Scope of show cause notice and SSI exemption limit duty exposure, while input credit and penalty relief remained available.

Duty could not be confirmed on Copper, Zinc and Cadmium alloys because the show cause notice was confined to Nickel, Tin and Lead alloys, and confirmation beyond the notice was impermissible. Cenvat credit on inputs used in clandestinely cleared goods was admissible where supporting documents were available. SSI exemption was available for the relevant period and had to be considered while quantifying the demand. Interest could not be demanded because it was neither proposed in the notice nor supported by a statutory levy for that period. Penalty was restricted to 25% of the duty confirmed since the assessee paid the duty and reduced penalty within the permitted time.

---

---

Issues: (i) whether duty could be confirmed on Copper, Zinc and Cadmium alloys when the show cause notice covered only Nickel, Tin and Lead alloys; (ii) whether cenvat credit was admissible on inputs used in clandestinely cleared goods; (iii) whether the assessee was entitled to SSI exemption for the relevant period; (iv) whether interest was payable in the absence of a proposal in the notice and a statutory levy for the relevant period; and (v) whether penalty was to be restricted to 25%.

Issue (i): whether duty could be confirmed on Copper, Zinc and Cadmium alloys when the show cause notice covered only Nickel, Tin and Lead alloys.

Analysis: The demand in the notice was confined to clandestine manufacture and clearance of Nickel, Tin and Lead alloys. Confirmation of duty on other alloys introduced a case not proposed to the assessee and therefore travelled beyond the notice.

Conclusion: Duty could not be sustained for Copper, Zinc and Cadmium alloys and was confined to the goods covered by the notice.

Issue (ii): whether cenvat credit was admissible on inputs used in clandestinely cleared goods.

Analysis: Clandestine removal by itself did not exclude credit on inputs used in manufacture of the final product when the relevant documents supported the claim. The Tribunal relied on the settled view that input credit is not denied merely because the clearances were clandestine.

Conclusion: Cenvat credit on inputs was admissible, subject to production of relevant documents.

Issue (iii): whether the assessee was entitled to SSI exemption for the relevant period.

Analysis: The clearance value for the earlier year was within the limit and the exemption notification did not make availability of the concession dependent on disclosure of clandestine activity. The exemption benefit therefore had to be considered in quantifying the demand.

Conclusion: SSI exemption was available for the relevant period.

Issue (iv): whether interest was payable in the absence of a proposal in the notice and a statutory levy for the relevant period.

Analysis: No interest was proposed in the show cause notice, and the statutory provisions invoked for interest were not in force for the relevant period. Interest could not therefore be demanded.

Conclusion: No interest was payable.

Issue (v): whether penalty was to be restricted to 25%.

Analysis: The assessee had paid the duty confirmed along with 25% of the duty as penalty within the permissible time, and the circumstances justified confining the penalty accordingly.

Conclusion: Penalty was restricted to 25% of the duty confirmed.

Final Conclusion: The demand was upheld only to the extent of the clandestine clearances covered by the notice, while the assessee obtained relief on the questions of input credit, SSI exemption, interest, and reduction of penalty.

Ratio Decidendi: A demand cannot be confirmed beyond the scope of the show cause notice, and SSI exemption and input credit may still be considered in cases of clandestine clearance when the statutory conditions are otherwise satisfied; interest and penalty must also rest on a valid notice and applicable statutory authority.

---