Clandestine removal and limitation under central excise rules defeat a belated duty demand for cleared goods.

Rule 9(2) of the Central Excise Rules, 1944 applies only to clandestine removal of excisable goods, so it cannot sustain a demand where clearance occurred in the presence of the Central Excise Inspector and on prescribed AR 1 forms with the authorities' knowledge and consent. Any recovery for duty not levied or short levied in such circumstances must proceed under Rule 10, which required notice within six months from the relevant date. A notice issued nearly three years after clearance was therefore beyond time on that footing. The notice was held illegal and the demand unsustainable.

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Issues: Whether a notice issued under Rule 9(2) of the Central Excise Rules, 1944 could be sustained in respect of goods cleared with the knowledge and consent of the excise authorities, and whether the demand was barred by limitation if treated as one for short levy under Rule 10 of the Central Excise Rules, 1944.

Analysis: Rule 9(2) applies to clandestine removal of excisable goods. The goods in question were cleared from the factory in the presence of the Central Excise Inspector and on the basis of the prescribed AR 1 form, so the removal was not clandestine. Where goods are removed with the knowledge and consent of the authorities, Rule 9(2) cannot be invoked. The judgment further held that any demand for duty not levied or short levied would fall under Rule 10, which required notice within six months from the relevant date. As the notice was issued nearly three years after clearance, it was beyond time even on that footing.

Conclusion: The notice under Rule 9(2) was illegal and could not be sustained. The demand was also time-barred if tested under Rule 10. The decision was in favour of the petitioner.

Ratio Decidendi: Rule 9(2) applies only to clandestine removal, and where excisable goods are cleared with the knowledge and consent of the excise authorities, any recovery for short levy must be taken under the limitation-bound recovery provision.

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