Show cause notice limits excise exemption disputes: denial cannot rest on grounds not pleaded in the demand notice.

Excise exemption under Notification No. 118/75 was examined in relation to steam supplied to a recipient unit alleged not to be a factory under Section 2(e) of the Central Excises and Salt Act, 1944. The record indicated that the recipient unit manufactured excisable goods and was licensed by the excise authorities, so the factual basis stated in the notice for denying exemption was not established. Denial of exemption also could not be sustained on grounds outside the show cause notice, including alleged non-compliance with Chapter X procedure and the existence of separate factories. The exemption dispute was therefore resolved in favour of the assessee on the pleaded grounds.

---

---

Issues: (i) Whether exemption under Notification No. 118/75 was admissible for steam supplied to a unit said not to satisfy the definition of factory under Section 2(e) of the Central Excises and Salt Act, 1944. (ii) Whether the Revenue could support denial of exemption on grounds not contained in the show cause notice.

Issue (i): Whether exemption under Notification No. 118/75 was admissible for steam supplied to a unit said not to satisfy the definition of factory under Section 2(e) of the Central Excises and Salt Act, 1944.

Analysis: The notice proposed denial of exemption on the footing that the recipient unit was engaged in production of alcohol and therefore was not a factory for the purposes of the Act. The record also showed that the recipient unit manufactured excisable goods, including fusel oil, and was licensed by the excise authorities. On that basis, the factual foundation for denying the exemption on the ground stated in the notice was not made out.

Conclusion: The exemption could not be denied on the ground stated in the notice, and the assessee succeeded on this issue.

Issue (ii): Whether the Revenue could support denial of exemption on grounds not contained in the show cause notice.

Analysis: The Revenue sought to rely on separate factual and procedural objections, including the alleged non-following of Chapter X procedure and the existence of separate factories. Those grounds were not the basis of the notice. A finding cannot be sustained on a ground not set out in the demand notice, and the adjudication must remain confined to the stated basis of demand.

Conclusion: The Revenue could not rely on grounds outside the show cause notice, and the assessee succeeded on this issue as well.

Final Conclusion: The Revenue's appeal failed, while the connected appeal was allowed, resulting in a mixed outcome with the exemption dispute resolved in favour of the assessee on the pleaded grounds.

Ratio Decidendi: An adjudication on excise exemption cannot be sustained on a ground not stated in the show cause notice, and the authority must confine itself to the factual and legal basis expressly alleged therein.

---