Extended limitation and clandestine removal fail where duty-paid records support clearance and no intent to evade is proved.

Extended limitation could not be invoked absent evidence of intent to evade duty, because the receiving units had taken credit on duty-paid documents and corresponding RG 23A entries, showing no commercial or revenue motive to suppress duty. Clandestine removal of green tyres was also not established, since the Department's evidence was found contradictory and the existence of marked tyres alone did not prove prior unlawful clearances. The duty-paying documents and verified records supported the appellants' version, so disallowance of Modvat credit and the related penalties were not justified.

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Issues: (i) Whether the demand of duty was barred by limitation under the extended period; (ii) Whether the Department proved clandestine removal of green tyres and whether Modvat credit taken by the receiving units was liable to be disallowed.

Issue (i): Whether the demand of duty was barred by limitation under the extended period.

Analysis: The demand was founded on the allegation that green tyres had been cleared as tread rubber, rubber sheets with textile material, and beads, but the material on record showed that the receiving units had taken credit on duty-paid documents and corresponding RG 23A entries. If the duty paid by the manufacturer was available as Modvat credit to the recipient units, there was no commercial or revenue motive to evade duty. In the absence of intention to evade payment, the ingredients for invoking the extended period were not established.

Conclusion: The extended period of limitation was not invocable, and the demand was barred by limitation.

Issue (ii): Whether the Department proved clandestine removal of green tyres and whether Modvat credit taken by the receiving units was liable to be disallowed.

Analysis: Clandestine removal must be proved by cogent evidence. The record relied upon by the Department was found contradictory, and the existence of 52 BCL-marked tyres was not enough by itself to prove prior clandestine clearances. The duty-paying documents, the RG 23A Part-I and Part-II entries, and the departmental verification of those records supported the appellants' version that tread rubber, rubber sheets, beads and related inputs had been supplied and received. The Department failed to show that the entries were false or that the verification was incorrect.

Conclusion: Clandestine removal was not proved, and disallowance of Modvat credit was unjustified.

Final Conclusion: The appellants succeeded on limitation as well as on merits, and the duty demand, credit disallowance, and penalties did not survive.

Ratio Decidendi: A demand under the extended period cannot be sustained absent proof of intention to evade duty, and allegations of clandestine removal must be established by cogent evidence rather than suspicion.

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