that an adverse demand affecting tax liability cannot be sustained where the assessee is denied a chance to place material on exemption, set-off and other objections before the order is made. The breach of natural justice invalidated the rectification exercise, though the revenue was left free to issue fresh notice and proceed in accordance with law.

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Issues: Whether the rectification order levying tax, penalty and interest could be sustained when it was passed without prior notice and opportunity of hearing.

Analysis: The impugned order was passed under the rectification provision without service of a show-cause notice. The admitted absence of notice meant that the petitioner was not given an opportunity to place material regarding exemption, set-off and other objections before the adverse demand was raised. In these circumstances, the rectification exercise could not stand as made, though the revenue was left free to initiate a fresh proceeding after due notice and hearing.

Conclusion: The rectification order was quashed for breach of natural justice, with liberty to the respondent to issue fresh notice and proceed in accordance with law.

Ratio Decidendi: An adverse rectification order affecting tax liability cannot be sustained if passed without prior notice and opportunity of hearing.

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