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2025 (6) TMI 368 - AT - CustomsInvocation of jurisdiction under section 28AAA of the Customs Act without the Directorate General of Foreign Trade (DGFT) initiating or completing cancellation proceedings of the relevant export license or instrument - adjudication could be done as the DGFT did not cancel the instrument or not - HELD THAT - This issue was examined by the Delhi High Court in M/s Amit Exports. The Delhi High Court held that it was not possible to recognize a right that may be to said to inhere in the customs authority to doubt the issuance of the instrument. After referring to the FTP 2015-20 the Delhi High Court held that it provides in paragraph 2.57 that it would be the decision of the DGFT on all matters pertaining to interpretation of policy provisions in the handbook of procedures and so it would be impermissible for the customs authority to deprive a holder of the instrument the benefits that can be claimed absent any adjudication of declaration of invalidity by the DGFT. The impugned order is without jurisdiction as the DGFT has neither cancelled the instrument nor even initiated proceedings for cancellation of the instrument. The responsibility of the exporter does not end with obtaining the Let Export Order. In this case neither side produced before us the documents which were produced as proof that the goods reached the Focus Market. The Customs authorities investigating the matter should have summoned the relevant documents from the DGFT. Either the goods must have reached the Focus Market or if they were diverted the exporter may have submitted fake documents as proof of landing or the DGFT may have issued the scrips without obtaining the proof of landing. The impugned order however does not address this issue. Penalties u/s 114AA and section 114(iii) of the Customs Act - HELD THAT - The title of the goods passed to the buyer as soon as the Let Export Order was issued and the appellant was not responsible for any changes that may have been made in regard to the destination port. Section 114AA provides that if a person knowingly or intentionally makes signs or uses or causes to be made any material particular in the transaction of any business for the purposes of the Customs Act shall be liable to a penalty not exceeding five times the value of goods. The Principal Commissioner has relied upon the statement made under section 108 of the Customs Act that the changes were made on the instructions given by the appellant. This statement for the reasons stated above cannot be relied upon as evidence. Thus penalty under section 114AA of the Customs Act could not have been imposed upon the appellant. Penalties u/s 114(iii) of the Customs Act - HELD THAT - The Principal Commissioner has confiscated the goods under section 113 of the Customs Act for the reason that the appellant and Imran Mirza colluded. This finding is again based on the statement made by Imran Mirza under section 108 of the Customs Act which statement cannot be relied upon for the reasons stated above. Confiscation of goods would therefore have to be set aside and consequently penalty under section 114(iii) of the Customs Act could not have been levied upon the appellant. Conclusion - The impugned order dated 29.05.2019 set aside in entirety holding that the Principal Commissioner lacked jurisdiction to invoke section 28AAA without DGFT cancellation that the evidence relied upon was inadmissible and that penalties and confiscation could not be sustained on the record before it. It is therefore not possible to sustain the order dated 29.05.2019 passed by the Principal Commissioner. It is accordingly set aside and the appeal is allowed.
The core legal questions considered by the Tribunal are:
(1) Whether jurisdiction under section 28AAA of the Customs Act could be invoked without the Directorate General of Foreign Trade (DGFT) having initiated or completed cancellation proceedings of the export benefit instrument (Focus Market Scheme scrip) issued under the Foreign Trade (Development and Regulation) Act (FTDR Act); (2) Whether the statement of the proprietor of the Freight Forwarder, recorded under section 108 of the Customs Act, could be admitted as evidence under section 138B of the Customs Act; (3) Whether the appellant, as an exporter selling goods on FOB terms, is liable for confiscation and penalties under sections 113, 114AA, and 114(iii) of the Customs Act, in light of the alleged diversion of export goods to a destination other than that declared; (4) The applicability and scope of penalties under sections 114AA and 114(iii) of the Customs Act in the circumstances of this case. Issue 1: Jurisdiction under Section 28AAA of the Customs Act without DGFT Cancellation The relevant legal framework includes section 28AAA of the Customs Act, which empowers recovery of duties where an instrument issued under the FTDR Act is found to have been obtained by collusion, willful misstatement, or suppression of facts. The Foreign Trade Policy (FTP) and FTDR Rules vest exclusive authority in the DGFT to interpret policy and to suspend or cancel export benefit instruments. Paragraph 2.57 of the FTP explicitly states that DGFT's decision on policy interpretation is final and binding. The Tribunal relied heavily on a recent Delhi High Court decision which held that the Customs authorities lack jurisdiction to question the validity of an instrument issued under the FTDR Act absent a prior adjudication or cancellation