Clandestine removal demands need tangible corroboration; disclosure in classification filings also barred extended limitation.

A demand of central excise duty for alleged clandestine removal of cotton yarn failed because the record lacked tangible corroboration of actual manufacture, removal, transport, receipt of sale proceeds, or buyer-side evidence; suspicion based on stock position, machine availability, and record omissions was insufficient. The extended limitation period also could not be invoked because the assessee had disclosed the nature of the goods and the exemption claimed in classification declarations, and no fresh incriminating material emerged after earlier proceedings. The demand and penalty were therefore held unsustainable, and the appeals succeeded.

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Issues: (i) Whether the demand of central excise duty on alleged clandestine removal of cotton yarn in cones/cheese, treated as mis-declared clearances of plain reel hanks, was sustainable on the evidence on record; (ii) Whether the extended period of limitation could be invoked in the facts of the case.

Issue (i): Whether the demand of central excise duty on alleged clandestine removal of cotton yarn in cones/cheese, treated as mis-declared clearances of plain reel hanks, was sustainable on the evidence on record.

Analysis: The demand rested principally on assumptions drawn from the physical stock position, alleged non-availability of operational reeling machines, and omissions in statutory records. The appellant produced evidence of purchase, accounting and repair of reeling machines, and asserted recorded production and clearance of plain reel hank yarn. The record did not contain tangible corroboration such as proof of transport, receipt of sale proceeds, buyer-side evidence, or other material showing actual clandestine manufacture and removal. A demand based merely on probability or presumption, without supporting evidence, was insufficient.

Conclusion: The allegation of clandestine removal was not proved and the duty demand was unsustainable.

Issue (ii): Whether the extended period of limitation could be invoked in the facts of the case.

Analysis: The appellant had been filing classification declarations disclosing the nature of the goods and the exemption claimed. Earlier proceedings had already been taken in relation to the same line of allegations, and the later notice did not rest on any substantial new material emerging after the earlier proceedings. In these circumstances, the ingredients required for invoking the extended period were not established.

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

Final Conclusion: The impugned demand and penalty could not be sustained, and the appeals succeeded.

Ratio Decidendi: A charge of clandestine removal must be supported by tangible, corroborative evidence of actual manufacture, removal and consideration, and the extended limitation period cannot be invoked where the assessee has disclosed the nature of the goods and no fresh incriminating material is shown.

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