Show cause notice basis, job-work liability, and revenue-neutral exports limited duty demand, interest, and penalties.

A duty demand cannot be sustained on a statutory basis that was not invoked in the show cause notice or adjudication order, as the notice remains the foundation for levy, interest, and penalty. The text also states that a job-work arrangement did not, by itself, prove manufacture on behalf of the appellant because no evidence showed the required control or agency nexus. In a revenue-neutral export setting, where duty paid on inputs would have been refundable, mala fide intent could not be inferred; the extended period of limitation and penalties were therefore not attracted. The article notes that the impugned order was set aside and relief followed in full.

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Issues: (i) Whether the demand could be sustained by invoking Rule 12B of the Central Excise Rules, 2002 when that rule was not referred to in the show cause notice or adjudication order; (ii) whether the job-work arrangement established manufacture on behalf of the appellant so as to fasten duty liability; (iii) whether the demand, extended period of limitation, and penalties were sustainable in a revenue-neutral export situation.

Issue (i): Whether the demand could be sustained by invoking Rule 12B of the Central Excise Rules, 2002 when that rule was not referred to in the show cause notice or adjudication order.

Analysis: The demand had been confirmed in appeal by relying on Rule 12B, although the notice and adjudication order did not invoke that rule. The show cause notice is the foundation for levy and recovery of duty, interest, and penalty. A new basis of liability cannot be introduced at the appellate stage if it was not part of the notice.

Conclusion: Rule 12B could not be invoked against the appellant, and the appellate authority exceeded the scope of the show cause notice.

Issue (ii): Whether the job-work arrangement established manufacture on behalf of the appellant so as to fasten duty liability.

Analysis: The dyed yarn was processed by job workers and used for manufacture of exported final products. No evidence was produced to show that the job workers manufactured the goods on behalf of the appellant or that the appellant had the requisite control over them. In the absence of proof of manufacture on behalf, the duty liability could not be fastened on that basis.

Conclusion: The requirement of manufacture on behalf of the appellant was not established.

Issue (iii): Whether the demand, extended period of limitation, and penalties were sustainable in a revenue-neutral export situation.

Analysis: The inputs were used in exported goods, so any duty paid on such inputs would have been refundable to the manufacturer-exporter. The situation was therefore revenue neutral. In such circumstances, mala fide intent could not be inferred, and the extended period and penalty provisions were not attracted.

Conclusion: The demand was not sustainable on limitation or penalty, and the assessee was entitled to relief.

Final Conclusion: The impugned order was set aside and the appeals were allowed, with the duty demand, interest, and penalties failing in entirety.

Ratio Decidendi: A duty demand cannot be sustained on a statutory basis not invoked in the show cause notice, and where the transaction is revenue neutral and no manufacture on behalf is proved, extended limitation and penalties are not attracted.

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