Clandestine removal and Cenvat credit demand fail where evidence is lacking and the adjudication exceeds the show cause notice.

Allegations of clandestine removal cannot be sustained on a single supplier-side entry without independent evidence linking the buyer to irregular activity, and the buyer's properly maintained records may defeat the demand. The text also states that adjudication cannot confirm a demand on wrongful availment of Cenvat credit when the show cause notice alleged only clandestine removal, because a demand based on a different footing is beyond the notice and procedurally unsustainable. On those grounds, the demand, interest, and penalty were set aside.

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Issues: (i) Whether the demand and penalty could be sustained when the allegation of clandestine removal was unsupported by evidence connecting the appellant with the alleged irregularity. (ii) Whether the adjudication could stand when the order confirmed demand on the basis of wrongful availment of Cenvat credit although the show cause notice alleged clandestine removal.

Issue (i): Whether the demand and penalty could be sustained when the allegation of clandestine removal was unsupported by evidence connecting the appellant with the alleged irregularity.

Analysis: The only material against the appellant was an entry found in the records recovered from the supplier's premises. The appellant's own records showed proper accounting of the single consignment actually received, and the department did not establish any irregularity in the appellant's accounts or any independent material showing connivance in clandestine activity. The evidence was insufficient to fasten liability merely because one transaction was recorded at the supplier's end.

Conclusion: The allegation of clandestine removal was not proved against the appellant and the demand could not be sustained on that basis.

Issue (ii): Whether the adjudication could stand when the order confirmed demand on the basis of wrongful availment of Cenvat credit although the show cause notice alleged clandestine removal.

Analysis: The show cause notice proceeded on evasion and clandestine removal, but the adjudication order confirmed demand by invoking Rule 14 of the Cenvat Credit Rules, 2004 and penalty under Rule 15 of the Cenvat Credit Rules, 2004 on a footing of wrongful availment of credit. A demand confirmed on a ground not alleged in the notice is procedurally unsustainable, particularly where the appellant had no notice to meet that distinct allegation.

Conclusion: The order was unsustainable as it travelled beyond the show cause notice.

Final Conclusion: The demand, interest, and penalty were set aside and the appeal was allowed in favour of the appellant.

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