Clandestine removal through sham job-work records sustains duty demand, extended limitation, and major penalties; duplicative penalty set aside.

Where job-work documentation was found to be a sham, with stock shortages, post-facto invoices, absent transport records and corroborating admissions showing fabricated trails, the duty demands on alleged clearances were sustained as clandestine removal. The extended limitation period was also held invocable because the evidence showed suppression, misdeclaration and conscious collusion, so statutory intimations and returns did not defeat evasion findings. Penalties on the manufacturer and co-noticees were upheld as proportionate to the proved removal scheme, but the separate penalty under Rule 25 was set aside as duplicative.

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Issues: (i) whether the duty demands confirmed on shortages and on clearances routed through job workers were sustainable as cases of clandestine removal; (ii) whether the extended period of limitation was invocable; (iii) whether the penalties on the manufacturer and co-noticees were sustainable, including the separate penalty imposed on the manufacturer under Rule 25.

Issue (i): whether the duty demands confirmed on shortages and on clearances routed through job workers were sustainable as cases of clandestine removal.

Analysis: The physical stock discrepancy recorded at the time of surprise verification, the subsequent discovery of post-facto invoices, the absence of transport documents, the admissions made by the job workers and the corroborative statements of the manufacturer's own officers established that the clearances shown as sent for job-work conversion into hank yarn were not genuine. The records maintained under AR-3A, D-3 intimations and RG-1 entries were found to be only paper records created to support a false trail. The Board circular on protected demands for captive consumption or job-work conversion did not assist the assessee because the case was one of clandestine removal of cotton yarn under the guise of job work, not a bona fide exempt clearance.

Conclusion: The duty demands on shortages and on the alleged job-work clearances were rightly upheld.

Issue (ii): whether the extended period of limitation was invocable.

Analysis: The evidence showed suppression of the true nature of removals, fabrication of documents, misdeclaration in returns and conscious collusion with the job workers. In these circumstances, the assessee could not rely on mere filing of statutory intimations and returns to defeat the allegation of evasion. The foundation for invoking the proviso to the limitation provision was therefore made out.

Conclusion: The extended period of limitation was correctly invoked.

Issue (iii): whether the penalties on the manufacturer and co-noticees were sustainable, including the separate penalty imposed on the manufacturer under Rule 25.

Analysis: The equal penalty imposed on the manufacturer under the mandatory penal provision was sustained because the duty demand itself was upheld. However, the separate additional penalty under Rule 25 was not warranted in view of the equal penalty already imposed for the same evasion. The roles of the co-noticees were also established by the evidence, and their penalties were found proportionate to the proved scheme of removal.

Conclusion: The penalty on the manufacturer under the mandatory penal provision and the penalties on the co-noticees were sustained, but the separate penalty under Rule 25 was set aside.

Final Conclusion: The duty demand and the major penalties were sustained, the invocation of the extended period was upheld, and only the additional penalty on the manufacturer under Rule 25 was deleted.

Ratio Decidendi: Where documentary compliance under job-work procedure is shown to be a sham and the evidence establishes fabrication of records and clandestine removal, exemption and limitation defences fail and the duty demand with mandatory penalty can be sustained, while a separate duplicative penalty may be deleted.

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