Natural justice bars adverse tax credit assessments where the basis material is withheld and no effective hearing is given.

An adverse assessment disallowing input tax credit and imposing interest and penalty could not stand because the material relied on to treat the dealer transactions as bogus was not furnished to the assessee before finalisation. The HC held that a finding against tax credit requires disclosure of the adverse material and a meaningful opportunity to respond; a unilateral conclusion in breach of natural justice is unsustainable. The existence of an alternate statutory appeal did not cure the procedural defect. The assessment order was set aside and the matter remitted for fresh adjudication after due hearing.

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Issues: Whether the assessment order disallowing input tax credit and imposing interest and penalty was liable to be set aside for breach of natural justice and the matter remitted for fresh adjudication.

Analysis: The assessment order disallowed tax credit on the basis that the selling dealer was involved in trade circular transactions, but the material relied upon for that conclusion and the particulars of the dealer were not shown to have been furnished to the petitioner before the final order was passed. A finding that the transactions were bogus or that credit was inadmissible could not be reached unilaterally without affording the petitioner an opportunity to meet the adverse material. The availability of alternate statutory appeal did not prevent interference where the assessment itself suffered from a gross procedural infirmity.

Conclusion: The assessment order was set aside and the proceedings were remitted to the adjudicating authority for fresh decision in accordance with law.

Final Conclusion: The petitioner succeeded on the ground of denial of natural justice, and the assessment was reopened for reconsideration by the authority after giving due opportunity.

Ratio Decidendi: An adverse assessment affecting tax credit cannot be sustained unless the material forming the basis of the adverse conclusion is disclosed to the assessee and an effective opportunity of hearing is granted before finalisation.

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