Clandestine removal demands need corroborative evidence; return discrepancies alone and stale audit-based claims cannot justify extended limitation.

Clandestine removal cannot be sustained solely on discrepancies between VAT returns and ER-1 returns; positive, tangible and corroborative evidence is required, and documentary reconciliation such as a Chartered Accountant's certificate and supporting records must be considered. On the facts described, the reconciliation explaining trading activity, non-excisable sales, removal of inputs as such and sale of fixed assets defeated the allegation. The extended period of limitation also was unavailable because the Department relied on material already available from audit and statutory records, without independent proof of suppression. The demand and penalty were therefore set aside.

---

---

Issues: (i) Whether clandestine removal of goods could be alleged merely on comparison of VAT returns and ER-1 returns, and whether the documentary reconciliation produced by the appellant had to be considered; (ii) whether the extended period of limitation was invocable on the facts of the case.

Issue (i): Whether clandestine removal of goods could be alleged merely on comparison of VAT returns and ER-1 returns, and whether the documentary reconciliation produced by the appellant had to be considered.

Analysis: The demand was founded only on differential values between VAT returns and ER-1 returns. The appellant produced a Chartered Accountant's certificate and supporting records showing trading activity, sale of non-excisable goods, removal of inputs as such, sale of fixed assets, and other reconciliations explaining the differences. A charge of clandestine removal requires positive, tangible, and corroborative evidence, and cannot rest on assumptions or comparison of returns alone. The documentary material placed before the adjudicating authority was relevant evidence and could not be ignored without rebuttal.

Conclusion: The allegation of clandestine removal was not sustainable and this issue was answered in favour of the appellant.

Issue (ii): Whether the extended period of limitation was invocable on the facts of the case.

Analysis: The spot audit memo was issued in 2014 and the show cause notice was issued only in 2017, although the demand itself was based on records and information already available with the Department. Where the alleged suppression is inferred from audited statutory records and no independent evidence of clandestine activity is established, the extended period cannot be invoked.

Conclusion: The extended period of limitation was not invocable and this issue was answered in favour of the appellant.

Final Conclusion: The demand and penalty were unsustainable, and the impugned order was set aside.

Ratio Decidendi: A demand alleging clandestine removal cannot be sustained solely on the basis of discrepancies between statutory returns unless supported by corroborative evidence, and the extended period of limitation is not available when the Department relies only on material already within its knowledge through audit or statutory records.

---