Clandestine removal requires corroborative evidence; loose chits and assumptions cannot sustain duty demand or extended limitation.

A charge of clandestine receipt of inputs, clandestine production and clandestine clearance of Potassium Chlorate must rest on positive, cogent and corroborative evidence; loose chits, inconsistent figures and unverified inferences were held insufficient where there was no proof of actual removal, buyers, transport, sale proceeds, or unaccounted use of inputs and power. On that basis, the duty demand and penalties were not sustainable. The extended limitation under the proviso to section 11A(1) was also unavailable because the unit was under physical control and there was no reliable proof of suppression, making the demand time-barred.

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Issues: (i) Whether the demand of duty and penalties based on loose chits and allied material established clandestine receipt of raw materials, clandestine production, and clandestine clearance of Potassium Chlorate. (ii) Whether the proviso to section 11A(1) could be invoked and the demand sustained when the unit was under physical control and the notice was issued beyond the normal period.

Issue (i): Whether the demand of duty and penalties based on loose chits and allied material established clandestine receipt of raw materials, clandestine production, and clandestine clearance of Potassium Chlorate.

Analysis: The demand was founded mainly on private chits and inferred input-output ratios. The chits were not shown to be reliable records, their authorship was uncertain, and the figures therein were inconsistent with each other and with the statutory records and the assessee's explanation. The record also lacked corroboration by evidence of actual removal, buyers, transport, sale proceeds, or reliable proof of unaccounted use of inputs and power. On the facts, the evidentiary basis was held insufficient to sustain a finding of clandestine manufacture or clearance.

Conclusion: The allegation of clandestine production and removal was not proved, and the demand and penalties were not sustainable.

Issue (ii): Whether the proviso to section 11A(1) could be invoked and the demand sustained when the unit was under physical control and the notice was issued beyond the normal period.

Analysis: The unit was under physical control, and the notice was issued beyond the normal six-month period then applicable. In the absence of reliable proof of suppression, the larger period could not be pressed into service. The alleged case of clandestine removal was also found to rest on assumptions rather than positive evidence, reinforcing the limitation objection.

Conclusion: The extended period was not invocable, and the demand was time-barred.

Final Conclusion: The appeals succeeded, the impugned order was set aside, and the duty demand and penalties could not survive.

Ratio Decidendi: A charge of clandestine removal must be proved by positive, cogent, and corroborative evidence, and cannot rest on loose chits, assumptions, or unverified inferences; in the absence of such proof, the extended limitation period is also unavailable.

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