Bought-out goods controversy required fresh adjudication before any demand or penalty could stand.

The demand and penal consequences could not be sustained without first examining the assessee's claim that the disputed items were bought-out goods and not manufactured by them. That factual controversy was central because the department's case depended on an assumption of manufacture, yet the original order had not addressed the documentary material supporting the assessee's claim. The matter was remitted for de novo adjudication, with directions to give the assessee a proper hearing and to pass a fresh speaking order. The scope of Notification No. 162/86-C.E. was left open for consideration in the remand proceedings.

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Issues: Whether the demand and connected penal consequences could be sustained when the Collector had not examined the assessee's claim that the disputed items were bought-out goods and not manufactured by them.

Analysis: The material showed that the principal factual controversy was whether the articles treated by the department as manufactured goods were in fact purchased from the market. That factual assertion had not been addressed in the original order, though its verification was essential because the demand rested on the assumption of manufacture. The record contained substantial documentary material requiring examination by the adjudicating authority. The question regarding the scope of Notification No. 162/86-C.E. was left open for consideration in the de novo proceedings, and the authority was directed to permit the assessee to place its submissions before passing a fresh speaking order.

Conclusion: The matter was remitted to the jurisdictional Collector for de novo adjudication after examining whether the disputed items were bought-out goods and after affording the assessee a proper hearing.

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