Natural justice requires disclosure of relied-upon material in the show cause notice; undisclosed evidence cannot sustain adjudication.

An adjudication order cannot be sustained where the authority relies on a statement or other material not disclosed in the show cause notice, because the affected party is denied a fair opportunity to meet the case against it. Reliance on undisclosed material violates natural justice and vitiates the order. The penalty, duty demand, and confiscation were therefore set aside, while the department remained free to begin fresh proceedings on the basis of a proper notice that clearly sets out the material relied upon.

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Issues: Whether the adjudication order was vitiated because the authority relied upon a statement not referred to in the show cause notice.

Analysis: The statement of Shri Prabha Dass was not disclosed as part of the department's case in the show cause notice, yet the adjudicating authority relied on it as the basis for disbelieving the appellants' version. An adjudication order founded on material not put to notice to the affected party offends the principles of natural justice and cannot be sustained.

Conclusion: The issue is decided in favour of the assessee. The impugned order was liable to be set aside for violation of natural justice.

Final Conclusion: The penalty, duty demand, and confiscation order could not be sustained, though the department was left free to initiate fresh proceedings by issuing a proper notice disclosing the material relied upon.

Ratio Decidendi: An adjudicating authority cannot base its decision on evidence or material not disclosed in the show cause notice, as doing so violates the principles of natural justice.

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