Natural justice in excise recovery demands requires prior notice and hearing before credit is disallowed and recovered.

Rule 57-I of the Central Excise Rules permitted disallowance and recovery of wrongly taken credit, but any adverse demand had to comply with natural justice. The authority was required to notify the manufacturer of the proposed action, state the grounds, and give an opportunity to explain before raising a demand, even if the rule did not expressly mandate notice. As the impugned demands were issued without such opportunity, they were held vulnerable for breach of natural justice and were quashed in favour of the assessee.

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Issues: Whether a demand under Rule 57-I of the Central Excise Rules could be issued without first giving the manufacturer a show cause notice and an opportunity of hearing.

Analysis: Rule 57-I empowered disallowance and recovery of wrongly taken credit, but the adverse consequence of such action required observance of basic principles of natural justice. Even if the rule did not expressly provide for notice, the authority had to inform the manufacturer of the grounds for proposed action and give an opportunity to explain before a demand was raised. Since the impugned demands were made without such opportunity, they were vulnerable on that short ground.

Conclusion: The demand notices were quashed for breach of natural justice, and the challenge succeeded in favour of the assessee.

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