Natural justice and prior notice for mandatory penalty: demand sustained, but Section 11AC penalty set aside.

Reasonable opportunity was held to have been afforded where the show cause notice allowed inspection and copying of relied-upon records, the petitioner did not avail that opportunity in time, and the sought documents were of limited relevance to the defence; the natural justice objection was therefore rejected and the demand and consequential orders were sustained. Penalty under Section 11AC of the Central Excise Act could not be sustained without a prior show cause notice specifically proposing that mandatory penalty, so the penalty portion was set aside and fresh action was left open in accordance with law.

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Issues: (i) Whether non-furnishing of all requested documents amounted to violation of the principles of natural justice and vitiated the demand and proceedings; (ii) Whether penalty under Section 11AC of the Central Excise Act could be sustained without a prior show cause notice proposing such penalty.

Issue (i): Whether non-furnishing of all requested documents amounted to violation of the principles of natural justice and vitiated the demand and proceedings.

Analysis: The show cause notice offered the petitioner an opportunity to inspect the relied-upon records and take copies. The petitioner did not avail that opportunity within the stipulated time and later inspected the records during the personal hearing, taking copies of some documents. The records sought were also found to be of limited relevance to the petitioner's defence because the core allegation concerned suppression by the processor, who did not contest the proceedings. On these facts, the Court held that reasonable opportunity had been afforded and that there was no breach of natural justice.

Conclusion: The objection based on violation of natural justice was rejected.

Issue (ii): Whether penalty under Section 11AC of the Central Excise Act could be sustained without a prior show cause notice proposing such penalty.

Analysis: The imposition of mandatory penalty must be preceded by a notice proposing that penalty so that the affected party has an opportunity to object specifically to that consequence. Since the authorities proceeded to sustain the penalty without properly dealing with this objection, the penalty portion could not stand as imposed. The Court, however, left it open to the department to issue a fresh notice proposing penalty and to proceed thereafter in accordance with law.

Conclusion: The penalty under Section 11AC was set aside and the matter was left open for fresh action in accordance with law.

Final Conclusion: The demand and other consequential orders were sustained, but the penalty under Section 11AC did not survive; the writ petition succeeded only to that limited extent.

Ratio Decidendi: A party cannot complain of denial of natural justice where reasonable opportunity to inspect and copy relied-upon records was afforded but not duly availed, yet a penalty of the nature under Section 11AC cannot be sustained unless the show cause notice specifically proposes that penalty.

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