Improper demand and penalty fail where a new duty provision is raised for the first time in appeal.

A demand and penalty based on clearance of scrap from old capital goods failed where the show cause notice did not clearly identify the capital goods, the manufacturing process, or the factual basis for duty liability. The appellate authority also relied on a provision not invoked in the notice or the original adjudication, which denied the assessee a fair opportunity to meet the case. Because a new legal basis cannot be introduced for the first time in appeal, the defect went to the root of the demand. The demand and penalty were held unsustainable and the appellate order was set aside.

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Issues: Whether the demand and penalty could be sustained when the appellate authority relied on a provision not invoked in the show cause notice or the order-in-original, and when the notice did not clearly identify the capital goods or the factual basis for treating the scrap as duty liable.

Analysis: The show cause notice alleged clearance of scrap generated out of old capital goods on which Modvat credit had been taken, but it did not clearly identify the capital goods, the manufacture process, or the precise basis on which duty was proposed. The original authority did not confirm the demand under the later-invoked rule, yet the appellate authority upheld the demand and penalty by relying on that different provision. Since the assessee had no proper opportunity to meet a case not clearly made in the notice, the defect went to the root of the demand. A provision not invoked in the notice and not forming part of the original adjudication could not be introduced for the first time in appeal.

Conclusion: The demand and penalty were not sustainable. The order of the Commissioner (Appeals) was set aside and the appeal was allowed.

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