CENVAT credit demand cannot stand when the notice never challenged credit admissibility and the final product was non-dutiable.

Recovery of duty paid through CENVAT credit was unsustainable where the final product was held non-dutiable and the show cause notices did not specifically propose denial of the credit or challenge its admissibility. The notices referred to duty recovery and irregular utilization of credit, but they did not clearly frame a case that the credit itself was inadmissible. Adjudication could not therefore travel beyond the notice and sustain demand on a ground not put to the assessee. The result was that the demand was set aside and the appeal succeeded.

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Issues: Whether the demand confirming duty paid through CENVAT credit could be sustained when the final product was held not to be dutiable and the show cause notices did not contain a specific proposal to deny the credit availed or its utilization.

Analysis: The demand was founded on recovery of duty paid on clearances made through CENVAT credit after the process of coating uncoated paper had already been held not to amount to manufacture. The notices referred to recovery of duty under Section 11A and to irregular utilization of credit, but they did not contain a clear proposal invoking the provision for wrong availment or denial of credit, nor did they frame a specific case that the credit itself was inadmissible. The demand therefore sought to recover, in substance, duty paid on final products through credit without first putting the assessee to notice on the admissibility of the credit. In such circumstances, the notice could not be expanded in adjudication to travel beyond its own terms.

Conclusion: The demand confirming duty paid through CENVAT credit was not sustainable and the appeal succeeded.

Ratio Decidendi: A demand cannot be upheld on a ground not stated in the show cause notice, and where the final product is held non-dutiable, recovery cannot be sustained merely because duty was paid through CENVAT credit unless the credit itself was specifically put in issue in the notice.

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