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2025 (6) TMI 613 - AT - CustomsLevy of penalty u/s 114 and 112 of the Customs Act 1962 - export of CD-ROMs under Duty Entitlement Pass Book DEPB Scheme - overvaluation of goods to wrongly avail DEPB scrips - evasion of customs duty - reliability upon the statements made by the appellant and other persons under section 108 of the Customs Act - HELD THAT - A perusal of the impugned order so far as it relates to the appellant shows that it has placed reliance upon the statements made by the appellant and other persons under section 108 of the Customs Act that he was involved in the export of CD-ROMs to confer undue benefit upon Sundram Exports and Netcompware. The statements made under section 108 of the Customs Act cannot be relied upon if the procedure followed under section 138B of the Customs Act is not followed. This is what was held by the Tribunal in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner CGST Raipur 2025 (4) TMI 441 - CESTAT NEW DELHI . The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act 1944 and observed What therefore follows is that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain. Except for the statements made under section 108 of the Customs Act there is no other evidence which has been considered by the Commissioner in the impugned order for imposing penalty upon the appellant under sections 114 and 112 of the Customs Act. As these statements cannot be relied upon the imposition of penalty upon the appellant under sections 114 and 112 of the Customs Act cannot be sustained and is set aside. In the present case the goods had been exported and therefore the goods could not have been confiscated under section 113(d) of the Customs Act. Penalty under section 114 of the Customs Act can be levied only if the goods are held liable to confiscation under section 113 of the Customs Act. As the confiscation cannot be sustained penalty under section 114 of the Customs Act cannot also be sustained. Conclusion - i) The statements made under section 108 of the Customs Act cannot be relied upon if the procedure followed under section 138B of the Customs Act is not followed. ii) The impugned order dated 31.01.2006 passed by the Commissioner in so far as it imposes penalty upon the appellant under sections 114 and 112 of the Customs Act is set aside. Appeal allowed.
The core legal questions considered by the Tribunal in this appeal are:
(i) Whether the statements recorded under section 108 of the Customs Act, 1962 can be relied upon as evidence for imposing penalty under sections 114 and 112 of the Customs Act without following the procedure prescribed under section 138B of the Customs Act; (ii) Whether the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 are applicable for re-determining the value of goods once they have been exported; (iii) Whether the appellant was involved in the fraudulent export of overvalued CD-ROMs to obtain undue benefit under the Duty Entitlement Pass Book (DEPB) Scheme; (iv) Whether the goods exported could be confiscated under section 113(d) of the Customs Act, which deals with attempted improper export; (v) Whether penalty under section 114 of the Customs Act can be imposed if confiscation of goods under section 113 is not sustainable. Issue-wise detailed analysis: 1. Admissibility and Reliance on Statements under Section 108 vis-`a-vis Section 138B of the Customs Act The Tribunal extensively examined the interplay between sections 108 and 138B of the Customs Act. Section 108 empowers Customs officers to record statements during inquiry or investigation, while section 138B governs the admissibility of such statements as evidence in adjudication proceedings. Precedents and legal framework relied upon include the Tribunal's earlier judgments and various High Court rulings, particularly the decision in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur, and the Tribunal's decision in M/s. Drolia Electrosteel P. Ltd. vs. Commissioner, Customs, Central Excise & Service Tax, Raipur. These authorities hold that statements recorded under section 108 cannot be directly relied upon unless the procedural safeguards under section 138B are strictly complied with. The procedure under section 138B mandates that the person who made the statement must be examined as a witness before the adjudicating authority, who must then form an opinion that the statement should be admitted in evidence in the interests of justice. Only after this admission can the opposing party be given an opportunity to cross-examine the witness. This procedure is mandatory and is designed to guard against coercion or compulsion in recording statements during investigation. In the present case, the Commissioner relied solely on the statements recorded under section 108 without following the procedure under section 138B. The Tribunal found that none of the persons who made statements were examined as witnesses before the adjudicating authority, nor was any opinion formed regarding admissibility. Consequently, these statements were held to be inadmissible as evidence. The Tribunal emphasized the rationale behind this safeguard, noting that statements made under coercion cannot be relied upon, and the statutory procedure ensures fairness and reliability in evidence. The appellant's contention that the statements could not be relied upon was thus upheld, leading to the conclusion that the penalty imposed based solely on these statements could not be sustained. 