Burning loss claim cannot be rejected on grounds not stated in the show cause notice

An adjudicating authority cannot deny a burning loss claim on a ground not set out in the show cause notice. The notice alleged only that permission for burning loss had not been obtained, while the appellate authority rejected the claim because actual loss figures were not produced and the 3% claim was said to be hypothetical. As that basis was outside the notice, the assessee had no opportunity to meet it. The appellate order was therefore unsustainable and was set aside, with the claim allowed in favour of the assessee.

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Issues: Whether the appellate authority could disallow the claim for burning loss on grounds not raised in the show cause notice.

Analysis: The only allegation in the show cause notice was that permission for burning loss had not been obtained. The record showed that the Department had been informed of the anticipated 3% burning loss when permission under Rule 57F(2) of the Central Excise Rules was sought. The Commissioner (Appeals), however, rejected the claim on a different basis, namely that actual figures of loss were not produced and the 3% claim was hypothetical. Such a ground was not part of the notice and the assessee had no opportunity to meet it.

Conclusion: The disallowance on a new ground was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned appellate order was set aside and the claim was allowed.

Ratio Decidendi: An adjudicating authority cannot sustain a denial on grounds not contained in the show cause notice, and an order based on such new grounds is liable to be set aside.

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