Clandestine removal assessment: limitation rejected, duty to be recomputed on cum-duty basis, and personal penalties set aside.

In a clandestine removal dispute, the limitation objection was rejected because the allegation was supported by subsequent investigation into procurement of tobacco, packing material and sales to dealers, and the later notice could not be defeated merely by reference to the earlier factory detection. The duty demand was remanded for recomputation on a cum-duty basis, as the realised sale consideration had to be treated as inclusive of duty and the duty element worked out accordingly. The penalties on the proprietor and the authorized signatory were set aside because a separate penalty on the proprietor would amount to double penalisation, and no evidence established the signatory's involvement in the clandestine activity.

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Issues: (i) Whether the demand was barred by limitation in a case alleging clandestine manufacture and removal; (ii) whether the duty was required to be recomputed by treating the sale consideration as cum-duty price; (iii) whether the penalty on the proprietor and the authorized signatory was sustainable.

Issue (i): Whether the demand was barred by limitation in a case alleging clandestine manufacture and removal.

Analysis: The allegation was not confined to the initial visit and panchnama, but was supported by subsequent investigation into procurement of tobacco and packing material and sales to dealers. In a matter involving clandestine activity, the later show cause notice could not be rejected merely on the basis of the earlier detection at the factory.

Conclusion: The limitation objection was rejected.

Issue (ii): Whether the duty was required to be recomputed by treating the sale consideration as cum-duty price.

Analysis: The consideration realised for the finished goods had to be treated as inclusive of duty, and the duty element was required to be worked out accordingly. The matter therefore required recalculation of the duty liability on the correct cum-duty basis.

Conclusion: The duty demand was remanded for recomputation on cum-duty basis.

Issue (iii): Whether the penalty on the proprietor and the authorized signatory was sustainable.

Analysis: Once penalty was already imposed on the proprietary unit, a separate penalty on the proprietor would amount to double penalisation. As regards the authorized signatory, no evidence was brought to establish involvement in the clandestine activity, so the benefit of doubt was warranted.

Conclusion: The penalty on the proprietor and the authorized signatory was set aside.

Final Conclusion: The finding of clandestine removal was maintained, but the quantum of duty was sent back for fresh computation and the personal penalties were deleted.

Ratio Decidendi: In clandestine removal cases, the duty element must be deducted from the gross sale price, and a separate personal penalty is unsustainable where it results in double penalisation or where involvement is not established.

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