Natural justice and factual verification govern duty demands based on disputed stock checks and theoretical production figures.

A duty demand based on disputed stock verification cannot stand unless the factual basis is properly tested, and denial of cross-examination where officers' verification is central offends natural justice. The text also notes that a demand derived only from theoretical cigarette output per kilogram of tobacco is unsustainable where actual production data, factory-specific variation, and departmental instructions on permissible variation are not examined. In both situations, the operative point is that tax liability must rest on material verification rather than assumption or theory, and the matter requires fresh adjudication after a reasonable opportunity of hearing and cross-examination.

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Issues: (i) Whether the demand on account of alleged shortage of tobacco waste was sustainable when the appellant claimed that the waste had been removed with permission and that cross-examination of the departmental officers was necessary. (ii) Whether the demand based on theoretical cigarette output per kilogram of tobacco could stand without examining actual production data and the departmental guidelines on permissible variation.

Issue (i): Whether the demand on account of alleged shortage of tobacco waste was sustainable when the appellant claimed that the waste had been removed with permission and that cross-examination of the departmental officers was necessary.

Analysis: The record showed an admission by the production manager about the shortage as noticed by the officers, coupled with the assertion that the waste had been moved to a pit with oral permission. The appellant also relied on weighment records and sought cross-examination of the officers who had conducted the verification. Since the demand turned on whether the waste was available in the factory compound in the quantity reflected in the records, the evidence of the officers who made the verification was material. Ignoring the weighment evidence and refusing cross-examination meant the factual basis of the demand was not properly tested. The denial of cross-examination in these circumstances offended natural justice.

Conclusion: The demand on this count could not be sustained at the stay stage, and the appellant was entitled to relief.

Issue (ii): Whether the demand based on theoretical cigarette output per kilogram of tobacco could stand without examining actual production data and the departmental guidelines on permissible variation.

Analysis: The demand was founded on a theoretical ratio of cigarette output from a given quantity of tobacco, but the record indicated that actual production had varied from the theoretical figure in earlier years as well. The departmental manual itself contemplated that there could be day-to-day variation and that no hard and fast rule existed in the absence of reliable data. The authorities had not examined the factory-specific working difference, the actual removals, or the relevant factors affecting output, and the impugned order proceeded only on theory. Without an in-depth verification aligned with departmental instructions, the demand lacked a proper factual foundation.

Conclusion: The demand based solely on theoretical output was not sustainable on the material before the Tribunal.

Final Conclusion: The order of the lower authority was held unsustainable in law, and the matter was sent back for fresh adjudication after granting a reasonable opportunity of hearing and cross-examination.

Ratio Decidendi: A duty demand founded on disputed stock verification or theoretical production figures cannot be sustained without material factual verification and observance of natural justice, including cross-examination where the officer's verification is central to the dispute.

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