Modvat credit cannot be challenged on a new ground never raised in the show cause notice or decided below.

The department could not support its challenge to Modvat credit on a ground that was never raised in the show cause notice or examined by the lower authorities. The notice proceeded only on the basis that the inputs were bazaar scrap, purchased from the open market and allegedly non-duty-paid, so deemed credit should be denied; the appellate attempt to invoke proviso (2) to Rule 57H introduced a different objection, namely that credit was barred because the inputs had suffered duty on or before 31-3-1986. A party cannot be permitted to sustain an appeal on a new ground outside the original notice, so the credit allowed by the Commissioner (Appeals) remained undisturbed.

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Issues: Whether the department could, in appeal, challenge the grant of Modvat credit on the basis of proviso (2) to Rule 57H when the show cause notice had proceeded only on the footing that the inputs were bazaar scrap not having suffered duty and were therefore ineligible for deemed credit.

Analysis: The show cause notice raised only the objection that the inputs were purchased from the open market, were recognisable as non-duty-paid goods, and therefore attracted denial of deemed credit. The departmental appeal, however, sought to rely on a different objection based on proviso (2) to Rule 57H, namely that credit was barred where the inputs had suffered duty on or before 31-3-1986. That issue had not been raised in the notice and was not examined by the lower authorities. A party cannot be allowed to sustain the challenge on a ground that was never put in issue before the adjudicating authority.

Conclusion: The department was precluded from raising the new ground under proviso (2) to Rule 57H, and the assessee's entitlement to the credit allowed by the Commissioner (Appeals) was not disturbed.

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