Modvat credit cannot be denied on a ground not raised in the show cause notice.

Modvat credit could not be denied on the basis of a notification not invoked in the show cause notice. The notice relied on Notification No. 6/2001-C.E. (N.T.), while the Revenue later sought to support denial through Notification No. 27/2000-C.E. (N.T.). Since the inputs were received on duty-paid invoices, credit was taken on that basis, and defective goods were returned after reversal of credit and duty payment, the settled rule that the Revenue cannot travel beyond the show cause notice applied. Credit was therefore sustained in favour of the assessee.

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Issues: Whether the Revenue could deny Modvat credit by relying on a notification that was not invoked in the show cause notice.

Analysis: The denial of credit was sought to be supported by Notification No. 27/2000-C.E. (N.T.), but that notification had not been relied upon in the show cause notice. The notice had proceeded on Notification No. 6/2001-C.E. (N.T.), and the record showed that the inputs were received on duty-paid invoices, credit was taken accordingly, and the defective goods were returned after reversal of credit and payment of duty. The settled principle applied was that the Revenue cannot travel beyond the show cause notice, and a ground not raised therein cannot be used to deny the assessee credit.

Conclusion: The Revenue could not rely on a ground outside the show cause notice to deny Modvat credit, and the allowance of credit was upheld in favour of the assessee.

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