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Issues: (i) Whether the demand of central excise duty based on alleged clandestine removal was sustainable when the stock discrepancy was founded mainly on eye estimation, statements, and uncorrelated documents, and (ii) whether the extended period of limitation could be invoked on the basis of suppression of facts.
Issue (i): Whether the demand of central excise duty based on alleged clandestine removal was sustainable when the stock discrepancy was founded mainly on eye estimation, statements, and uncorrelated documents.
Analysis: The confirmation of demand rested principally on stock verification by eye estimation, statements recorded during investigation, and an inference that the supporting job-work documents were an afterthought. The appellant had produced documents at the reply stage explaining the alleged shortage and showing that the goods were with a job worker. Those documents were not effectively correlated with the departmental material. The legal position applied was that clandestine removal is a serious charge and must be established by cogent, tangible, and corroborative evidence, not by presumption, estimation, or unverified statements alone. In the absence of evidence of procurement of raw material, excessive production, transport without invoices, sale proceeds, electricity consumption, or other corroborating circumstances, the charge was not proved.
Conclusion: The demand based on alleged clandestine removal was not sustainable and was decided in favour of the assessee.
Issue (ii): Whether the extended period of limitation could be invoked on the basis of suppression of facts.
Analysis: The appellant had been filing monthly ER returns, and the Department was already aware of the relevant facts. The only omission relied upon was the delayed declaration concerning job work. The governing principle applied was that mere failure to declare does not amount to wilful suppression; there must be deliberate withholding of information or a positive act intended to evade duty. On the facts, the omission did not amount to suppression, and the extended period could not be justified.
Conclusion: The extended period of limitation was not invocable and this issue was decided in favour of the assessee.
Final Conclusion: The impugned demand and penalty were set aside because the alleged clandestine removal was not proved by reliable evidence and the extended limitation period was unavailable.
Ratio Decidendi: A demand for clandestine removal cannot be sustained on mere presumption, eye estimation, or uncorroborated statements, and the extended period of limitation requires proof of wilful suppression by positive conduct.
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