Duty demand needs clear notice and cogent evidence; unsupported notebook-based allegation was set aside, while shortage-based demands survived.

A duty demand based on seized notebooks was held unsustainable where the show-cause notice did not clearly specify the allegation, the adjudication order did not explain the duty computation, and the record lacked cogent evidence linking the material to alleged clearances; that demand was set aside. By contrast, the demands relating to shortage of inputs and shortage of finished goods were supported by the proceedings and were sustained. The related penalty was also upheld, though in a reduced amount, because the remaining demands survived and the matter was not found time-barred.

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Issues: (i) Whether the demand of duty based on the seized notebooks and alleged evasion of Rs. 7,06,906 was sustainable in the absence of a specific charge in the show-cause notice and cogent supporting evidence; (ii) Whether the demands relating to shortage of inputs and shortage of finished goods, along with consequential penalty, were sustainable.

Issue (i): Whether the demand of duty based on the seized notebooks and alleged evasion of Rs. 7,06,906 was sustainable in the absence of a specific charge in the show-cause notice and cogent supporting evidence.

Analysis: The demand founded on the seized notebooks could not be upheld because the notice did not clearly particularise the allegation and the adjudication order did not explain how the duty figure was arrived at. The record did not establish a proper nexus between the seized material and the alleged clearances, and the affected party was deprived of a fair opportunity to rebut the charge. In these circumstances, the absence of a speaking determination and of reliable evidence went to the root of the matter.

Conclusion: The demand of Rs. 7,06,906 was not sustainable and was set aside.

Issue (ii): Whether the demands relating to shortage of inputs and shortage of finished goods, along with consequential penalty, were sustainable.

Analysis: The demand relating to removal of inputs on which Cenvat credit had been taken was supported by the record and was confirmed. The shortage of finished goods also stood established on the material accepted in the proceedings, and the related demand was upheld. Since the proceeding was not held to be time-barred and the remaining demands survived, a reduced penalty was considered appropriate.

Conclusion: The demands relating to shortage of inputs and shortage of finished goods were sustained, and penalty was upheld in a reduced amount.

Final Conclusion: The appeal succeeded only to the extent of the unsupported demand based on the seized notebooks, while the balance duty demand and a reduced penalty were maintained.

Ratio Decidendi: A duty demand cannot be sustained where the show-cause notice does not clearly specify the charge and the adjudication order fails to establish the demand with cogent evidence and a speaking finding.

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