Scope of show cause notice limits duty demand; shortage-based liability sustained, but cone yarn demand was struck down.

Duty could not be confirmed on cotton cone yarn under Rule 12B when the show cause notice alleged only unaccounted clearance of hank yarn, because adjudication cannot travel beyond the notice and a new basis of liability cannot be introduced at the decision stage. The demand on cone yarn was therefore set aside. The duty demand on established shortage, however, was sustained because the shortage was found on the evidence and the explanations based on invoices or job work challans were not accepted. Penalties on the main noticee were reduced to match the surviving demand, while penalties on co-noticees were set aside as consequential.

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Issues: (i) Whether duty could be confirmed on cotton cone yarn under Rule 12B when the show cause notice proposed duty only on hank yarn cleared without accountal; (ii) whether the duty demand on shortage and the connected penalties could be sustained.

Issue (i): Whether duty could be confirmed on cotton cone yarn under Rule 12B when the show cause notice proposed duty only on hank yarn cleared without accountal.

Analysis: The notice proceeded only on the basis of alleged unaccounted clearance of hank yarn, whereas the adjudicating authority shifted the demand to cone yarn. A demand cannot be sustained on a foundation different from the one stated in the notice. Rule 12B was inserted to cover a person who gets yarns or fabrics manufactured on job work for his account and is not a registered manufacturer in the ordinary sense of the process already governed by the excise scheme for manufacturers sending goods for job work. The authority could not enlarge the case by introducing a new basis of liability not proposed in the notice.

Conclusion: The demand of duty on cotton cone yarn and the related departmental appeal could not be sustained and was liable to be set aside.

Issue (ii): Whether the duty demand on shortage and the connected penalties could be sustained.

Analysis: The shortage related to yarn of different types and counts, including cone yarn and hank yarn, and the explanation that it was covered by invoices or job work challans was not accepted. Since the shortage was established, the duty demand on that portion was maintainable. The penalties on the main appellant had to be aligned with the sustained duty, and the penalties on co-noticees, being consequential to the set-aside portion, could not survive.

Conclusion: The duty demand on shortage was upheld, the main penalty was reduced to the extent of the sustained demand, and the penalties on the co-noticees were set aside.

Final Conclusion: The assessees succeeded on the substantial demand raised beyond the show cause notice, but failed on the proved shortage, resulting in only partial relief and dismissal of the departmental challenge.

Ratio Decidendi: An adjudication cannot travel beyond the scope of the show cause notice, and Rule 12B cannot be invoked to fasten duty on a registered manufacturer on a footing not proposed in the notice.

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