Show Cause Notice limits and reprocessing duty demands shaped the outcome in a bearing replacement dispute and penalty review.

Duty demand was upheld where the record showed that rejected bearings were not brought back for reprocessing and fresh bearings were instead cleared as replacement, supporting an inference of misdeclaration and deliberate evasion; the extended period was therefore justified. A separate demand was remanded because the adjudication had gone beyond the show cause notice by including D-3 transactions not alleged there, so recomputation was confined to the transactions actually noticed. The procedural lapse in falsely showing timely receipt of rejected goods was sustained as more than a technical breach, with penalty left to be refixed after the partial remand.

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Issues: (i) Whether duty demand of Rs. 2,86,652 on clearances made without receipt of rejected goods and by removal of fresh goods as replacement was sustainable; (ii) whether duty demand on alleged removal of goods under the pretext of repaired goods could stand in the amount confirmed, or required re-determination confined to the show cause notice; (iii) whether the finding of procedural violation in delayed receipt of rejected goods justified penal consequence.

Issue (i): Whether duty demand of Rs. 2,86,652 on clearances made without receipt of rejected goods and by removal of fresh goods as replacement was sustainable.

Analysis: The documentary record, including the correspondence relied upon by the department and the private records maintained by the assessee, supported the conclusion that the rejected bearings were not brought back for reprocessing and that fresh bearings were despatched as replacement. The assessee failed to produce the alleged lorry receipt or any corroborative material to show that the rejected goods had in fact moved under that consignment. In these circumstances, the inference of deliberate misdeclaration and intention to evade duty was upheld, and invocation of the extended period was found justified.

Conclusion: The duty demand of Rs. 2,86,652 was confirmed and the finding against the assessee was sustained.

Issue (ii): Whether duty demand on alleged removal of goods under the pretext of repaired goods could stand in the amount confirmed, or required re-determination confined to the show cause notice.

Analysis: The assessee's plea that the rejected goods were rectifiable was not accepted in full, but the Tribunal found merit in the objection that the adjudication had travelled beyond the scope of the show cause notice by including D-3 transactions not alleged therein. Since a demand cannot exceed the allegations in the notice, the quantum of duty on this head required fresh computation limited to the 17 D-3s covered by the notice. The matter was therefore sent back for recalculation and de novo consideration on this limited aspect.

Conclusion: The demand of Rs. 2,11,140 was set aside for re-determination and remanded to the original authority.

Issue (iii): Whether the finding of procedural violation in delayed receipt of rejected goods justified penal consequence.

Analysis: On the record, the Tribunal accepted the adjudicating authority's conclusion that the assessee had entered incorrect particulars to show receipt within the stipulated period and had misused the procedure under the relevant reprocessing mechanism. This was treated as more than a technical lapse and as supporting penal action, though the quantum of penalty required reconsideration in light of the partial remand on duty.

Conclusion: The finding of procedural violation was sustained, but the penalty was held to require re-fixation.

Final Conclusion: The assessee succeeded only to the limited extent of getting one duty component remanded for fresh quantification and the penalty reopened for re-fixation, while the remaining duty demand and the adverse finding on procedural violation were upheld.

Ratio Decidendi: A duty demand cannot travel beyond the allegations made in the show cause notice, and when the record shows non-receipt of rejected goods and removal of fresh goods as replacement, the burden lies on the assessee to rebut the inference of deliberate evasion.

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