Natural justice in refund proceedings requires prior show cause notice; rejection without notice was set aside.

Refund claims could not be rejected without a prior show cause notice setting out the proposed grounds of disallowance, because the claimant was entitled to meet those grounds before any adverse decision. A personal hearing did not cure the absence of notice. The denial of refund in these circumstances breached natural justice and was unsustainable, so the rejection was set aside in favour of the assessee.

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Issues: Whether rejection of the refund claims was sustainable when no show cause notice had been issued before disallowing the refund.

Analysis: The refund claims were decided without prior notice proposing rejection and without giving the claimant an opportunity to meet the grounds on which the claims were ultimately denied. A personal hearing could not substitute the requirement of notice setting out the proposed grounds of rejection. The denial of refund in such circumstances offended the principles of natural justice and could not be sustained.

Conclusion: Rejection of the refund claims without issuance of a show cause notice was unsustainable and was set aside in favour of the assessee.

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