Show cause notice scope limits tax demands when Revenue shifts to a new ground on appeal

A demand cannot be sustained on appeal on a ground that was not set out in the show cause notice. Here, the notice alleged wrongful reversal of Cenvat credit by rewriting the Cenvat account, but the Revenue's appeal sought to justify the demand on a different basis, namely duty on capital goods cleared by the assessee. That change in foundation took the case beyond the scope of the notice and rendered the appeal untenable. The document also notes that, even if the doctrine of merger did not apply, the altered basis of demand still could not be sustained. The dismissal of the Revenue's appeal by the Commissioner (Appeals) was upheld.

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Issues: Whether the Revenue's appeal was liable to be rejected as it sought to sustain a demand on a ground not contained in the show cause notice, and whether the impugned order could be interfered with on the basis of the doctrine of merger.

Analysis: The show cause notice proceeded on the footing that the assessee had wrongly taken back credit by rewriting the Cenvat account without any supporting statutory provision, and proposed recovery of that amount on that basis. The Revenue's appeal, however, attempted to justify the same demand on a different footing, namely, that the amount represented duty payable on capital goods cleared by the assessee. Such a case was outside the scope of the notice and could not be sustained in appeal. Even assuming that the doctrine of merger did not apply, the appeal remained untenable because the foundational basis of the demand was altered from that set out in the notice.

Conclusion: The Revenue's appeal was not maintainable and the dismissal of the appeal by the Commissioner (Appeals) was upheld.

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