Show cause notice limits tax demands and confiscation; new valuation bases and unsupported seizure findings cannot be sustained.

An adjudicating authority cannot confirm duty, penalties or related penal consequences on a valuation basis not set out in the show cause notice. Here, the notice alleged undervaluation on the basis of seized records and specified methodology, but the authority rejected that case and adopted a new approach based on cost of production and fictitious income considerations outside the pleadings; the demand and penalties were therefore unsustainable. Confiscation of seized cash and goods also failed because there was no proven clandestine removal, no reliable excess stock quantification, and no established link between the cash and any proved evasion, so the confiscation order could not stand.

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Issues: (i) Whether the demand of duty and penalties could be sustained when the adjudicating authority adopted a valuation basis different from the one proposed in the show cause notice; (ii) Whether confiscation of the seized cash and goods was justified on the facts found.

Issue (i): Whether the demand of duty and penalties could be sustained when the adjudicating authority adopted a valuation basis different from the one proposed in the show cause notice.

Analysis: The show cause notice had quantified the alleged undervaluation on the basis of specific seized documents, private records, dealer statements and a stated methodology for determining actual prices and differential value. The adjudicating authority, after rejecting that basis, proceeded to determine assessable value on a different footing by resorting to cost of production and fictitious income considerations that were not part of the original notice. The governing principle applied was that the show cause notice is the foundation of the demand and the authority cannot confirm duty on a new basis or on a ground not put to notice. Since the Revenue did not successfully challenge the factual finding that the notice-based evidence was discarded, it could not seek a remand to make out a fresh case.

Conclusion: The duty demand and penalties could not be sustained on a ground beyond the show cause notice, and the order confirming them was set aside.

Issue (ii): Whether confiscation of the seized cash and goods was justified on the facts found.

Analysis: The confiscation findings were examined in the light of the absence of any allegation or proof of clandestine removal from the factory, the lack of reliable quantification of excess stock, and the acceptance of the assessee's explanation for the stock differences. As to the seized cash, once the very foundation of the undervaluation case failed and the cash did not stand linked to any proved transaction, there was no basis to treat it as liable for confiscation. The goods seized at the depot were also found not to have been shown to have been removed without payment of duty.

Conclusion: The confiscation of the cash and goods was not sustainable.

Final Conclusion: The adjudication was held unsustainable in its entirety insofar as it rested on a case not made in the show cause notice, and the Revenue's challenge to the relief granted on confiscation also failed.

Ratio Decidendi: An adjudicating authority cannot sustain a tax demand or related penal action on a basis not proposed in the show cause notice, and confiscation must rest on specific allegations and evidence within the pleaded case.

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