Clandestine manufacture requires clinching corroboration; retracted statements and lack of buyer or transport evidence defeated the demand.

Clandestine manufacture and removal of TV sets was not proved because the department relied on retracted employee statements, uncorroborated recovery material, and premises features that did not establish raw material flow, buyers, transport, sale proceeds, or other clinching links. The demand therefore failed on merits. The show cause notice was also time-barred because the department had knowledge of the relevant facts from 2016, yet issued notice only in 2020; suppression could not justify invocation of the extended period. Duty, interest, and penalties were unsustainable, and the adjudication was set aside with consequential relief.

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Issues: (i) whether clandestine manufacture and removal of TV sets from the godown was established on the basis of the material relied upon by the department; (ii) whether the show cause notice was barred by limitation and the extended period could be invoked.

Issue (i): Whether clandestine manufacture and removal of TV sets from the godown was established on the basis of the material relied upon by the department.

Analysis: The department relied mainly on statements recorded under Section 14 of the Central Excise Act, 1944, statements recorded under Section 108 of the Customs Act, 1962, and certain recovered invoices and premises features such as tables, electrical points, cartons and TV parts. The statements of the employees were not found reliable because they were retracted in cross-examination and were not supported by independent corroboration. Mere presence of premises fittings, TV sets, parts, or bar codes did not constitute clinching evidence of assembly or clandestine clearance. The record also did not establish raw material flow, identified buyers of allegedly manufactured goods, transportation, sale proceeds, or any other corroborative link necessary to prove clandestine activity.

Conclusion: Clandestine manufacture and removal was not proved and the demand could not be sustained on merits.

Issue (ii): Whether the show cause notice was barred by limitation and the extended period could be invoked.

Analysis: The investigation had commenced in 2016 and the department was already aware of the relevant facts, yet the show cause notice was issued only in 2020. Once the facts forming the basis of the notice were within the department's knowledge, the allegation of suppression could not be used to justify invocation of the extended period. The notice was therefore hit by limitation independently of the failure on merits.

Conclusion: The extended period was not invokable and the show cause notice was time-barred.

Final Conclusion: The duty demand, interest and penalties were unsustainable, and the impugned adjudication was set aside with consequential relief.

Ratio Decidendi: Clandestine manufacture and removal must be proved by tangible, clinching and corroborative evidence, and once the department is already aware of the material facts, the extended limitation period cannot be invoked on a plea of suppression.

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