Clandestine removal demands require real evidence, and extended limitation fails without proof of suppression with intent to evade duty.

Allegations of clandestine manufacture and removal cannot sustain a central excise demand where the department relies only on assumptions about excess wastage and produces no tangible evidence of unaccounted goods, false reporting, or verified clandestine production. Contemporaneous disclosure of wastage to the jurisdictional authorities negatived suppression, so the extended limitation period could not be invoked absent proof of intent to evade duty. With the duty demand unsustainable, the connected penalties also failed.

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Issues: Whether the duty demand and penalties for alleged clandestine manufacture and removal of goods were sustainable on the basis of assumptions about excessive wastage, and whether the extended period of limitation could be invoked in the absence of suppression of facts.

Analysis: The appellant had contemporaneously reported wastage of inputs to the jurisdictional authorities, and those reports were not shown to be false. The demand rested on the assumption that wastage could only be 0.5%, but no tangible evidence was produced to show that the declared wastage was fabricated, that unaccounted goods were sold or transported, or that any verification had established clandestine production. The records relating to the disputed clearance of preforms also supported the appellant's explanation. In these circumstances, the allegation of clandestine removal was held to be based on surmise, assumptions and presumptions. Since the facts were being reported contemporaneously and suppression with intent to evade duty was not established, the extended period under the proviso to Section 11A was not attracted. Consequentially, once the duty demand failed, the penalties did not survive.

Conclusion: The duty demand was unsustainable, the extended period of limitation could not be invoked, and the penalties were liable to be set aside.

Ratio Decidendi: A demand of central excise duty for clandestine removal cannot be upheld on mere assumptions or presumptions without reliable evidence, and the extended limitation period requires proof of suppression of facts with intent to evade duty.

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