Show cause notice limits central excise demand; valuation objections must be examined on merits before confirmation.

A central excise demand cannot be sustained on a ground not set out in the show cause notice; here, the notice alleged inflation of bought-out items and deflation of manufactured items, but the confirmation relied on a different basis, so the demand was unsustainable. The adjudicating authority also failed to examine the assessee's valuation objections on merits, including the alleged inflation, overlooked overheads, and the computation adopted. The matter was therefore remanded for fresh adjudication in accordance with law, with a direction that proforma Modvat credit be allowed if any demand was again upheld.

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Issues: (i) whether the demand could be sustained on a basis not set out in the show cause notice; (ii) whether the adjudicating authority had properly examined the alleged inflation of the value of bought-out items and the assessee's contentions on valuation and related reliefs.

Issue (i): whether the demand could be sustained on a basis not set out in the show cause notice.

Analysis: The notice proceeded only on the footing that the assessee had allegedly manipulated the break-up of contract price by inflating the value of bought-out items and deflating the value of manufactured items. It did not allege that the complete plant had come into existence as excisable goods at the buyers' premises just before affixation to earth. The confirmation of demand rested on that different basis, which was outside the foundation of the notice.

Conclusion: The demand could not be sustained on a ground not alleged in the show cause notice, and the confirmation on that basis was unsustainable.

Issue (ii): whether the adjudicating authority had properly examined the alleged inflation of the value of bought-out items and the assessee's contentions on valuation and related reliefs.

Analysis: The assessee had disputed the allegation of inflated pricing of bought-out items, asserted that legitimate expenses and overheads were not considered, and challenged the computation adopted in the notice. The adjudicating authority did not adequately adjudicate those objections on merits. The appellate authority therefore found it appropriate to send the matter back for fresh decision in accordance with law, with a direction that, if any demand were again upheld, proforma Modvat credit had to be allowed.

Conclusion: The matter required fresh adjudication and the impugned order was set aside with a remand.

Final Conclusion: The appeal succeeded, the valuation demand was set aside, and the dispute was sent back for reconsideration by the jurisdictional adjudicating authority.

Ratio Decidendi: A demand in central excise cannot be confirmed on a basis that is not contained in the show cause notice, and where valuation objections are raised, the adjudicating authority must decide them on merits before sustaining any demand.

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