Natural justice limits classification beyond show cause notice; transformer parts also remained exempt where the notification excluded only transformers.

A classification finding cannot be made beyond the scope of the show cause notice, because doing so violates natural justice; the appellate authority's classification of transformer parts under Chapter 39.26 was therefore set aside. Where transformer parts fell under Chapter Heading 85.04, an exemption notification that expressly excluded transformers but did not exclude their parts could not be extended by implication to deny relief. The transformer parts were accordingly held eligible for exemption under Notification No. 160/86, and the assessee's claim was upheld.

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Issues: (i) Whether the appellate authority could classify the transformer parts, including spools, under Chapter 39.26 when the show cause notices were confined to eligibility of transformer parts for exemption under Notification No. 160/86. (ii) Whether transformer parts falling under Chapter Heading 85.04 were entitled to the benefit of Notification No. 160/86, which excluded transformers but not their parts.

Issue (i): Whether the appellate authority could classify the transformer parts, including spools, under Chapter 39.26 when the show cause notices were confined to eligibility of transformer parts for exemption under Notification No. 160/86.

Analysis: The dispute raised in the notices was limited to the availability of exemption to transformer parts. No notice was issued on the classification of the parts themselves. The appellate authority therefore went beyond the scope of the controversy and recorded a finding on classification without putting the assessee to notice. Such a course offended the requirement of natural justice.

Conclusion: The finding classifying the parts under Chapter 39.26 could not be sustained and was set aside in favour of the assessee.

Issue (ii): Whether transformer parts falling under Chapter Heading 85.04 were entitled to the benefit of Notification No. 160/86, which excluded transformers but not their parts.

Analysis: The parts were treated as covered by Chapter Heading 85.04. The exemption table specifically excluded transformers, but did not expressly exclude parts of transformers. On that basis, the exclusion could not be extended to parts by implication, and the parts remained within the benefit of the notification.

Conclusion: Transformer parts were held eligible for the exemption under Notification No. 160/86, in favour of the assessee.

Final Conclusion: The impugned classification of transformer parts under Chapter 39.26 was annulled, and the assessee's claim to exemption for transformer parts was upheld.

Ratio Decidendi: A classification finding cannot be made beyond the scope of the show cause notice, and an exemption exclusion referring only to a product does not extend by implication to its parts unless the notification expressly so provides.

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