Excise valuation and natural justice: demand cannot rest on a ground absent from the show cause notice, and related-person status needs mutual business interest.

Excise valuation requires the department to sustain a demand only on the ground set out in the show cause notice, because a new basis raised at confirmation stage denies the assessee a fair opportunity to meet the case. The document also states that a buyer-company is a related person only where there is direct or indirect mutual interest in each other's business; shareholding, common directors, technical collaboration, or plant erection assistance by themselves are insufficient. On those principles, the valuation orders were set aside and the assessee's challenge succeeded.

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Issues: (i) whether the demand could be sustained on a ground different from that stated in the show cause notices, and (ii) whether the buyer-company was a related person within the meaning of the valuation provisions.

Issue (i): whether the demand could be sustained on a ground different from that stated in the show cause notices.

Analysis: The demand notices proceeded on the footing that the parties were related persons, but the confirmation orders rested on adoption of a comparable price at another place. A demand cannot be upheld on a basis not put to the assessee in the notice, because the assessee must have an opportunity to meet the proposed ground of assessment.

Conclusion: The demand was not sustainable on that new ground and the assessee succeeded on the plea of breach of natural justice.

Issue (ii): whether the buyer-company was a related person within the meaning of the valuation provisions.

Analysis: The applicable test is whether the assessee and the alleged related person have, directly or indirectly, interest in the business of each other. Shareholding, common directors, technical collaboration, or participation in plant erection, by themselves, do not establish the requisite mutuality of business interest.

Conclusion: The buyer-company was not a related person, and the comparable-price basis adopted by the authorities could not be sustained.

Final Conclusion: The valuation orders were set aside and the assessee's challenge succeeded.

Ratio Decidendi: A related-person relationship under excise valuation requires mutual direct or indirect interest in each other's business, and a demand cannot be upheld on a ground not contained in the show cause notice.

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