Clandestine manufacture requires cogent proof; bank letters alone could not sustain excise demand or penalty.

Clandestine manufacture of wires and cables was not proved because the department relied only on bank correspondence and stock statements, without direct evidence, corroborative proof of production, licence status, power connection, or statements from persons involved in manufacture; the demand and penalty were therefore unsustainable. The plea of limitation under section 40(2) of the Central Excises and Salt Act, 1944 also failed because that provision was held applicable only to court proceedings, not to departmental assessment and recovery proceedings. The appeal succeeded overall, and the duty demand and penalty were set aside on the failure to establish manufacture.

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Issues: (i) Whether the department had established that the appellant manufactured wires and cables without licence and without payment of duty; (ii) whether the proceedings were barred by limitation under section 40(2) of the Central Excises and Salt Act, 1944.

Issue (i): Whether the department had established that the appellant manufactured wires and cables without licence and without payment of duty.

Analysis: There was no direct evidence of manufacture. The appellant had consistently denied manufacturing activity from the earliest statement onward. The only material relied upon by the department consisted of bank correspondence and stock statements, which did not show any personal knowledge of actual production or any inspection of manufacturing operations. In the absence of corroborative evidence such as proof of licence, power connection, or statements of persons engaged in manufacture, the inference of manufacture could not be sustained solely on those bank letters.

Conclusion: The finding of clandestine manufacture was not proved and the demand and penalty could not be sustained; this issue is decided in favour of the assessee.

Issue (ii): Whether the proceedings were barred by limitation under section 40(2) of the Central Excises and Salt Act, 1944.

Analysis: The Tribunal accepted the view that section 40(2) did not apply to departmental proceedings for quantification and recovery of duty, and that the limitation bar contemplated by that provision could be invoked only in proceedings before a court of law. On that basis, the appellant could not succeed on the plea of limitation.

Conclusion: The limitation objection failed and this issue was decided against the assessee.

Final Conclusion: The appeal succeeded because the alleged manufacture was not proved, and the duty demand and penalty based on that premise were set aside notwithstanding the failure of the limitation plea.

Ratio Decidendi: A duty demand based on alleged clandestine manufacture cannot be sustained without cogent evidence of actual manufacture, and section 40(2) of the Central Excises and Salt Act, 1944 does not bar departmental proceedings for assessment and recovery of duty.

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