Natural justice bars excise demand based on third-party statements when relied upon documents and cross-examination are denied.

A demand based on third-party transport records and employee statements could not be sustained where the assessee was denied copies of relied upon documents and the opportunity to cross-examine the witnesses. The adjudication was vitiated because the earlier direction to furnish the material and permit cross-examination was not complied with in de novo proceedings, and there was no independent corroboration sufficient to prove clandestine removal. The duty demand, interest, and penalties were therefore held legally unsustainable for breach of natural justice.

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Issues: Whether a demand of central excise duty based on third-party transport records and statements could be sustained when the assessee was denied copies of relied upon documents and the opportunity to cross-examine the witnesses, and whether the demand and penalties were therefore enforceable.

Analysis: The demand was founded on documents recovered from transporters and statements of their employees, not on the notebooks seized from the assessee's factory. The earlier appellate direction required supply of relied upon documents and cross-examination, but those directions were not complied with in de novo adjudication. The assessee was adversely affected by material collected from third parties, yet was not given access to that material or the chance to test the statements. In the absence of such procedural fairness, and with no independent corroboration sufficient to establish clandestine removal, the basis of the demand was found to be legally unsustainable.

Conclusion: The demand of duty, interest, and penalty could not be sustained and the assessee succeeded.

Ratio Decidendi: A demand founded on third-party statements and records cannot be sustained unless the relied upon documents are supplied and cross-examination of the witnesses is permitted, where denial of these procedural safeguards vitiates the adjudication for breach of natural justice.

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