Natural justice and corroborative evidence: non-supply of relied documents and unproved clandestine removal led to relief.

Non-supply and unavailability of relied upon documents vitiated the adjudication because the assessee could not effectively meet the show-cause allegations, resulting in breach of natural justice. The charge of clandestine removal also failed on the evidence: the buyers were State Electricity Boards, payments were made by account payee cheques, and no meaningful investigation was shown against the buyers or the alleged fictitious firms. In the absence of affirmative, corroborative evidence, suspicion alone was insufficient. The challenge to Modvat credit denial likewise failed where the record did not establish the supplier-side invoices and clearances to be fictitious. The impugned order was set aside and the appeals were allowed with consequential relief.

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Issues: (i) Whether the adjudication was vitiated for non-supply and unavailability of the relied upon documents, thereby violating principles of natural justice; (ii) whether the allegations of clandestine removal and inadmissible Modvat credit were sustainable on the evidence.

Issue (i): Whether the adjudication was vitiated for non-supply and unavailability of the relied upon documents, thereby violating principles of natural justice.

Analysis: The remand direction required fresh adjudication in accordance with natural justice. The record showed that most relied upon documents were not supplied or were not traceable, despite repeated requests and attempted inspections. Without those documents, the assessee could not effectively answer the show-cause notice or defend the allegations on which duty and penalties were proposed.

Conclusion: The adjudication was vitiated for violation of principles of natural justice.

Issue (ii): Whether the allegations of clandestine removal and inadmissible Modvat credit were sustainable on the evidence.

Analysis: The buyers were State Electricity Boards, payments were made through account payee cheques, and no meaningful investigation was shown against the buyers or the alleged fictitious firms. The charge of clandestine removal required affirmative and corroborative evidence, which was absent. The denial of Modvat credit also failed because the invoices and clearances from the supplier side were not established to be fictitious on the record relied upon in the proceedings.

Conclusion: The allegations of clandestine removal and denial of Modvat credit were not sustainable.

Final Conclusion: The impugned order was set aside and the appeals were allowed with consequential relief.

Ratio Decidendi: Where the relied upon documents are not supplied or are untraceable, the adjudication is invalid for breach of natural justice, and a charge of clandestine removal must be proved by affirmative corroborative evidence rather than suspicion alone.

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