Modvat credit cannot be finally denied on a new factual objection without fair opportunity; limited remand ordered.

Modvat credit on disputed items could not be finally denied on a ground not specifically raised in the show cause notice, where the adverse finding turned on alleged lack of evidence of actual use. The appellate authority had reversed the favourable adjudication without ensuring that the assessee had a fair opportunity to meet that factual objection. The proper course was a limited remand for examination of actual use and the admissibility of credit on that basis. The adverse appellate order was set aside, and entitlement to Modvat credit was left for fresh decision on remand.

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Issues: Whether the denial of Modvat credit on the ground of alleged non-establishment of actual use of the disputed items was sustainable, and whether the matter required remand for proper consideration of that question.

Analysis: The show cause notice had proceeded on the footing that the goods were not capital goods under Rule 57Q of the Central Excise Rules, 1944. After remand by the Tribunal, the adjudicating authority accepted the claim on the basis of the assessee's explanation, but the appellate authority reversed that finding solely on the ground that no evidence had been produced regarding the manner of use. Since the notice did not specifically allege absence of use, and the adjudicating authority had not called for or examined further evidence on that aspect, the appellate authority ought not to have finally decided the issue without ensuring that the assessee had a fair opportunity to meet that point. The proper course was to remit the matter for a limited examination of actual use and admissibility of credit in that context.

Conclusion: The order denying relief was set aside and the matter was remanded to the Assistant Commissioner for a limited determination of the use of the relevant items and the admissibility of Modvat credit accordingly.

Final Conclusion: The assessee obtained relief to the extent that the adverse appellate order was annulled, but entitlement to Modvat credit remained open for fresh decision on remand.

Ratio Decidendi: Where the original notice does not raise a specific factual objection, a final adverse finding on that basis should not be made at appeal without affording the assessee a proper opportunity to adduce evidence, and the matter may be remanded for limited reconsideration.

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