Show cause notice limits tax demands, and an undisclosed ground can justify full waiver of pre-deposit.

Excise and service tax demands must be founded on the allegations set out in the show cause notice; a demand cannot be upheld on an unnotified ground, as that would violate natural justice. Because the authorities relied on a basis not disclosed in the notice, the adjudication was treated as impermissible. On that footing, the assessee established a strong prima facie case for complete waiver of pre-deposit under section 35F, and a direction to deposit 25% was unsustainable. The note states that undue hardship may be avoided where the demand itself appears to rest on an extraneous basis.

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Issues: (i) Whether the adjudicating authority, appellate authority or Tribunal could sustain a demand by relying on a ground not set out in the show cause notice. (ii) Whether, on the facts, the petitioner had made out a strong prima facie case warranting waiver of the pre-deposit under section 35F.

Issue (i): Whether the adjudicating authority, appellate authority or Tribunal could sustain a demand by relying on a ground not set out in the show cause notice.

Analysis: The show cause notice is the foundation of excise and service tax proceedings and must clearly disclose the charge so that the noticee has an opportunity to answer it. A demand cannot be confirmed on a basis that was never put to the noticee, because that would amount to condemning the person on an extraneous ground and would offend the principles of natural justice. The authorities relied on Rule 3(3) of the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, but that basis did not form part of the notice.

Conclusion: The authorities could not travel beyond the show cause notice, and the adjudication based on an unnotified ground was impermissible.

Issue (ii): Whether, on the facts, the petitioner had made out a strong prima facie case warranting waiver of the pre-deposit under section 35F.

Analysis: Once the adjudication was found to rest on a ground foreign to the show cause notice, the petitioner established a strong prima facie case. In such circumstances, insistence on a partial deposit would cause undue hardship. Financial hardship is not the sole consideration; a strong prima facie case can itself justify complete waiver of pre-deposit.

Conclusion: The petitioner was entitled to total waiver of pre-deposit, and the Tribunal's direction to deposit 25% was unsustainable.

Final Conclusion: The writ petition succeeded, the impugned pre-deposit order was set aside, and the matter was left to be decided by the Tribunal without the challenged deposit condition.

Ratio Decidendi: A duty or tax demand cannot be sustained on a ground not disclosed in the show cause notice, and where such extraneous basis is used, the assessee establishes a strong prima facie case justifying waiver of pre-deposit to avoid undue hardship.

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