Clandestine removal and limitation under Central Excise Rules: penalty and short-levied duty demand fail where duty was paid and delay barred recovery.

Penalty under Rule 9(2) of the Central Excise Rules is attracted only where goods are clandestinely removed in an attempt to evade duty; where duty has been paid, accepted by the department, and removal is permitted, the penalty is not leviable. Recovery of differential duty described as short-levied duty must also be initiated within the limitation period under Rule 10, and a demand raised beyond the prescribed three months is time-barred. The note states that the impugned orders could not stand on either ground.

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Issues: (i) Whether penalty under Rule 9(2) of the Central Excise Rules could be imposed when the goods were removed after payment and acceptance of duty; (ii) Whether recovery of differential duty was barred by limitation under Rule 10 of the Central Excise Rules.

Issue (i): Whether penalty under Rule 9(2) of the Central Excise Rules could be imposed when the goods were removed after payment and acceptance of duty.

Analysis: A contravention of Rule 9 arises only where there is an attempted evasion of duty by clandestine removal of goods. Where duty has been paid, accepted by the department, and removal of the goods is permitted, there is no clandestine removal or attempted evasion. In such circumstances, the penalty provision does not apply.

Conclusion: Penalty under Rule 9(2) was not leviable and the order imposing penalty was illegal.

Issue (ii): Whether recovery of differential duty was barred by limitation under Rule 10 of the Central Excise Rules.

Analysis: The duty had in fact been paid and accepted, but at a short-levied rate because the department had proceeded on the mistaken view that the special procedure applied. The later demand was, in substance, for recovery of short-levied duty. As proceedings were initiated beyond the prescribed period of three months, the demand was time-barred.

Conclusion: Recovery of the differential duty was barred by limitation under Rule 10.

Final Conclusion: The impugned orders could not be sustained either on the ground of penalty or on the ground of recovery of duty, and the petitions were allowed with costs.

Ratio Decidendi: Penalty under Rule 9 is attracted only where duty evasion is attempted through clandestine removal, and a demand for short-levied duty must be raised within the limitation period prescribed by Rule 10.

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