2025 (6) TMI 1286 - AT - Customs

Under valuation of imported goods with an intention to evade customs duty - redetermination of assessable value u/s 14(1) of the Customs Act 1962 - demand of differential duty on the imported goods - confiscation of goods - imposition of penalty - HELD THAT - The issue of enhancement of value on the basis of the computer print-outs documents taken from the premises of M/s Winsor Enterprises by DRI are the same as relied upon in a similar proceedings separately taken for their sister concern M/s i.e. Plastic Cottage Trading Co. and statements of the partners of the appellant company given before DRI which were retracted by them are also a part of the same investigation. These were examined by the Co-ordinate Bench of this Tribunal in the case of Junaid Kudia Vs. Commissioner of Customs Mumbai Import-II 2023 (9) TMI 22 - CESTAT MUMBAI wherein it was held that the demand of differential duty by enhancing the assessable value and consequential imposition of penalty are not legally sustainable. Conclusion - On the basis of the order passed by the Tribunal in the case of Junaid Kudia Vs. Commissioner of Customs Mumbai Import-II arising on the basis of same investigation the confirmation of differential duty along with interest confiscation of the impugned goods and imposition of penalty on the appellants by the learned Commissioner of Customs vide impugned order dated 21.08.2020 does not stand the legal scrutiny. The impugned order dated 21.08.2020 passed by the learned adjudicating authority is set aside - Appeal allowed.

The core legal questions considered by the Tribunal in this matter are:

1. Whether the demand of differential customs duty on imported goods on the ground of undervaluation is legally sustainable.

2. Whether the confiscation of the imported goods and the consequent imposition of penalties on the appellants and their partners are justified under the Customs Act, 1962.

3. Whether the electronic evidence in the form of computer printouts and emails recovered during the investigation is admissible and can be relied upon without compliance with the procedural safeguards prescribed under Section 138C of the Customs Act, 1962 (analogous to Section 65B of the Evidence Act, 1872).

4. Whether the statements recorded from the partners of the appellant company, which were subsequently retracted, can be relied upon to confirm the demand of duty and penalties.

5. Whether the adjudicating authority complied with the procedural requirements for examination and cross-examination of witnesses under Section 138B of the Customs Act, 1962.

6. Whether the reassessment of the declared assessable value, after the original assessment had attained finality (i.e., no appeal or review was filed against the original assessment), is permissible under the law.

Issue-wise detailed analysis:

1. Legality of Demand of Differential Customs Duty on Ground of Undervaluation

The appellants were alleged to have undervalued imported goods to evade customs duty. The Directorate of Revenue Intelligence (DRI) conducted investigation, recovered electronic documents (emails and invoices), and recorded statements from partners of the appellant company. Based on this, the adjudicating authority rejected the declared value and re-determined the assessable value, confirming differential duty along with penalties.

The Tribunal examined whether the demand for differential duty was sustainable. It noted that the main evidence for undervaluation was electronic documents and statements of partners, which were retracted. The Tribunal observed that no corroborative evidence was produced by the department to establish payment of excess amounts to suppliers or possession of such differential amounts by the appellants. The absence of such evidence undermined the claim of undervaluation.

Further, the Tribunal referred to a parallel case involving the appellants' sister concern, where similar allegations were rejected by the Tribunal and upheld by the Supreme Court. This precedent was applied to the present case, reinforcing the conclusion that the demand for differential duty was not legally sustainable.

2. Admissibility and Reliance on Electronic Evidence (Computer Printouts and Emails)

The DRI relied heavily on electronic evidence in the form of computer printouts of emails and invoices recovered during the search. The appellants challenged the admissibility of such evidence, arguing non-compliance with Section 138C of the Customs Act, 1962, which prescribes procedural safeguards for admitting electronic records as evidence, including the requirement of a certificate from a responsible official regarding the authenticity and manner of production of the electronic record.

The Tribunal analyzed the statutory provisions and relevant jurisprudence, notably the Supreme Court judgment in Anvar P.V. v. P.K. Basheer & Ors., which clarified that electronic records are admissible only if accompanied by a certificate under Section 65B of the Evidence Act, 1872 (parimateria to Section 138C of the Customs Act). The Tribunal found that in the present case, no such certificate was produced with the electronic documents, rendering them inadmissible as evidence.

