Show cause notice limits adjudication: unnotified grounds for valuation cannot sustain duty, interest, or penalties.

CESTAT Hyderabad held that an adjudication order cannot confirm duty on a ground not contained in the show cause notice. The notice alleged valuation on the basis of related-party resale price, but it did not propose demand on the basis of additional consideration for sale. The adjudication order nevertheless treated insurance charges and the difference between loan interest and lease charges as additional consideration, which was beyond the notice. As the demand itself was unsustainable on that unnotified basis, the connected interest and penalties also failed, and the impugned order was set aside in full.

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Issues: Whether the demand, interest and penalties were sustainable when the adjudication order introduced a ground of additional consideration for sale not forming part of the show cause notice.

Analysis: The notice proposed duty only on the premise that the assessee and the buyer were related persons and that the buyer's resale price should be adopted as the assessable value. It did not raise a demand on the basis of additional consideration for sale. The adjudication order, however, confirmed duty by treating insurance charges and the alleged difference between loan interest and lease charges as additional consideration, which was beyond the scope of the notice. Once the demand itself could not be sustained on that basis, the connected interest and penalties also could not survive.

Conclusion: The demand, interest and penalties were set aside.

Final Conclusion: The appeals succeeded and the impugned adjudication order was annulled in full.

Ratio Decidendi: An adjudication order cannot travel beyond the grounds and basis set out in the show cause notice, and any demand confirmed on a new and unnotified foundation is unsustainable along with consequential interest and penalties.

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