The judgment emphasizes the importance of specific allegations in a show cause notice, the violation of natural justice, and the determination of related persons and mutuality of interest in excise duty cases.

1. The petitioner M/s.Dagger Die Cutting was started in the year 1993. It is engaged in manufacturing and selling of Leather Die Cutting Knives. The petitioner is registered as a small scale industry. It enjoys exemption in payment of excise duty. Excise duty payable on the total value of clearance was exempted to an extent of Rs.30,00,000/= for the period 1995-2000 and to the extent of Rs.50,00,000/= from 2000 onwards. The petitioner is also entitled to duty credit via modvat and cum-duty benefits. Her husband Mr.Nilanjan Deshpande has started Dagger International a Concern involved in retailing the Die Cutting Knives. The first respondent Commissioner of Central Excise, Chennai II Commissionerate issued show cause notice dated 19.5.2000 claiming duty for the period from 1995-96 to 2000-2001. The duty has been claimed for the transactions that took place during the years 1995-96. The petitioner countered the claim of excise duty in the show cause notice issued by the first respondent by giving reply to the show cause notice. The first respondent passed an order dated 10.4.2001 confirming the duty demand of Rs.47,73,201/= against the petitioner in terms of proviso to section 11A of the Central Excise Act, 1944. Penalty was also imposed invoking the provision under section 11A of the Central Excise Act, 1944 and Rule 173Q of the Central Excise Rules, 1944. The petitioner took up the matter in appeal before the second respondent. The second respondent upheld the contention of the first respondent that price of M/s.Dagger International was to be accepted. However, the matter was remanded to the first respondent for grant of benefit of modvat credit and to treat the price as cum-duty in terms of the judgments of the Supreme Court. The first respondent also was directed to arrive at the exact amount of duty due on readjustment after giving an opportunity to the petitioner to produce evidence. The petitioner, thereafter, filed a petition before the second respondent seeking for rectification of the original order passed by it on 3rd May 2002. But, the said application was rejected as it was found meritless by the second respondent.

2. The petitioner challenges the order dated 25.4.2003 passed by the second respondent in the rectification application confirming the final order passed by the second respondent on 3.5.2002.

3. It is contended by the petitioner as follows:-

The show cause notice issued by the first respondent is time-barred as it was sent after one year period prescribed in law. The impugned orders have been passed on the basis of allegations not contained in the show cause notice. The petitioner had no opportunity to counter the same. The principles of natural justice were blatantly violated. M/s.Dagger International was run by the husband of the Proprietrix of the petitioner who had tremendous experience and contact in the leather industry. Therefore, the petitioner agreed to manufacture the knives ordered by the clients of M/s.Dagger International. M/s.Dagger International and the petitioner are two separate and distinct entities. The petitioner is a manufacturing unit while M/s.Dagger International is a retail unit. M/s.Dagger International obtains purchase orders from its customers and places the same with the petitioner and buys the finished product from the petitioner for resale to its customer. The relationship between the petitioner and M/s.Dagger International is based on sound commercial considerations. There is no mutuality of interest between those two Concerns. There is also no financial flow and backup from one Concern to another and the relationship is clearly at arms length. There was no allegation of any clandestine activity with the intent to evade duty in the show cause notice issued by the first respondent. The allegation that M/s.Dagger International was a related person is totally untenable. Therefore, the impugned order is liable to be quashed.

4. Learned Senior Central Government S