by the DGFT. The Court emphasized that section 28AAA must be read harmoniously with the FTDR Act and Rules, requiring a prior determination by the DGFT before Customs can initiate recovery proceedings. This prevents a duality of authority and ensures that the DGFT remains the sole competent authority to adjudicate on the validity of export benefit instruments. Additionally, a TRU letter dated 01.06.2012 was cited, which advises Customs formations to issue demands only after DGFT initiates cancellation proceedings and the instrument is cancelled. Applying this framework, the Tribunal found that since DGFT had neither initiated nor completed cancellation proceedings against the appellant's instrument, the Commissioner's invocation of section 28AAA was without jurisdiction. Issue 2: Admissibility of Statement under Section 108 of the Customs Act The statement of Imran Mirza, proprietor of the Freight Forwarder, was recorded under section 108 during investigation and implicated the appellant in fraudulent amendments to shipping bills. The question was whether this statement could be admitted as evidence under section 138B of the Customs Act. Section 138B requires that statements recorded under section 108 are relevant for proving facts only if the person making the statement is examined as a witness before the adjudicating authority, and the authority forms an opinion to admit the statement in the interests of justice, with an opportunity for cross-examination. The Tribunal referred to its own precedent and various High Court decisions which consistently hold that failure to comply with this procedure renders such statements inadmissible. The rationale is to prevent coercion or compulsion during inquiry and to ensure fairness by allowing cross-examination. The Tribunal found that Imran Mirza was neither examined as a witness before the adjudicating authority nor was his statement admitted in evidence following the prescribed procedure. Consequently, reliance on his statement was impermissible. Issue 3: Liability of the Exporter on FOB Terms for Diversion of Goods and Confiscation The appellant contended that since the sale was on FOB terms, title to the goods passed to the buyer upon issuance of the Let Export Order, and the exporter had no control over the goods thereafter. The freight forwarder and shipping line were responsible for the actual shipment and destination. Therefore, any diversion of goods or amendment of shipping documents could not be attributed to the appellant. The Tribunal acknowledged that under FOB contracts, title passes to the buyer at the port and the exporter's control over goods ceases post Let Export Order. This is supported by a CBIC Circular dated 28.02.2015, which states that after Let Export Order, responsibility for shipment lies with the shipping line. However, the Tribunal emphasized that under the Focus Market Scheme, the exporter is the sole beneficiary of scrips only if the goods physically reach the designated focus market. The exporter must provide documentary proof of landing in the focus market, such as import bills, delivery orders, arrival notices, or certified tracking reports, as mandated by paragraph 3.20.3 of the Handbook of Procedures. In this case, neither the appellant nor the department produced such proof to establish that goods reached the focus market (Panama). The investigation did not clarify whether the goods were diverted or whether fake proof was submitted. The impugned order failed to address this critical issue. Thus, while the appellant's position on FOB and title passing was accepted, the responsibility to ensure goods reached the focus market and to produce proof remained with the appellant. Issue 4: Imposition of Penalties under Sections 114AA and 114(iii) of the Customs Act Section 114AA penalizes knowingly or intentionally making or using false particulars in customs transactions, with a penalty up to five times the value of goods. Section 114(iii) penalizes acts or omissions rendering goods liable to confiscation, with a penalty up to the value of the goods. The Commissioner imposed penalties relying on the statement of Imran Mirza that the appellant directed amendments to shipping bills. Given the inadmissibility of this statement as evidence, the Tribunal held that the penalties could not be sustained. Moreover, since confiscation under section 113 was based on the same inadmissible statement, confiscation itself was set aside, which further negated the basis for penalties under section 114(iii). Conclusions and Significant Holdings The Tribunal held that: "The impugned order is without jurisdiction as the DGFT has neither cancelled the instrument nor even initiated proceedings for cancellation of the instrument." Regarding evidentiary issues, the Tribunal stated: "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." On the issue of FOB contracts and exporter's liability, the Tribunal observed: "Insofar as the transaction between the exporter and the overseas buyer is concerned, if the goods are sold on FOB basis, the title shifts to the buyer. It is also true that once the Let Export Order is issued, the exporter may not have control over the goods." However, it emphasized the exporter's continuing responsibility to ensure goods reach the Focus Market and to provide proof thereof under the scheme. Consequently, the Tribunal set aside the order of confiscation, recovery, and penalties, allowing the appeal.
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