Natural justice governs capital goods credit disputes, with prior notice and fresh merits adjudication required before reversal.

Capital goods credit could not be denied by directing reversal without prior show cause notice; the Tribunal held that the assessee was entitled to notice, reply and a speaking order before any adverse action. It further held that earlier reversal of the credit did not prevent examination of entitlement on merits, and the question of eligibility had to be decided afresh by the adjudicating authority in accordance with natural justice.

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Issues: Whether the reversal of capital goods credit could be directed without issuing a show cause notice and whether the dispute on eligibility of the credit required fresh adjudication on merits.

Analysis: The credit had initially been taken and later reversed, but the assessee disputed the disallowance and sought restoration of the credit. The Tribunal held that the proper course was to issue a show cause notice, consider the assessee's reply, and then pass a speaking order. It found that the prior reversal did not bar examination of the credit entitlement on merits and that the matter had to be decided after following the principles of natural justice.

Conclusion: The direction requiring reversal without prior notice was not sustained, and the issue of eligibility of capital goods credit was sent back for decision on merits by the adjudicating authority.

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