Section 9D compliance and corroborative evidence are essential before relying on excise statements, clandestine removal claims, or Rule 26 penalty.

Statements recorded during excise investigation are admissible only if the mandatory procedure under Section 9D is followed, including examination of the maker as a witness and compliance with the statutory safeguard before reliance is placed on the statement; otherwise, denial of cross-examination and evidentiary reliance is impermissible. Allegations of clandestine procurement, manufacture, and clearance must be supported by tangible, corroborative evidence such as reliable records, excess stock, or independent material, not suspicion or untested statements. Penalty under Rule 26 requires a prior finding that the goods were liable to confiscation; without that foundational finding, the penalty cannot be sustained.

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Issues: (i) Whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and denial of cross-examination; (ii) Whether the alleged clandestine procurement of raw tobacco and clandestine manufacture and clearance of finished goods were established on the evidence; (iii) Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be imposed in the absence of a finding that the goods were liable to confiscation.

Issue (i): Whether statements recorded under Section 14 of the Central Excise Act, 1944 could be relied upon without compliance with Section 9D of the Central Excise Act, 1944 and denial of cross-examination.

Analysis: Section 9D makes statements recorded during inquiry relevant only when the statutory procedure is followed. The person whose statement is relied upon must be examined as a witness before the adjudicating authority, and an opinion must be formed that the statement should be admitted in evidence in the interests of justice. Only thereafter can cross-examination arise. Since the department did not follow this procedure, the statements recorded under Section 14 could not be treated as admissible evidence for proving the allegations.

Conclusion: The reliance on such statements was impermissible and the challenge on this ground succeeded.

Issue (ii): Whether the alleged clandestine procurement of raw tobacco and clandestine manufacture and clearance of finished goods were established on the evidence.

Analysis: A charge of clandestine removal must rest on tangible and corroborative evidence, not on suspicion, assumptions, or untested statements. The record did not disclose reliable documentary support showing unaccounted procurement, excess production, excess consumption of inputs, or actual unrecorded removals. The alleged check-post discrepancies were explained as data-entry errors, and no excess stock or other independent material was found to substantiate clandestine manufacture or clearance.

Conclusion: The allegations of clandestine procurement and clandestine removal were not proved.

Issue (iii): Whether penalty under Rule 26 of the Central Excise Rules, 2002 could be imposed in the absence of a finding that the goods were liable to confiscation.

Analysis: Rule 26 applies only where a person deals with excisable goods knowing or having reason to believe that they are liable to confiscation. The impugned order did not record a substantive finding that the goods were liable to confiscation, and such liability cannot be inferred only while imposing penalty. Without that foundational finding, the precondition for Rule 26 penalty was absent.

Conclusion: The penalty under Rule 26 was unsustainable.

Final Conclusion: The demand of duty and the penalties were set aside, and the connected appeals were allowed.

Ratio Decidendi: Statements recorded during excise investigation are not admissible to prove the truth of their contents unless the mandatory procedure under Section 9D is followed, and penalty under Rule 26 cannot be sustained without a prior finding that the goods were liable to confiscation.

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