2. Applicability of Customs Valuation Rules to Exported Goods The appellant argued that once goods have been exported, they do not fall within the definition of "export goods" under section 2(19) of the Customs Act, and therefore the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 cannot be invoked to re-determine their valuation. The appellant relied on a High Court judgment supporting this view. The Tribunal, while noting this submission, did not base its decision on this issue as the core challenge was to the admissibility of evidence. Hence, this issue was not conclusively decided but was considered relevant to the context of valuation and penalty. 3. Involvement of the Appellant in Fraudulent Export and Availment of DEPB Benefits The department alleged that the appellant conspired with others to export overvalued CD-ROMs under the DEPB scheme to fraudulently obtain scrips, which were then sold in the open market and used to evade customs duty. The Commissioner's order relied on statements under section 108 to establish the appellant's involvement in procuring DEPB licenses and selling them. The appellant denied any such involvement, claiming to be only a mediator or broker in procurement of material, not an exporter or beneficiary. He also denied any connection with one of the exporters, Netcompware. The Tribunal found that the Commissioner's findings were entirely based on inadmissible statements under section 108. No independent or corroborative evidence was brought on record to establish the appellant's complicity. Therefore, the Tribunal held that the imposition of penalty on the basis of these statements was unsustainable. 4. Confiscation of Goods under Section 113(d) of the Customs Act Section 113(d) provides for confiscation of goods "attempted to be exported" contrary to prohibitions under the Act. The Tribunal noted that in the present case, the goods had already been exported and thus could not be confiscated under section 113(d), which applies only to attempted improper export. This finding was significant because penalty under section 114 can be imposed only if goods are liable to confiscation under section 113. Since confiscation was not sustainable, penalty under section 114 also could not be sustained. 5. Imposition of Penalty under Sections 114 and 112 of the Customs Act Section 114 imposes penalty for knowingly assisting in wrongful acts under the Customs Act, while section 112 provides for penalty for certain offences including fraud or evasion of duty. The Commissioner imposed a penalty of Rs. 20 lakhs on the appellant under these provisions based on the findings of fraudulent export and involvement in DEPB scrip misuse. However, as the Tribunal found that the evidence relied upon was inadmissible and the confiscation of goods was not sustainable, the penalty was set aside. The Tribunal concluded that the appellant could not be held liable for penalty without admissible evidence and proper findings on confiscation. Treatment of Competing Arguments The appellant's arguments centered on procedural safeguards for evidence admissibility and lack of substantive evidence connecting him to the fraudulent acts. The department defended the penalty relying on the statements and the overall scheme of fraudulent export and misuse of DEPB scrips. The Tribunal gave primacy to statutory procedural requirements and precedent emphasizing fairness and the mandatory nature of section 138B safeguards. It rejected the department's reliance on statements recorded during investigation without following due process. The Tribunal also clarified the legal scope of confiscation under section 113(d) and its nexus with penalty under section 114. Significant holdings and core principles established: "The statements made under section 108 of the Customs Act cannot be relied upon if the procedure followed under section 138B of the Customs Act is not followed." "The provisions of section 9D of the Central Excise Act and section 138B of the Customs Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 14D of the Central Excise Act or under section 108 of the Customs Act." "The goods had been exported and, therefore, the goods could not have been confiscated under section 113(d) of the Customs Act." "Penalty under section 114 of the Customs Act can be levied only if the goods are held liable to confiscation under section 113 of the Customs Act." "The imposition of penalty upon the appellant under sections 114 and 112 of the Customs Act cannot be sustained and is set aside." The Tribunal's final determination was to allow the appeal, set aside the penalty imposed on the appellant, and hold that the impugned order was unsustainable due to lack of admissible evidence and improper application of law regarding confiscation and penalty.
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