Disclosed removals under excise procedure cannot attract duty, extended limitation, or penalty without suppression or clandestine clearance.

Removals of cotton yarn under Rule 96E to the same manufacturer's units, when supported by AR-3A forms, challans, re-warehousing acknowledgments and monthly returns, were treated as properly disclosed movements rather than clandestine clearances, so duty could not be confirmed merely because the department viewed the procedure differently. The extended limitation period was unavailable because the clearances were reflected in prescribed records and there was no suppression or wilful misstatement, making the demand time-barred. Once the demand failed on merits and limitation, penalty could not survive. The demand and penalties were therefore set aside.

---

---

Issues: (i) Whether removal of processed cotton yarn to the assessee's own units under Rule 96E attracted duty when the goods were processed for export or for further manufacture and the movements were recorded in the prescribed documents. (ii) Whether the demand was barred by limitation under the extended period in the absence of suppression or misstatement. (iii) Whether penalty was imposable.

Issue (i): Whether removal of processed cotton yarn to the assessee's own units under Rule 96E attracted duty when the goods were processed for export or for further manufacture and the movements were recorded in the prescribed documents.

Analysis: Rule 96E permitted removal of cotton yarn from one factory to another for processing or for manufacture of cotton fabrics. The units to which the yarn was sent belonged to the same manufacturer, the removals were covered by AR-3A forms and related challans, re-warehousing acknowledgments were obtained, and monthly returns were filed. A substantial part of the resultant goods was exported, and the balance domestic clearances were shown as duty paid. On these facts, the removals could not be treated as clandestine or as giving rise to duty liability merely because the departmental view on the procedure differed.

Conclusion: The duty demand on the removals was not sustainable, and the finding is in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation under the extended period in the absence of suppression or misstatement.

Analysis: The clearances were made during 1998 to 2000, the department investigated in November 2000, and the show cause notice was issued only on 30-10-2003. The removals had been declared in the prescribed documents and reflected in monthly returns, so the facts were within the department's knowledge. In the absence of suppression or wilful misstatement, the extended period could not be invoked.

Conclusion: The demand was time-barred, and this issue is in favour of the assessee.

Issue (iii): Whether penalty was imposable.

Analysis: Once the demand itself was unsustainable on merits and barred by limitation, the foundation for penalty did not survive. The record also did not justify penal action on the basis of the disclosed procedural irregularity.

Conclusion: Penalty was not imposable, and this issue is in favour of the assessee.

Final Conclusion: The demand and penalties were set aside, and the appeal was allowed with consequential relief.

Ratio Decidendi: When removals of goods under a prescribed excise procedure are fully disclosed through statutory documents and returns, duty cannot be confirmed merely for procedural deviation, the extended limitation period cannot be invoked without suppression, and penalty cannot survive once the demand fails.

---