Natural justice in duty demands fails when relied-upon records are undisclosed and cross-examination is denied.

Duty demand and penalty could not be sustained where the material used for quantification was not fully disclosed, the working of the demand was not made available, and cross-examination of material witnesses was denied; this breach of natural justice caused prejudice and vitiated the adjudication. The findings on manufacture and duty liability were also unsustainable because the evidence was misread or insufficient, including unsupported assumptions about power-based manufacture, misattribution of machinery and premises, and inclusion of non-dutiable items and post-manufacturing charges without proper examination. The adjudication order confirming duty and penalty was therefore set aside.

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Issues: (i) Whether the demand and penalty could be sustained when the appellants were denied full inspection of relied-upon records, break-up of duty computation, and cross-examination of witnesses whose statements and opinions were used against them; (ii) whether the findings that the appellants had not manufactured steel furniture without power, and that various clearances and charges were liable to duty, were supported by the evidence relied upon.

Issue (i): Whether the demand and penalty could be sustained when the appellants were denied full inspection of relied-upon records, break-up of duty computation, and cross-examination of witnesses whose statements and opinions were used against them.

Analysis: The material relied upon for quantification of demand was not adequately disclosed, and the appellants were not given a fair opportunity to verify the figures or prepare a complete defence. Cross-examination of witnesses whose statements and opinions formed part of the basis of the charge was denied without justification. The denial of access to the working of the demand and the denial of effective cross-examination caused prejudice and amounted to breach of natural justice.

Conclusion: The demand and penalty could not be sustained on this basis and the appellants succeeded on this issue.

Issue (ii): Whether the findings that the appellants had not manufactured steel furniture without power, and that various clearances and charges were liable to duty, were supported by the evidence relied upon.

Analysis: Several factual foundations of the adjudication were found unreliable or unsupported, including the misreading of registers, the misapplication of trade opinion, the mistaken attribution of machinery and premises, and the inclusion of items such as purchased goods, captively consumed bus body kits, and certain post-manufacturing charges without proper examination. The evidence did not justify the broad conclusion that all relevant manufacture after 1978 was power-operated or that the entire quantified demand represented dutiable clearances. The adjudication also failed to deal properly with the appellants' charts and explanations showing that non-dutiable items had been included in the computation.

Conclusion: The findings on duty liability and the supporting evidence were unsustainable and were set aside in favour of the appellants.

Final Conclusion: The adjudication order confirming duty and penalty was unsustainable and was set aside, while the connected appeal was rendered infructuous by the disposal of the main appeal.

Ratio Decidendi: Where the demand is quantified on undisclosed or inadequately disclosed material and the assessee is denied effective opportunity to inspect records and cross-examine material witnesses, findings on duty liability and penalty cannot be sustained.

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