Modvat credit cannot be denied on a new procedural ground not raised in the show cause notice.

Modvat credit could not be denied on a procedural ground that was never alleged in the show cause notice or the order-in-original. The notice raised only the admissibility of credit on finished goods returned for repair, reconditioning or remaking, but the appellate authority sustained denial by invoking non-compliance with Rule 173H procedure. That basis was held to have gone beyond the scope of the notice and original adjudication, making the order unsustainable. The matter was remanded for fresh decision on the merits of the issue actually raised, after granting personal hearing.

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Issues: Whether the denial of modvat credit could be sustained when the Commissioner (Appeals) affirmed the demand on a procedural lapse and a rule violation not alleged in the show cause notice or the order-in-original, and whether the matter should be remanded for decision on the issue actually raised.

Analysis: The show cause notice proceeded only on the question whether modvat credit was admissible on finished goods returned for repair, reconditioning or remaking. There was no allegation of procedural default under the relevant return procedure. The appellate authority, however, sustained the denial on a different ground, namely non-compliance with the procedure under Rule 173H of the Central Excise Rules, 1944. Since that ground was never put to the assessee, it could not be introduced at the appellate stage as the basis for denial. The adjudication was therefore held to have travelled beyond the notice and beyond the scope of the original order. The matter also required reconsideration after affording personal hearing.

Conclusion: The impugned order was unsustainable and was set aside. The matter was remanded to the adjudicating authority to decide the case on merits only on the basis of the issue raised in the show cause notice, after granting an opportunity of personal hearing.

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