Show cause notice limits and Modvat credit adjustment govern re-quantification of duty demand.

A duty demand cannot be confirmed beyond the scope of the show cause notice, so the enlarged demand was not sustainable. Notification No. 1/93-C.E. was to operate only as reflected in the notice, and the department could not deny its benefit altogether on a later view that the initial clearances should be counted differently. Where duty remained payable, admissible Modvat credit on inputs had to be allowed subject to verification, and the demand was required to be re-quantified after giving effect to that credit.

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Issues: (i) Whether the demand could be confirmed beyond the scope of the show cause notice and whether the benefit under Notification No. 1/93-C.E. (N.T.) dated 28-2-1993 was available only to the balance of the first clearances up to the prescribed limit. (ii) Whether, after demand of duty was upheld, the assessee was entitled to adjustment of Modvat credit on inputs used in manufacture.

Issue (i): Whether the demand could be confirmed beyond the scope of the show cause notice and whether the benefit under Notification No. 1/93-C.E. (N.T.) dated 28-2-1993 was available only to the balance of the first clearances up to the prescribed limit.

Analysis: The demand proposed in the notice was confined to the quantified amount and proceeded on the basis that the initial clearances were to be counted within the exemption threshold. The higher demand confirmed by the adjudicating authority travelled beyond that proposal. On the exemption question, once the assessee had paid duty on the initial clearances, the notification could not be denied altogether for the subsequent clearances merely because a different view was later taken by the department.

Conclusion: The larger demand beyond the show cause notice was not sustainable, and the exemption notification applied only in the manner reflected in the notice and the appellate order, not in the expanded form adopted by the adjudicating authority.

Issue (ii): Whether, after demand of duty was upheld, the assessee was entitled to adjustment of Modvat credit on inputs used in manufacture.

Analysis: The duty demand was ultimately upheld to the extent found payable, but the assessee's claim for credit on inputs used in the manufacture of the goods could not be denied merely because the credit procedure had not been followed earlier. The duty liability had to be recomputed after verification of the admissible credit.

Conclusion: Modvat credit was directed to be allowed subject to verification, and the demand was required to be re-quantified accordingly.

Final Conclusion: Both appeals failed on the main controversy, but the duty liability was left to be recomputed after giving effect to admissible Modvat credit.

Ratio Decidendi: A duty demand cannot be confirmed beyond the scope of the show cause notice, and where duty is subsequently found payable, admissible Modvat credit on inputs must be adjusted while re-quantifying the demand.

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