Demand cannot rest on grounds outside the show cause notice; Revenue's appeal was rejected.

A demand and penalty cannot be sustained on a ground not set out in the show cause notice or forming the basis of the lower authorities' orders. The notice here proceeded on alleged manufacture at the work site and clearance for use elsewhere, and the adjudication and appellate orders dealt only with that theory. The Revenue's attempt in appeal to rely on different grounds, including alleged inapplicability of exemption and circular instructions, was impermissible because those issues were not the foundation of the notice. The Revenue's appeal was rejected.

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Issues: Whether the Revenue could sustain the demand and penalty on a ground not alleged in the show cause notice and not forming the basis of the orders of the lower authorities.

Analysis: The show cause notice proceeded on the footing that the goods were manufactured at the work site and cleared for use elsewhere. The adjudication and the appellate order dealt with the nature of the goods and their taxability on the basis of the allegations contained in the notice. The Revenue, in appeal, sought to rely on a different line of reasoning, including the alleged inapplicability of exemption and circular instructions, although those issues were not the foundation of the notice or the orders under challenge. A demand cannot be supported on a case wholly different from the one set out in the show cause notice.

Conclusion: The Revenue's appeal was rejected and the assessee succeeded.

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