2025 (5) TMI 1626 - AT - Customs

Undervaluation - violating conditions of Notification No.25/1999 CUS as amended by Notification No.09/2004 - evasion of Customs duty -admissibility of evidence as printouts taken from CPU and the printouts of E-mail - Compliance of procedure laid down under Section 138C - Non-fulfilment of statutory requirements of Section 138B of the Customs Act - evidence of contemporaneous import on higher price - allegation of payment of amount through hawala over and above the value declared before customs - Reliability of evidences - Printouts taken from CPU and the printouts of E-mails - HELD THAT -Admittedly in this case the Appellant No.(1) was registered with the Central Excise department and followed the procedure as laid down in Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules 1996 and made an application with the Assistant Commissioner or Deputy Commissioner of Central Excise and the Assistant Commissioner or Deputy Commissioner of Central Excise has forwarded the said application to the Assistant Commissioner or Deputy Commissioner of Customs who allowed duty free and intimated the same to the Assistant Commissioner or Deputy Commissioner of Central Excise to endorse the receipt of the goods in the factory premises of the Appellant No.(1) and the Appellant No.(1) used these goods in manufacture of their final product which has been cleared by them and they were filing the Excise returns regularly. The same has been admitted by the concern Assistant Commissioner or Deputy Commissioner of Central Excise. In 2005/2006 all the appellants have dis-continued the manufacturing process and surrendered their registration to the Assistant Commissioner or Deputy Commissioner of Central Excise who accepted the surrender of the registration of the appellant and issued Discharge Certificate to the appellant. The investigations in this case have been started by the DRI in August 2007. At that time the appellants were not having manufacturing facility as they have surrendered the registration in 2005 or 2006 and discontinued manufacturing. The reason for denial of the Notification is that during the course of investigation the appellants were found non-existent. Therefore it cannot be said that the benefit of Notification No.25/1999 CUS dated 28.02.1999 as amended by Notification No.09/2004 dated 08.01.2004 can be denied to the appellants merely on the basis that the appellants were non-existent. Therefore the allegation that the appellants were having no manufacturing on the said premises at the time of search is not sustainable. The appellants were filing their Excise returns which shows that the appellants were having manufacturing facilities during the impugned period therefore the benefit of the Notification No.25/1999 CUS dated 28.02.1999 as amended by Notification No.09/2004 dated 08.01.2004 cannot be denied. In that circumstances the benefit of Notification No.25/1999 CUS dated 28.02.1999 as amended by Notification No.09/2004 dated 08.01.2004 cannot be denied to the appellants. Consequently no demand of duty can be raised against the Appellant No.(1) by denying the benefit of Notification No.25/1999 CUS dated 28.02.1999 as amended by Notification No.09/2004 dated 08.01.2004. In terms of Section 138B(1)(b) of the Customs Act 1962 the relevant portion is that when the person who made the statement is examined as a witness in the case before the court and the court is of opinion that having regard to the circumstances of the case the statement should be admitted in evidence in the interests of justice. In this case no such procedure has been followed that the statement which has been relied upon by the adjudicating authority were not examined In-Chief and when the witness has not been examined therefore the question of making an opinion of the admissibility of the said statement as an evidence does not arise. Consequently the statement recorded during the course of investigation cannot be relied upon without following the procedure laid down under Section 138B(1)(b) of the Customs Act 1962 as held by the judicial pronouncements cited above. In view of this we hold that the statement recorded during the course of investigation cannot be relied upon to allege under-valuation against the appellants. Admittedly the printouts taken from CPU and the printouts of E-mails have not been examined in terms of the procedure laid down under Section 138C of the Customs Act 1962, therefore the said documents are not admissible to allege the undervaluation against the appellants. We further take note of the facts that the charge of undervaluation is based only on the basis of some documents recovered during the course of investigation and the statements made by the appellants. The transaction value can be rejected if there is an evidence of contemporaneous import on higher price. The said issue has been examined by the Hon ble Apex Court in the case of Commissioner of Customs Calcutta Vs. South India Television (P) Limited 2007 (7) TMI 9 - SUPREME COURT . Admittedly no NIDB date has been relied upon and no marketing enquiry has been conducted to enhance the value of the imported goods. In the absence of these evidences the charge of undervaluation is not sustainable. In the absence of reliance of contemporaneous value declared by the independent buyers which is much lower than the value declared by the appellants the charge of undervaluation is not sustainable. As the duty has been demanded from the Appellant No.(1) on account of undervaluation and denial of benefit of Notification No.25/1999 CUS dated 28.02.1999 as amended by Notification No.09/2004 dated 08.01.2004 are not sustainable therefore whole of the demand of duty confirmed by way of impugned order is set aside. As the demand of duty is not sustainable consequently no penalty can be imposed on the appellants. We further take note of the facts that during the course of investigation an amount of Rs.1, 21, 73, 905/- was paid by the Appellant No.(1) the same is to be refunded to the Appellant No.(1) within 60 days from the date of receipt of this order. In these terms the appeals are disposed off.