The Tribunal further noted that the adjudicating authority had relied solely on these electronic documents without satisfying the statutory requirements, which constituted a fundamental procedural lapse. Consequently, the reliance on such electronic evidence to confirm the demand of duty was held to be legally impermissible.

The Tribunal distinguished a contrary decision cited by the Revenue, where electronic evidence was admitted based on admission of truth by the proprietor, by pointing out that the Supreme Court's binding precedent in Anvar P.V. was not considered in that case, and thus it was not applicable to the facts here.

3. Reliance on Statements of Partners and Procedural Compliance under Section 138B

The statements of the partners of the appellant company were recorded during the investigation but were later retracted. The appellants contended that such retracted statements cannot be relied upon. The adjudicating authority, however, disregarded the retractions and relied on the statements to confirm the demand.

The Tribunal held that reliance on retracted statements without considering the retraction was incorrect. Moreover, the Tribunal emphasized that statements alone cannot be the sole basis for confirming undervaluation and demand of duty. It also observed that the adjudicating authority failed to comply with the procedural safeguards under Section 138B of the Customs Act, which require examination and cross-examination of witnesses to establish the truth of statements. The absence of cross-examination invalidated the evidentiary value of the statements.

4. Legality of Confiscation and Imposition of Penalties

Since the demand of differential duty was held unsustainable, the consequential confiscation of goods and imposition of penalties under Sections 111, 112(a), 114A, and 114AA of the Customs Act were also found to be unjustified. The Tribunal relied on the principle that penalties and confiscation flow from the establishment of the primary charge of undervaluation and misdeclaration. Without a sustainable demand, penalties cannot stand.

5. Finality of Original Assessment and Prohibition on Reassessment

The Tribunal noted that the Bills of Entry for the imported goods had already been assessed and cleared upon payment of appropriate duty. No appeal or review was filed against these assessment orders, which had thus attained finality. The Tribunal held that re-determination or reassessment of the declared value after finality is impermissible under the law, citing relevant precedents. This principle further negated the Revenue's attempt to enhance the assessable value post-clearance.

6. Treatment of Competing Arguments

The appellants argued that the electronic evidence was inadmissible due to non-compliance with Section 138C, that statements were retracted and inadmissible without cross-examination, and that reassessment was barred by finality of original assessment. The Revenue contended that the electronic evidence was reliable, statements were admissible, and the demand was justified.

The Tribunal gave detailed consideration to both sides but found the appellants' submissions supported by statutory provisions and binding Supreme Court precedent more compelling. The Revenue's reliance on a contrary Tribunal decision was rejected due to non-consideration of the Supreme Court's ruling. The Tribunal also relied on the binding Supreme Court dismissal of the department's appeal in the sister concern's case, which involved identical issues and facts.

Significant holdings:

"Section 138C of the Customs Act, 1962, prescribes detailed procedural safeguards for the admissibility of electronic records as evidence, including the requirement of a certificate from a responsible official. Non-compliance with these requirements renders such electronic evidence inadmissible."

"The Supreme Court in Anvar P.V. has unequivocally held that electronic records cannot be admitted in evidence unless accompanied by a certificate as prescribed under Section 65B of the Evidence Act, 1872. This principle is binding and overrides any contrary precedents."

"Statements recorded during investigation, which are subsequently retracted, cannot be relied upon without considering the retraction and without affording the opportunity of cross-examination as mandated under Section 138B of the Customs Act."

"Once an original assessment of imported goods has attained finality due to non-appeal or non-review, the same cannot be reopened or reassessed to enhance the assessable value."

"The demand of differential customs duty, confiscation of goods, and imposition of penalties based on inadmissible electronic evidence and retracted statements without procedural compliance are not sustainable in law."

"The Tribunal's decision in the sister concern's case, upheld by the Hon'ble Supreme Court, is directly applicable and binding on the present case."

Final determinations:

The Tribunal set aside the impugned order dated 21.08.2020 passed by the Commissioner of Customs, which had confirmed the demand of differential customs duty, confiscated goods, and imposed penalties. The appeals filed by the appellants were allowed with consequential relief as per law. The Tribunal held that the demand of differential duty, confiscation, and penalties were not legally sustainable due to non-compliance with statutory evidentiary requirements, procedural lapses, lack of corroborative evidence, and the finality of the original assessment.

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