Non-existent supplier claims fail on duty demand, while ex parte adjudication without hearing is remanded for fresh decision

Duty demand and penalty were sustained for 1999-2000 because the assessee failed to substantiate claimed purchases from alleged suppliers who were found non-existent at their addresses, so the clearances were treated as manufactured by the assessee and the SSI exemption limit was crossed. For 2000-01 and 2001-02, the adjudication was set aside because it was passed ex parte without considering the assessee's reply, documents, or adjournment request, which violated natural justice. The matter was remanded for de novo adjudication after granting a personal hearing and considering the defence.

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Issues: (i) Whether the duty demand and penalty for 1999-2000 were sustainable where the assessee claimed that part of the clearances represented purchases from non-existing suppliers. (ii) Whether the order relating to 2000-01 and 2001-02 was vitiated for breach of natural justice and required remand for fresh adjudication.

Issue (i): Whether the duty demand and penalty for 1999-2000 were sustainable where the assessee claimed that part of the clearances represented purchases from non-existing suppliers.

Analysis: The turnover for the year exceeded the SSI exemption limit. The assessee's explanation that goods worth a substantial amount were purchased from two suppliers was not substantiated. Enquiry showed that the said suppliers were not found existing at the given addresses, postal summons were returned unserved, and local verification also did not establish their existence. In the absence of any satisfactory clarification, the claim of purchases was rejected and the clearances were treated as manufactured by the assessee.

Conclusion: The duty demand and penalty for 1999-2000 were upheld against the assessee.

Issue (ii): Whether the order relating to 2000-01 and 2001-02 was vitiated for breach of natural justice and required remand for fresh adjudication.

Analysis: The adjudication was passed ex parte without considering the reply to the show cause notice. A request for adjournment was ignored, and the appellate order also did not address the assessee's defence or the documents relied upon. In these circumstances, the proceedings were found to be inconsistent with the requirement of a reasonable opportunity of hearing.

Conclusion: The order for 2000-01 and 2001-02 was set aside and the matter was remanded for de novo adjudication after granting personal hearing and considering the assessee's reply.

Final Conclusion: The appeal was rejected for the 1999-2000 period and the matter for 2000-01 and 2001-02 was sent back for fresh decision in accordance with law.

Ratio Decidendi: A demand may be sustained where the assessee fails to prove alleged purchases from purported suppliers found to be non-existent, but an ex parte adjudication passed without considering the reply and without affording a fair hearing is liable to be set aside and remanded.

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