Incorrect statutory reference does not invalidate duty demand, but clandestine production must be factually quantified before final assessment

An incorrect statutory reference in a show cause notice did not invalidate the duty demand where the material facts, basis of demand and grounds for penalty were clearly set out and no prejudice was shown. Duty on unauthorised khandsari sugar production, however, required factual determination of when production began and the quantity produced and removed; without such quantification, the demand could not be finally sustained and was remanded for fresh assessment. Confiscation was upheld because the goods were found in the course of clandestine operation and the seal had been broken, and the penalty was sustained on the facts.

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Issues: (i) Whether a duty demand could be invalidated merely because the show cause notice referred to an incorrect rule when the factual allegations and basis of demand were otherwise stated. (ii) Whether the demand of duty for unauthorised production of khandsari sugar could be sustained without factual determination of the actual period and quantum of production and removal, and what relief followed on confiscation and penalty.

Issue (i): Whether a duty demand could be invalidated merely because the show cause notice referred to an incorrect rule when the factual allegations and basis of demand were otherwise stated.

Analysis: The notice contained the material facts constituting the contravention, the basis for compounded duty, and the grounds for penalty. The mere wrong mention of a rule or section did not affect validity where the assessee was not shown to have suffered prejudice in defence.

Conclusion: The demand was not vitiated merely because of the incorrect statutory reference in the show cause notice.

Issue (ii): Whether the demand of duty for unauthorised production of khandsari sugar could be sustained without factual determination of the actual period and quantum of production and removal, and what relief followed on confiscation and penalty.

Analysis: Duty on unauthorised production had to rest on a factual finding as to when production commenced and what quantity was produced and removed. In the absence of such quantification, the demand could not stand as finally assessed and had to be worked out afresh. The confiscation was upheld because the goods were found in the course of clandestine operation and the seal had been broken, and the penalty was sustained on the facts and circumstances.

Conclusion: The duty demand was set aside and remanded for fresh quantification, while confiscation and penalty were sustained.

Final Conclusion: The appeal succeeded only to the extent of the duty demand, which was sent back for fresh determination, but the confiscation and penalty remained undisturbed.

Ratio Decidendi: An incorrect statutory reference in a show cause notice does not invalidate the demand if the factual basis and grounds are clear and no prejudice is caused, but a duty demand for clandestine manufacture must be supported by a factual determination of the actual production and removal before it can be finally upheld.

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