Summary

The core legal questions considered in this case include:

(i) Whether the appellants were liable for evasion of Customs duty by undervaluation and violation of conditions of Notification No. 25/1999 - CUS dated 28.02.1999 as amended by Notification No. 09/2004 dated 08.01.2004;

(ii) Whether the benefit of Notification No. 25/1999 could be denied on the ground that the appellants had no manufacturing facilities at the time of investigation;

(iii) Whether the statements recorded during investigation could be relied upon in the absence of compliance with statutory procedures under Section 138B of the Customs Act, 1962;

(iv) Whether computer printouts and electronic evidence retrieved from seized devices were admissible without compliance with Section 138C of the Customs Act read with Section 65B of the Evidence Act, 1872;

(v) Whether the adjudication order was barred by limitation under Section 28(9) of the Customs Act, 1962;

(vi) Whether the demand of differential duty on account of undervaluation was sustainable in the absence of evidence of contemporaneous imports at higher prices;

(vii) Whether the appellants, particularly Appellant No.(1), could be held liable as the beneficial owner or importer for the duty demands raised on multiple firms;

(viii) Whether penalties imposed on the appellants were sustainable in view of the above issues;

(ix) Whether the principles of natural justice were violated by non-provision of relied upon documents (RUDs) as directed by the Hon'ble High Court and denial of cross-examination of witnesses whose statements were relied upon.

Issue-wise Detailed Analysis:

1. Denial of Benefit under Notification No. 25/1999 due to Alleged Non-Existence of Manufacturing Facility

The appellants were alleged to have violated the conditions of Notification No. 25/1999 by not having manufacturing facilities at the time of investigation. The investigation occurred in August 2007, but the appellants had surrendered their Central Excise registrations and discontinued manufacturing in 2005-2006. The relevant Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 require registration, application, bond execution, and maintenance of records to avail the benefit.

The Court noted that the appellants had complied with the procedural requirements during the relevant period, including registration, application, and filing of excise returns. The surrender of registration certificates and discontinuation of manufacturing occurred prior to the investigation. Therefore, the absence of manufacturing facilities at the time of search could not justify denial of the benefit. The Court emphasized that the benefit cannot be denied merely on the ground of non-existence of manufacturing at the time of investigation, especially when the appellants had complied with the statutory procedure and had manufacturing facilities during the relevant period.

Further, the Court observed that vital relied upon documents (RUD-29) related to imports and excise records were not supplied to the appellants, which could have corroborated their compliance. The non-supply of such documents violated principles of natural justice.

Conclusion: The denial of benefit under Notification No. 25/1999 on the ground of non-existence of manufacturing facilities at the time of investigation is not sustainable.

2. Reliance on Statements Recorded During Investigation Without Compliance with Section 138B of the Customs Act

The Department relied heavily on statements recorded during investigation to allege undervaluation and control over various firms by Appellant No.(1). The appellants contended that these statements were recorded under duress, retracted, and were not admissible as evidence without examination-in-chief and cross-examination as mandated under Section 138B (pari materia to Section 9D of the Central Excise Act).

The Court extensively reviewed judicial precedents, including decisions of this Tribunal and various High Courts, which uniformly hold that statements recorded during investigation are not admissible unless the person making the statement is examined as a witness in the adjudication proceedings and cross-examination is allowed. The Court noted that the adjudicating authority failed to comply with these mandatory procedural safeguards and relied on such statements without admitting them as evidence in accordance with law.

The Court also observed that requests for cross-examination were denied, and the statements were relied upon without following the statutory procedure, rendering them irrelevant and inadmissible.

Conclusion: Statements recorded during investigation without compliance with Section 138B are inadmissible and cannot form the basis for confirming duty demands.

3. Admissibility of Computer Printouts and Electronic Evidence Without Compliance with Section 138C of the Customs Act and Section 65B of the Evidence Act

The Department relied on documents retrieved from the CPU and email accounts seized during searches to support undervaluation allegations. The appellants challenged the admissibility of such electronic evidence, contending that the Department failed to produce the mandatory certificate under Section 138C of the Customs Act and Section 65B of the Evidence Act, which is a settled legal requirement for electronic evidence.

The Court analyzed the relevant statutory provisions and judicial pronouncements, including Supreme Court judgments in Anvar P.V. and Arjun Panditrao Khotkar, which mandate strict compliance with Section 65B for admissibility of electronic records. It was noted that the Department did not produce any certificate or comply with procedural safeguards, and the printouts were taken from hard disks not installed in the CPUs and without proper chain of custody or certification.

Therefore, the Court held that such electronic evidence was inadmissible and could not be relied upon to establish undervaluation or other allegations.

Conclusion: Electronic evidence without compliance with Section 138C and Section 65B is inadmissible and cannot support the Department's case.

4. Limitation and Delay in Passing the Adjudication Order

The adjudication order was passed more than fourteen years after issuance of the show cause notice. The appellants contended that the order was barred by limitation under Section 28(9) of the Customs Act, which requires adjudication within one year from the date of notice, extendable by one year by a senior officer, failing which proceedings are deemed concluded.

