Modvat credit cannot be denied on grounds beyond the show cause notice; invoice verification also supported credit.

Denial of Modvat credit was unsustainable because the adverse finding rested on grounds not alleged in the show cause notice. The notice proceeded only on the basis that the invoice-issuing dealers were unregistered, but the adjudicating authority accepted that they were registered and instead rejected credit on different invoice-defect grounds. An adverse order cannot be supported by a new basis outside the notice. The record also showed that the jurisdictional Superintendent had verified the invoices and treated them as modvatable except for one invoice, which was not properly addressed in the impugned order. The assessee therefore succeeded.

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Issues: Whether denial of Modvat credit could be sustained on grounds not set out in the show cause notice, and whether the impugned order was therefore valid.

Analysis: The show cause notice proceeded only on the footing that the dealers issuing the invoices were not registered. The adjudicating authority, however, accepted that the dealers were registered and denied credit on different grounds relating to particulars in the invoices. A finding adverse to the assessee cannot be founded on grounds not alleged in the notice. The record also showed that the jurisdictional Superintendent had, after verification, treated the invoices as modvatable except for one invoice, which was not properly dealt with in the impugned order.

Conclusion: The denial of credit on grounds beyond the show cause notice was unsustainable, and the assessee succeeded.

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