Duty demand for alleged storage loss fails where the show cause notice omits the basis and natural loss is unrebutted.

A duty demand based on alleged storage or reprocessing loss is unsustainable where the show cause notice does not disclose the basis of computation and the adjudication travels beyond the notice. The Revenue bears the burden to establish the factual foundation for the alleged shortage or loss, particularly when the assessee attributes it to natural causes such as the hygroscopic nature of brown sugar. Jurisdiction to examine the dispute is not excluded merely because the loss arose in storage or processing if the wider issue of excisability and dutiability is also in question. The principle stated is that a demand must rest on disclosed grounds and proved facts.

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Issues: (i) whether the Tribunal had jurisdiction to decide the dispute notwithstanding the objection based on the nature of the loss in storage and processing, (ii) whether the demand could be sustained when the show cause notice did not disclose the basis on which the loss was worked out and the adjudication travelled beyond that notice, and (iii) whether the loss in brown sugar could be fastened with duty in the absence of rebuttal to the plea of natural loss and in view of the pleaded non-excisability of brown sugar.

Issue (i): whether the Tribunal had jurisdiction to decide the dispute notwithstanding the objection based on the nature of the loss in storage and processing

Analysis: The objection was repelled because the matter was not confined to a mere question of loss during processing or storage. The controversy also involved the larger question whether brown sugar was excisable and dutiable at all. Once the issue of excisability and dutiability arose, it fell within the Tribunal's jurisdiction under the governing excise law.

Conclusion: The jurisdiction objection failed and the Tribunal could decide the matter.

Issue (ii): whether the demand could be sustained when the show cause notice did not disclose the basis on which the loss was worked out and the adjudication travelled beyond that notice

Analysis: The notice did not rest the demand on the chemical examiner's report or disclose the basis adopted for computing storage or reprocessing loss. The adjudicating authority nevertheless relied on that material to sustain the demand. An order founded on a basis not disclosed in the notice, and one that goes beyond the notice, is legally unsustainable.

Conclusion: The demand could not be sustained because the notice and the impugned order were defective.

Issue (iii): whether the loss in brown sugar could be fastened with duty in the absence of rebuttal to the plea of natural loss and in view of the pleaded non-excisability of brown sugar

Analysis: The appellants had attributed the loss to the hygroscopic nature of brown sugar and to natural causes. No rebuttal evidence was produced by the department. Since the demand was raised by the Revenue, the burden lay upon it to establish the basis for duty. The plea that brown sugar was not goods for excise purposes also supported the challenge to the levy on the alleged storage loss.

Conclusion: The duty demand was not sustainable on the facts and evidence.

Final Conclusion: The impugned demand was set aside and the appeal succeeded in full.

Ratio Decidendi: A duty demand cannot be sustained when it is founded on a basis not disclosed in the show cause notice, and the Revenue bears the burden to prove the factual foundation of the alleged shortage or loss.

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