The Court referred to recent judicial pronouncements including the Delhi High Court's decision in Swatch Group India Pvt. Ltd. and this Tribunal's decisions, which emphasize that the statutory time limit is mandatory and cannot be extended indefinitely under the guise of "where it is possible to do so." The Court observed that even if the amended provisions applicable from 2018 were considered, the adjudication was still beyond the prescribed two-year period, excluding the call book period.

The Court held that the delay was inordinate and unjustified, and the adjudication order was time-barred and hence unsustainable.

Conclusion: The adjudication order passed after an inordinate delay of over fourteen years is barred by limitation and is liable to be set aside.

5. Allegation of Undervaluation and Need for Evidence of Contemporaneous Imports

The Department alleged undervaluation based on statements and documents recovered during investigation. The appellants contended that the transaction value declared was supported by contemporaneous imports and no independent market inquiry or NIDB data was relied upon by the Department. They argued that the Department failed to establish undervaluation as required under the Customs Valuation Rules, 1988 and Section 14 of the Customs Act.

The Court noted the settled legal position that transaction value can be rejected only if there is evidence of contemporaneous imports at higher prices. The Department failed to produce such evidence or conduct market inquiry. The Court also found that the Department erred in loading freight and insurance costs improperly in value determination.

The Court examined the comparative data submitted by appellants showing that declared values were comparable or close to contemporaneous imports and that the redetermined values were unrealistically high compared to actual sale prices.

Conclusion: The allegation of undervaluation is not sustainable in the absence of evidence of contemporaneous imports at higher prices and proper valuation procedures.

6. Liability of Appellant No.(1) as Importer or Beneficial Owner

The Department held Appellant No.(1) liable as the beneficial owner controlling various firms. The appellants argued that the concept of beneficial owner was not in existence during the relevant period and that each firm was a separate legal entity with its own IEC and import documentation. They contended that the demand could only be confirmed against the importer who filed the bill of entry.

The Court observed that during the relevant period, the definition of importer was limited to the person filing the bill of entry and holding IEC. The beneficial owner concept was introduced only from 2017 onwards. The Court held that the demand could not be confirmed against Appellant No.(1) as beneficial owner for imports made by other independent firms.

Conclusion: Appellant No.(1) cannot be held liable as beneficial owner or importer for duty demands raised on other firms during the relevant period.

7. Penalties Imposed on the Appellants

Since the demand of duty was set aside, the Court held that penalties imposed under Sections 114A, 112(a), and 112(b) of the Customs Act could not be sustained. The Court noted that penalties are ancillary to the main demand and cannot survive if the demand itself is unsustainable.

Conclusion: Penalties imposed on the appellants are not sustainable and are set aside.

8. Non-Provision of Relied Upon Documents (RUDs) and Violation of Principles of Natural Justice

The appellants repeatedly requested supply of relied upon documents as per the show cause notice and directions of the Hon'ble Calcutta High Court. The Department failed to provide certain vital documents (e.g., RUD-29 and RUD-50), which had direct bearing on the allegations. The adjudicating authority proceeded to pass the order without supplying these documents or allowing cross-examination of witnesses whose statements were relied upon.

The Court held that such conduct violated the principles of natural justice and rendered the adjudication proceedings unsustainable.

Conclusion: Failure to supply relied upon documents and denial of opportunity for cross-examination violate natural justice and vitiate the adjudication order.

9. Refund of Amount Deposited During Investigation

The appellants deposited a sum of Rs.1,21,73,905/- during investigation, which was appropriated towards duty demands. Since the demand was set aside, the Court ordered refund of the amount within 60 days.

Conclusion: The amount deposited by the appellants during investigation is to be refunded.

Significant Holdings:

"The denial of benefit under Notification No.25/1999 cannot be sustained merely on the ground that the appellants were non-existent or had no manufacturing facilities at the time of investigation, especially when they had complied with the statutory procedure during the relevant period."

"Statements recorded during investigation cannot be relied upon unless the person making the statement is examined as a witness in the adjudication proceedings and cross-examination is allowed, as mandated under Section 138B of the Customs Act."

"Electronic evidence including computer printouts and email printouts are inadmissible without compliance with Section 138C of the Customs Act read with Section 65B of the Evidence Act, including production of the requisite certificate."

"Adjudication orders passed beyond the statutory time limit prescribed under Section 28(9) of the Customs Act are barred by limitation and liable to be set aside."

"Allegations of undervaluation must be supported by evidence of contemporaneous imports at higher prices; mere suspicion or statements without corroboration are insufficient."

"The concept of beneficial owner was not applicable during the relevant period; liability for duty can only be fastened on the importer who filed the bill of entry."

"Penalties are ancillary to the main demand and cannot be sustained if the demand itself is set aside."

"Failure to provide relied upon documents and denial of cross-examination violate principles of natural justice and render the adjudication order unsustainable."

"Amounts deposited during investigation in respect of unsustainable demands are refundable."