Defective show cause notice based on incoherent annexures cannot sustain CENVAT credit demand, interest or penalty.

A show cause notice based on unclear, internally inconsistent annexures and unsupported factual allegations cannot sustain a CENVAT credit, interest or penalty demand. The Department must disclose a clear and intelligible basis for the charge, and later adjudication cannot cure a fundamentally defective notice. Where the assessee produces reconciliation material and the record lacks corroborative evidence, confirmation of the demand without independent application of mind is unsustainable. The defects in the notice and supporting annexures therefore vitiate the proceedings and the assessee is entitled to relief.

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Issues: Whether the show cause notice and the consequential demand of CENVAT credit, interest and penalty were sustainable when the annexures forming the basis of the allegations were found to be unclear, internally inconsistent and not satisfactorily explained by the Department.

Analysis: The demand was founded entirely on discrepancies drawn from the assessee's own records, but the assessee repeatedly sought clarification regarding the basis of the annexures and produced reconciliation material to show substantial errors. The adjudicating authority itself recorded that several objections were admitted or substantially reconciled, yet the remaining demand was confirmed without independent application of mind and by effectively relying on the investigating officer's verification. The record did not disclose any corroborative evidence beyond the disputed annexures, and the Department failed to establish the factual basis for the allegations with clarity and coherence. A show cause notice that does not disclose a intelligible and supportable basis for the charge cannot be cured by adjudication.

Conclusion: The flaws in the show cause notice were fatal to the proceedings. The demand, interest and penalty were unsustainable and the assessee was entitled to relief.

Ratio Decidendi: A show cause notice that fails to clearly set out the factual basis of the alleged contravention and is built on incoherent or unsubstantiated annexures cannot be validated by later adjudication; such fundamental defects vitiate the proceedings.

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