Natural justice in adjudication: denial of cross-examination and ignoring the assessee's reply vitiated the order and required remand.

Where an adjudication rests mainly on third-party statements, denial of cross-examination of the makers of those statements vitiates the order for breach of natural justice. The assessee had also filed a detailed reply to the show cause notice, including a limitation objection and factual rebuttal, but the adjudicating authority failed to consider it before passing the order. The impugned demand, credit disallowance and penalties were therefore set aside, and the matter was remanded for fresh decision after granting cross-examination, a reasonable opportunity of personal hearing, and proper consideration of the assessee's reply.

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Issues: Whether the demand, credit disallowance and penalties were liable to be set aside and the matter remanded for denial of cross-examination of the persons whose statements were relied upon and for non-consideration of the assessee's reply.

Analysis: The demand was founded mainly on statements of suppliers alleging non-supply of raw materials, and those statements were relied upon in the adjudication. In such circumstances, denial of cross-examination of the makers of the statements vitiated the adjudication, as it offended the principles of natural justice. The record also showed that the assessee had filed a detailed reply to the show cause notice, including a limitation objection and a factual rebuttal, but that defence was not considered before passing the impugned order.

Conclusion: The impugned order was bad in law and was set aside. The matter was remanded to the Jurisdictional Commissioner for fresh decision after granting cross-examination, a reasonable opportunity of personal hearing, and consideration of the assessee's reply.

Ratio Decidendi: Where an adjudication is based on statements of third parties, denial of cross-examination and non-consideration of the assessee's reply vitiate the order for breach of natural justice.

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