Modvat credit on packing material cannot be denied on grounds not raised in the show cause notice.

Modvat credit on HDPE sacks used to pack leather cloth could not be denied merely because the sacks were treated as secondary packing. The show cause notice alleged only that the packing was secondary and not used in or in relation to manufacture; it did not raise any objection based on exclusion of packing cost from assessable value or any specific material-based disqualification. Since an assessee must meet only the case made in the notice, the adjudicating authority could not sustain denial on a new ground not pleaded. On the ground actually stated, the distinction between secondary and other packing did not justify denial, and the credit disallowance was set aside to the extent disputed.

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Issues: Whether Modvat credit on HDPE sacks used for packing manufactured leather cloth could be denied on the ground that they were used only as secondary packing or on a ground not disclosed in the show cause notice.

Analysis: The notice proposed denial of credit on the stated basis that the HDPE sacks were used as secondary packing and were not used in or in relation to manufacture. The notices did not allege that the cost of packing was not included in the assessable value, nor did they rest the case on any specific exclusion relating to the material of the sacks. The rules governing Modvat credit did not draw a distinction between secondary packing and other packing. Since the assessee is required to meet only the case set out in the notice, the adjudicating authority could not deny credit on a fresh ground not alleged in the notice. On the case actually pleaded, denial on the mere premise that the packing was secondary was not justified.

Conclusion: The denial of credit on the pleaded ground was unsustainable and the assessee succeeded on that issue, subject to the amount not pressed.

Final Conclusion: The order denying Modvat credit was set aside to the extent disputed, and the assessee obtained substantive relief apart from the amount not pressed.

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