Material defence and show cause notice limits control adjudication; an order fails if it ignores evidence or relies on unstated grounds.

An adjudication is unsustainable where it ignores the assessee's material defence and supporting documentary evidence, and instead relies on a ground not contained in the show cause notice. The assessee had claimed the inputs were received only for testing and were returned, supported by challans, but this defence was not examined in the impugned order. The authorities also relied on another noticee's settlement under the KVSS scheme, although that circumstance was never put to the assessee in the notice. The order was therefore set aside, and the duty demand and penalty did not survive.

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Issues: Whether the impugned order could be sustained when the authorities failed to deal with the assessee's defence and documentary evidence regarding return of inputs and instead relied on a circumstance not found in the show cause notice.

Analysis: The assessee challenged the duty demand and penalty on the ground that the materials received from the supplier were only for testing purposes and were returned, and reliance was placed on challans to support that position. The order under challenge did not discuss this defence or the documentary record. The authorities also proceeded on the basis of the other noticee's settlement under the KVSS scheme, although that aspect was not part of the show cause notice against the assessee. Since the core defence was not examined and the reasoning did not answer the objection raised, the order was found to be unsustainable.

Conclusion: The impugned order was set aside and the appeal was allowed.

Final Conclusion: Failure to consider the assessee's material defence and to base the decision on the notice led to annulment of the duty and penalty order.

Ratio Decidendi: An adjudication cannot be sustained where it ignores a material defence and supporting evidence, or rests on a ground not put to the noticee in the show cause notice.

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