Excise evidence and statement admissibility: conversion documents prevailed, and alleged clandestine clearance failed for lack of proof.

Statutory conversion documents and departmental acknowledgments showing yarn sent for conversion under excise procedure could not be disregarded merely because of limited vehicle-number discrepancies or a Range Officer's statement about non-verification. Statements of buyers and job workers were also unreliable unless proved in compliance with Section 9D of the Central Excise Act, 1944, so they could not be used as substantive evidence against the assessee. On the overall record, including the absence of a reeling machine and payment of conversion charges, the evidence supported lawful conversion into hank yarn rather than clandestine removal, making the demand and penalties unsustainable.

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Issues: Whether the demand of duty and penalty was sustainable on the allegation that cheese/cone yarn was cleared in the guise of hank yarn, and whether the department could rely on statements and transport documents without complying with the statutory requirement governing admissibility of recorded statements.

Analysis: The dispute turned on whether the assessee had sent cotton yarn for conversion into hank yarn under the prescribed excise procedure and received it back after conversion, or whether the entire documentation was sham and the clearances were clandestine. The record contained AR-3A documents, D3 intimations, and other statutory papers showing movement of yarn for conversion under departmental intimation. The department sought to discredit those documents mainly through the Range Officer's statement that no physical verification had been conducted and through alleged discrepancies in vehicle numbers. The Tribunal held that the statutory documents and departmental acknowledgments could not be ignored on that basis, especially when only a small number of vehicle-number entries out of a large batch were shown to be incorrect and the explanation of inadvertent error was plausible. The Tribunal also found that the statements of buyers and job workers could not be used against the assessee when the makers of those statements were not effectively examined in adjudication, since Section 9D of the Central Excise Act, 1944 requires compliance with the prescribed procedure before such statements can be relied upon as evidence. The Tribunal further noticed that the assessee had no reeling machine, that conversion charges were paid to job workers, and that the evidence overall supported conversion into hank yarn rather than clandestine removal.

Conclusion: The allegation of clandestine clearance was not established, the demand and penalties were unsustainable, and the appeal was allowed with consequential relief.

Ratio Decidendi: Statements recorded during investigation cannot be relied upon as substantive evidence unless they are proved in accordance with the statutory procedure for admissibility, and duly issued excise conversion documents cannot be discarded on conjecture or minor clerical discrepancies when the overall evidence supports lawful manufacture and conversion.

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