Rule 173L refund and show cause notice discipline barred denial based on later repacking-as-manufacture theory.

Refund under Rule 173L could not be denied for returned goods merely because they were repacked and resold, since repacking was not retrospectively treated as manufacture for the relevant period and the Department could not rely on that later characterisation to defeat the claim. The denial also failed because the show cause notice did not clearly set out the factual basis ultimately invoked, and the Department could not shift to a new ground at the appellate stage without issuing a fresh notice. The refund denial was therefore set aside and consequential relief followed.

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Issues: (i) Whether refund under Rule 173L of the Central Excise Rules was admissible when the returned goods were repacked and resold, and whether such repacking amounted to manufacture so as to deny the claim. (ii) Whether the Department could support the denial of refund on a ground not clearly set out in the show cause notice without issuing a fresh notice.

Issue (i): Whether refund under Rule 173L of the Central Excise Rules was admissible when the returned goods were repacked and resold, and whether such repacking amounted to manufacture so as to deny the claim.

Analysis: Rule 173L permits refund only where returned goods are brought back for being remade, refined, reconditioned or subjected to another process amounting to manufacture. The record showed that the relevant period was prior to the later insertion treating repacking as manufacture, and that insertion could not be applied retrospectively. On the admitted facts, the goods were not subjected to the kind of processing contemplated by the rule for denial of refund on the basis adopted by the Department.

Conclusion: The refund claim could not be rejected on the basis of repacking as manufacture for the period in question, and this issue was decided in favour of the assessee.

Issue (ii): Whether the Department could support the denial of refund on a ground not clearly set out in the show cause notice without issuing a fresh notice.

Analysis: The notice was required to disclose the charge and the factual basis for levy or denial of refund so that the assessee could meet the case against it. The Department was not permitted to shift to a different factual basis at the appellate stage without first giving notice of that altered stand. In the absence of a fresh show cause notice, the adverse finding could not be sustained.

Conclusion: The Department could not sustain the impugned order on a new ground outside the notice, and this issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded, the denial of refund was set aside, and consequential relief followed.

Ratio Decidendi: A refund or duty denial cannot be sustained on a ground not clearly put in the show cause notice, and a later statutory treatment of a process as manufacture cannot be applied retrospectively to defeat relief for an earlier period.

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