Clandestine removal demands need independent evidence; register-based assumptions and disclosed records were insufficient, limiting duty and penalty exposure.

A demand alleging clandestine removal could not be sustained merely on theoretical input-output ratios and stock-register entries without independent corroborative evidence of non-receipt of inputs or diversion of goods; only the admitted wrongful credit remained payable. The extended period of limitation was also unavailable because the figures relied on in the notice were already reflected in statutory records and returns, and no suppression with intent to evade duty was established. The balance duty demand and penalties on the company and individual appellants were set aside.

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Issues: (i) whether demand of duty and penalty could be sustained solely on the basis of theoretical input-output ratio and stock-register entries in the absence of independent corroborative evidence of non-receipt or clandestine removal of inputs; and (ii) whether the extended period of limitation could be invoked when the relevant figures had been reflected in the statutory records and returns.

Issue (i): whether demand of duty and penalty could be sustained solely on the basis of theoretical input-output ratio and stock-register entries in the absence of independent corroborative evidence of non-receipt or clandestine removal of inputs.

Analysis: The demand was founded mainly on the departmental calculation of the expected consumption of raw materials for manufacture of DOP and DBP and on statements describing normal consumption for a batch. The records did not contain any clear admission that inputs were not received, that credit had been taken on non-received goods, or that the materials were diverted in the open market. The departmental experiment itself showed variation in consumption, and no independent evidence was produced to establish clandestine removal. The confirmed wrong credit relating to two bills of entry was separately admitted.

Conclusion: The demand and penalties could not be sustained on the basis of input-output norms alone, except for the admitted wrongful credit of Rs. 4,44,445, which remained payable.

Issue (ii): whether the extended period of limitation could be invoked when the relevant figures had been reflected in the statutory records and returns.

Analysis: The figures used in the show cause notice were taken from the appellant's statutory records and monthly returns. Where the Department relies on disclosed records and no independent suppression is established, invocation of the extended period is not justified. The material on record did not show suppression with intent to evade duty.

Conclusion: The extended period of limitation was not available to the Revenue.

Final Conclusion: The adjudication was sustained only to the limited extent of the admitted wrongful availment of credit, while the balance duty, penalties on the company, and the penalties on the individual appellants were set aside.

Ratio Decidendi: A demand alleging clandestine removal cannot be upheld merely on theoretical input-output norms or register-based assumptions without independent corroborative evidence, and limitation cannot be extended where the relevant facts were already disclosed in statutory records.

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