Construction of exemption notification and limits of show cause notice: denial on a new ground cannot stand.

Notification No. 58/86-CE was construed as applying to tools falling within Chapter 82, not to the machines or equipment in which they were fitted. On that construction, the stated basis for denying exemption failed because the Chapter 82 reference qualified the tools themselves. Denial of the benefit on a fresh ground not set out in the show cause notice was also impermissible, since adjudication must stay within the notice and the assessee must be informed of the case to meet. The exemption was therefore available to the tools, and the alternative ground could not be used to refuse it.

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Issues: Whether the benefit of Notification No. 58/86-CE dated 10-2-1986 was available to tools manufactured in the assessee's factory and used captively, and whether denial of the exemption on a ground not stated in the show cause notice was permissible.

Analysis: The exemption dispute turned on the construction of the notification, specifically whether the reference to Chapter 82 qualified the tools entitled to exemption or the machines in which the tools were fitted. The Commissioner's own finding accepted that Chapter 82 related to the tools and not to the equipment or machines in which they were used. Once that construction was accepted, the basis of the show cause notice for denying exemption disappeared. The appellate authority also could not sustain denial of the benefit on a fresh ground not proposed in the notice, since adjudication must remain within the scope of the notice and the assessee must be put on notice of the case to meet.

Conclusion: The exemption under Notification No. 58/86-CE was available to the tools, and denial on a new ground outside the show cause notice was impermissible.

Ratio Decidendi: Denial of a fiscal exemption cannot be sustained on a ground not contained in the show cause notice, and the notification must be construed according to its text rather than by importing a limitation not expressed therein.

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