Department exceeded show-cause notice scope by relying on post-reply inspections instead of original allegations

The Calcutta HC allowed the appeal, setting aside orders from the Tribunal and adjudicating authority. The Court held that the department exceeded the scope of the show-cause notice by basing its decision on post-reply inspections rather than original allegations. The appellant had properly informed the department about claiming exemption under notification dated 10.02.1986 for handicraft products and provided detailed justifications. The Court found no material evidence of misdeclaration or willful misstatement with intent to evade duty, ruling that the extended period of limitation could not be invoked without such proof.

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Issues:
- Scope of show-cause notice and order-in-original
- Maintainability of appeal before the High Court
- Validity of extended period of limitation invoked by the department

Scope of show-cause notice and order-in-original:
The appellant challenged the Tribunal's order under Section 35G of the Central Excise Act, 1944, questioning the Tribunal's findings beyond the scope of the show-cause notice (SCN) and the Order-in-Original. The appellant contended that the Tribunal erred in concluding that the manufacturing process was undisclosed until a departmental visit. Additionally, the Tribunal's decision on the proportion of manual versus machinery processes deviated from the SCN. The High Court emphasized the importance of adjudicating within the confines of the SCN and Order-in-Original to ensure procedural fairness and adherence to natural justice principles.

Maintainability of appeal before the High Court:
The respondent raised a preliminary objection on the appeal's maintainability, arguing that the issue pertained to the classification for excise duty exemption eligibility. Citing precedents, the High Court clarified that the appeal's maintainability hinges on the impugned order's nature. Rulings in similar cases highlighted that High Courts can entertain appeals concerning the validity of orders rather than valuation or duty-related issues. The Court distinguished between challenges to the order's nature and challenges related to valuation or duty payment, affirming the appeal's maintainability.

Validity of extended period of limitation:
The department issued a show-cause notice alleging duty evasion based on the appellant's delayed claim for excise duty exemption. The appellant refuted these claims, citing precedents to challenge the department's invocation of the extended period of limitation. The Court emphasized that mere allegations of misdeclaration or intent to evade duty are insufficient without substantive evidence. The department must demonstrate willful misstatement coupled with an intention to evade duty to justify invoking the extended limitation period. As the department failed to substantiate these claims, the High Court allowed the appeal, setting aside the Tribunal's order and the show-cause notice in favor of the appellant/assessee.

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