Unrecorded processing demands require verifiable proof, not suspicion, where exemption turns on statutory declarations and processing conditions.

A duty demand based on alleged non-exempt fabric processing was not sustainable because the Revenue failed to produce specific, verifiable evidence of disqualifying operations. The record did not show any confirmed discrepancy in the D3 declarations, any identified lot of fabrics subjected to unrecorded processing, or supporting examination of intermediary records. The Tribunal noted that suspicion from ancillary charges could not substitute for proof of clandestine manufacture or ineligible processing, and that stentering was not shown on the technical material to be indispensable for the relevant man-made fabrics. The exemption claim therefore remained undisturbed.

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Issues: Whether the Revenue had established that the assessee undertook non-exempt processing operations so as to deny exemption and sustain the duty demand.

Analysis: The Revenue's case depended on showing that the assessee carried out processes beyond padding, calendaring and the processes covered by the relevant exemption notifications. The record, however, did not show any verified discrepancy in the statutory D3 declarations, nor any specific instance where a lot of fabrics received by the assessee underwent unrecorded or non-exempt processing. The absence of verification of the declarations, the absence of search or examination of the intermediary unit's records, and the lack of direct evidence of separate unrecorded processing weakened the demand. The Tribunal also noted that stentering was covered for cotton fabrics and, on the technical material placed on record, was not shown to be indispensable for the relevant man-made fabrics. Suspicion arising from the lignite and ancillary charges could not, without corroborative documentary evidence and statutory non-compliance, replace proof of clandestine manufacture or ineligible processing.

Conclusion: The Revenue failed to prove that the assessee had undertaken disqualifying processes or wrongly claimed exemption; the demand was therefore not sustainable.

Final Conclusion: The Revenue's challenge to the Commissioner's order did not succeed, and the assessee's exemption claim remained undisturbed.

Ratio Decidendi: A duty demand based on alleged unrecorded processing cannot be sustained on suspicion alone and must be supported by specific, verifiable evidence of non-compliance with statutory declarations and exemption conditions.

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