Show cause notice requirement vitiates clubbing-based excise demand when allegedly dummy units were not put on notice.

Where excise demand was founded on clubbing the clearances of allegedly dummy units, the proceedings were vitiated because no show cause notice had been issued to those units. A show cause notice was treated as a mandatory precondition to confirmation of demand, and failure to notify the persons whose clearances were proposed to be included breached natural justice and amounted to a fundamental, non-curable defect. The consequential demand, penalty and interest could not be sustained, and the impugned order was liable to be set aside.

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Issues: Whether the demand, penalties and interest could be sustained when no show cause notice had been issued to the other units whose clearances were proposed to be clubbed with the appellant's clearances.

Analysis: The appeal turned on the procedural validity of the proceedings. The proposed clubbing of clearances treated the other concerns as dummy units, yet they were not put on notice. In excise adjudication, a show cause notice is a mandatory precondition for confirmation of demand, and non-issue of notice to the persons whose clearances are sought to be included violates the principles of natural justice. The defect was not a mere technical lapse but a fundamental and non-curable error which vitiated the proceedings, including the consequential demand, penalty and interest. The Board's circular also reinforced that in serious or high-stakes matters, waiver of notice is impermissible.

Conclusion: The proceedings were unsustainable for want of notice to the concerned units, and the impugned order was liable to be set aside.

Ratio Decidendi: Where demand is based on clubbing the clearances of allegedly dummy units, failure to issue show cause notice to those units vitiates the entire proceedings as a violation of mandatory statutory procedure and natural justice.

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