Show cause notice limits Modvat credit demand; confirmation on a new ground vitiates the proceedings.

Modvat credit demand cannot be confirmed on a ground not stated in the show cause notice, because a demand based on an unnotified basis violates the notice requirement and vitiates the proceeding. Here, the notice alleged inadmissibility on specified input-related grounds, but the Assistant Collector upheld the demand on a different theory that the resin was used in making air bags treated as tools, and the appellate authority did not cure that defect. The demand was therefore set aside and the appeal was allowed.

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Issues: Whether the demand of Modvat credit could be sustained when the Assistant Collector confirmed it on a ground not set out in the show cause notice.

Analysis: The show cause notice alleged inadmissible Modvat credit on specified input-related grounds. The Assistant Collector initially noted that the irregularity mentioned in the notice would not survive, but nevertheless confirmed the demand on a different basis, namely that the resin was used in manufacture of air bags which were treated as tools and therefore no credit was admissible. That ground was never put to the assessee in the notice. The Collector (Appeals) also failed to correct this defect and upheld the order despite the evident departure from the notice.

Conclusion: The confirmation of demand on a ground beyond the show cause notice vitiated the proceedings, and the appeal was allowed.

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