Clandestine removal can be proved by parallel records and corroborative statements, with penalties reduced where duty was largely paid before notice.

Entries in parallel invoice books, delivery challans and note books can support a finding of clandestine removal when corroborated by statements of the director, consignees, transporters and drivers, and by evidence of receipt of goods without duty payment. Non-response by some consignees does not, by itself, displace a broader evidentiary pattern showing a common modus operandi. Allegations of clandestine removal also justify invocation of the extended limitation period, and a limitation plea fails where the investigation was not shown to have concluded earlier. Where a substantial part of the duty is paid before the show cause notice, penalties under Section 11AC may be reduced, and penalties on involved directors under Rule 209A may also be scaled down on the facts.

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Issues: (i) Whether the demand based on entries in parallel invoice books, delivery challans and note books was sustainable as proof of clandestine removal; (ii) whether the show cause notice was barred by limitation; and (iii) whether the penalties imposed under Section 11AC and Rule 209A required reduction.

Issue (i): Whether the demand based on entries in parallel invoice books, delivery challans and note books was sustainable as proof of clandestine removal.

Analysis: The entries in the recovered records were supported by the director's statement, statements of consignees, transporters and drivers, and by evidence showing receipt of goods without duty payment. The fact that some consignees did not respond to summons did not displace the overall evidentiary pattern where the same records disclosed a common modus operandi and part of the clandestine clearances stood admitted and proved.

Conclusion: The demand of duty was sustained against the assessee.

Issue (ii): Whether the show cause notice was barred by limitation.

Analysis: The allegations related to clandestine removal, attracting the extended period. The plea that investigation had concluded on an earlier date was not supported by evidence, and the continuing efforts to summon consignees showed that the investigation had not been conclusively shown to be over within the period relied upon by the assessee.

Conclusion: The limitation challenge was rejected.

Issue (iii): Whether the penalties imposed under Section 11AC and Rule 209A required reduction.

Analysis: Since a substantial part of the duty had been paid before the show cause notice, the penalty under Section 11AC was reduced in light of the Delhi High Court decisions relied upon. The directors were found actively involved in the clandestine clearances, so penalty under Rule 209A was justified, but the quantum was reduced on the facts.

Conclusion: The penalties were reduced to Rs. 12 lakhs on the assessee and Rs. 1 lakh each on the directors.

Final Conclusion: The duty demand and the finding of clandestine removals were upheld, but the penalties were scaled down, resulting in only partial relief to the assessee.

Ratio Decidendi: In cases of clandestine removal, entries in parallel statutory records may be corroborated by surrounding statements and conduct, and partial non-verification of individual entries does not defeat the demand where the overall modus operandi is established; penalty may be reduced where duty is substantially paid before notice.

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