Retractions need corroboration in exemption disputes; duty cannot be sustained on unproven power-aided processing or beyond the show cause notice.

Denial of exemption under Notification No. 5/99-C.E. based on alleged power-aided bleaching and dyeing failed because the Department's evidence was insufficient: retracted statements required independent corroboration, and no contemporaneous records, employee testimony, or reliable proof established earlier installation or use of power-operated jiggers. The duty demand and penalty were therefore unsustainable. Duty could also not be demanded for drawing, scouring and padding because those processes were not covered by the show cause notice, and the Revenue could not expand the demand beyond its terms. The ratio is that a retracted confession alone cannot sustain duty and liability cannot be imposed on matters outside the notice.

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Issues: (i) Whether the denial of exemption under Notification No. 5/99-C.E. and the demand of duty for the period April 1995 to May 1999 on the footing that the processes of bleaching and dyeing were carried out with the aid of power was sustainable on the evidence relied upon by the Department; (ii) Whether the Revenue could sustain the demand in respect of drawing, scouring and padding when no such demand had been raised in the show cause notice.

Issue (i): Whether the denial of exemption under Notification No. 5/99-C.E. and the demand of duty for the period April 1995 to May 1999 on the footing that the processes of bleaching and dyeing were carried out with the aid of power was sustainable on the evidence relied upon by the Department.

Analysis: The exemption was available where the manufacturer did not have the facility of dyeing and bleaching with the aid of power or steam. The Department relied on the presence of power-operated jiggers, retracted statements of the proprietor, electricity load enhancement, a draft ground plan, non-entry of jiggers in the inward register, and one supplier's statement. The material was found insufficient to prove that the jiggers were installed and used from April 1995 or earlier. The retracted statements were treated as weak evidence requiring independent corroboration, which was absent. No employee supported the Department's version, no contemporaneous records established earlier installation or use, the electricity records did not prove enhanced consumption, and the solitary supplier's statement was uncorroborated and suspect.

Conclusion: The duty demand and penalty founded on alleged power-aided bleaching and dyeing from April 1995 were not sustainable and were set aside in favour of the assessee.

Issue (ii): Whether the Revenue could sustain the demand in respect of drawing, scouring and padding when no such demand had been raised in the show cause notice.

Analysis: The adjudicating authority had dropped the demand on these processes because the show cause notice did not raise any demand with respect to them. The demand could not be expanded beyond the scope of the notice, and no independent basis existed to fasten duty on those processes in the revenue appeal.

Conclusion: The Revenue's challenge failed, and the dropping of duty on drawing, scouring and padding was upheld.

Final Conclusion: The impugned order was set aside, the assessee's appeals were allowed with consequential relief, and the Revenue's appeal was dismissed. The Department failed to discharge the burden of proving power-aided processing for the disputed period, and no duty could be demanded beyond the show cause notice.

Ratio Decidendi: A retracted confession cannot by itself sustain a duty demand and must be corroborated by independent reliable evidence; clandestine activity or earlier use of power cannot be presumed from isolated circumstances or deficiencies in the defence, and duty cannot be imposed on matters not covered by the show cause notice.

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