Clandestine removal and extended limitation sustained on circumstantial evidence, while penalty was reduced on facts.

Extended limitation was upheld because suppression of production, inconsistent returns to different authorities, inadequate records, and prior similar conduct brought the demand within the extended period. Clandestine manufacture and removal was sustained on stock discrepancies, sales inconsistencies, and unreliable claims of process loss, as the authority could rely on circumstantial evidence and the preponderance of probability where reconciliation and proof of stage-wise wastage were lacking. The penalty was considered excessive on the facts and was reduced.

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Issues: (i) Whether the demand of central excise duty was barred by limitation. (ii) Whether the finding of clandestine manufacture and removal based on alleged process loss and stock discrepancies was sustainable. (iii) Whether the penalty required interference.

Issue (i): Whether the demand of central excise duty was barred by limitation.

Analysis: The demand was founded on suppression of production, inconsistencies between figures furnished to different authorities, non-maintenance of proper records, and earlier proceedings pointing to similar conduct. On these facts, the extended period was attracted and the proceedings were not confined to the normal period.

Conclusion: The demand was not barred by limitation.

Issue (ii): Whether the finding of clandestine manufacture and removal based on alleged process loss and stock discrepancies was sustainable.

Analysis: The material on record showed substantial discrepancies in stock, sales figures, and accounting treatment. The claimed invisible or process loss was not supported by reliable evidence, proper reconciliation, or proof of stage-wise wastage. The adjudicating authority was entitled to rely on circumstantial evidence and the standard of preponderance of probability.

Conclusion: The finding of clandestine manufacture and removal was sustained.

Issue (iii): Whether the penalty required interference.

Analysis: While the duty demand and the finding of suppression were upheld, the quantum of penalty was found excessive in the circumstances and was reconsidered to meet the ends of justice.

Conclusion: The penalty was reduced.

Final Conclusion: The duty demand and limitation findings were affirmed, but the penalty was scaled down, resulting in a partial success for the assessee.

Ratio Decidendi: In cases alleging clandestine removal, the adjudicating authority may sustain demand on the basis of circumstantial evidence and preponderance of probability where records, reconciliations, and claimed losses are not satisfactorily proved; however, penalty may be moderated on the facts of the case.

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