Show-cause notice basis controls excise duty demand; revised classification without notice cannot sustain duty or penalties.

A duty demand under Section 11A of the Central Excise Act could not be sustained on a classification basis not proposed in the show-cause notice. The notices had proceeded on Heading 59.01, but the adjudicating authority confirmed duty on Heading 52.06/52.07 without any notice proposing that classification for the relevant period, so the revised demand was legally unsustainable. Once the duty demand failed for want of a proper notice, the penalties founded on that demand also could not survive. The impugned orders were set aside, leaving the department free to proceed afresh in accordance with law by issuing proper notices.

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Issues: Whether the demand of basic excise duty and additional duty of excise on backing cloth could be sustained when the show-cause notices proposed classification under Heading 59.01, but the adjudicating authority confirmed duty on the basis of Heading 52.06/52.07, and whether the penalties imposed could survive if the duty demand failed.

Analysis: The product in dispute was backing cloth, an intermediate excisable product used captively and also cleared for home consumption. The show-cause notices proceeded on the footing that the goods were classifiable under Heading 59.01 and sought duty accordingly. The adjudicating authority, however, rejected that basis and quantified duty on a different classification under Heading 52.06/52.07, which carried a different duty consequence. A demand under Section 11A of the Central Excise Act, 1944 must rest on the basis put to the noticee in the notice itself, and a confirmed demand cannot be sustained on a footing that was never proposed in the notices. The record showed that no notice had been issued proposing classification under Heading 52.06/52.07 for the relevant period. In such circumstances, the confirmation of duty on a fresh and different classification was not legally sustainable. The authorities relied on by the assessee reinforced the principle that the department cannot demand duty on a basis outside the notice, and that a fresh notice is required if a different classification is to be adopted. Once the duty demand failed for want of a proper notice on the revised classification, the penalties founded on that demand also could not stand.

Conclusion: The demand of duty under Heading 52.06/52.07 was unsustainable for want of a corresponding show-cause notice, and the penalties were also liable to be set aside.

Final Conclusion: The appeals succeeded, the impugned orders were set aside, and the department was left at liberty to proceed afresh in accordance with law by issuing proper notices.

Ratio Decidendi: A duty demand under Section 11A of the Central Excise Act, 1944 cannot be sustained on a classification or basis not proposed in the show-cause notice, and penalties founded on such unsustainable demand must also fail.

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