Scope of show cause notice limits review: new grounds cannot justify denial of deemed Modvat credit.

A reviewing authority cannot direct an appeal on a ground that was not raised in the show cause notice or adjudicated in the original order. Here, the notices proceeded only on the allegation that railway scrap was not rollable or re-rollable material for deemed Modvat credit, and did not allege that the inputs were clearly recognisable as non-duty paid. Section 35E(2) did not permit introduction of that new factual basis, and the second proviso to Rule 57G could not cure the omission because a specific allegation was required to meet the defence. The departmental challenge was set aside and the assessees retained deemed Modvat credit.

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Issues: Whether the Commissioner could, under Section 35E(2), direct filing of appeals on a ground not raised in the show cause notices, namely that the railway scrap was clearly recognisable as non-duty paid, when the notices proceeded only on the footing that the scrap was not rollable or re-rollable material.

Analysis: The show cause notices were issued solely on the allegation that the railway scrap did not qualify as rollable or re-rollable material for the purpose of deemed Modvat credit. No allegation was made in the notices that the inputs were clearly recognisable as non-duty paid. The governing principle is that an adjudicating or reviewing authority cannot travel beyond the scope of the show cause notice. Section 35E(2) permits directions only on points arising out of the decision or order, and does not authorise introduction of a new ground which was neither raised in the notice nor adjudicated in the original order. The second proviso to Rule 57G did not cure the omission, because denial of credit on the footing that the goods were non-duty paid required a specific allegation to enable an effective defence.

Conclusion: The Commissioner could not direct filing of appeals on a ground not contained in the show cause notices. The issue was decided in favour of the assessees.

Final Conclusion: The common order set aside the departmental challenge, and the assessees were held entitled to the benefit of deemed Modvat credit as the attempted new ground was beyond the permissible scope of review under the statute.

Ratio Decidendi: A reviewing authority under Section 35E(2) cannot authorise an appeal on a ground that does not arise from the show cause notice or the adjudication order, and denial of credit on a new factual basis requires a specific allegation in the notice.

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