2025 (6) TMI 548 - AT - Customs

Levy of penalty u/s 114 of the Customs Act 1962 - evasion of customs duty - CD-ROMs under Duty Entitlement Pass Book (DEPB) Scheme by grossly overvaluing it with an intention to wrongly avail DEPB scrips - Reliability of statements recorded 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 connected with Sundram Exports and was involved in the exports of CD-ROMs. 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 - 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 section 114 of the Customs Act. As these statements cannot be relied upon the imposition of penalty upon the appellant under section 114 of the Customs Act cannot be sustained and is set aside. Conclusion - 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. The impugned order dated 31.01.2006 passed by the Commissioner in so far as it imposes penalty upon the appellant under section 114 and 112 of the Customs Act is set aside - the appeal is allowed.

Summary

The core legal issues considered by the Tribunal in this appeal include:

(i) Whether the statements recorded under section 108 of the Customs Act, 1962 can be relied upon as evidence for imposing penalty under section 114 of the Customs Act without compliance with the procedural safeguards prescribed under section 138B of the Customs Act;

(ii) Whether the appellant was connected with the alleged fraudulent export of overvalued CD-ROMs under the DEPB Scheme;

(iii) Whether the goods exported could be confiscated under section 113(d) of the Customs Act, which pertains to attempted improper export, and the consequent applicability of penalty under section 114 of the Customs Act;

(iv) Whether the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 are applicable for re-determining the valuation of the exported goods in this case;

(v) The evidentiary value and admissibility of statements recorded during inquiry or investigation under the Customs Act, particularly when such statements are retracted or alleged to have been recorded under duress.

Issue-wise detailed analysis:

1. Admissibility and Reliance on Statements under Section 108 of the Customs Act without Compliance with Section 138B

The Tribunal extensively examined the legal framework governing the admissibility of statements recorded under section 108 of the Customs Act. Section 108 empowers officers to summon persons and record their statements during inquiries. However, section 138B prescribes mandatory procedural safeguards before such statements can be admitted as evidence in adjudication proceedings.

Precedents, including the Tribunal's own ruling in the case of M/s. Surya Wires Pvt. Ltd. and the judgment in M/s. Drolia Electrosteel P. Ltd., were relied upon to emphasize that statements recorded during inquiry or investigation cannot be directly relied upon unless the person who made the statement is examined as a witness before the adjudicating authority. The adjudicating authority must then form an opinion that, considering the circumstances, the statement should be admitted in evidence in the interests of justice. Only thereafter must the person against whom the statement is made be given an opportunity for cross-examination.

The Tribunal highlighted that this procedure is mandatory and failure to comply with it renders the statements inadmissible. The rationale for this safeguard is to prevent coercion or compulsion in recording statements during investigations, ensuring that statements are voluntarily made and tested through cross-examination.

In the instant case, the impugned order relied heavily on statements recorded under section 108 without following the procedure under section 138B. The appellant had retracted his statement, alleging it was recorded under duress, and there was no evidence that he was examined as a witness before the adjudicating authority or that the statements were admitted in evidence after due consideration. Consequently, the Tribunal held that the statements are not relevant or admissible for the purpose of imposing penalty.

This finding was decisive in setting aside the penalty imposed on the appellant.

2. Connection of the Appellant with the Export of Overvalued CD-ROMs

The department alleged that the appellant was connected with Sundram Export Pvt. Ltd. and was involved in exporting CD-ROMs at grossly inflated FOB values to fraudulently avail DEPB scrips. The Commissioner's order found the appellant to be the mastermind behind the fraud, relying on multiple statements, including that of the appellant and other persons.

The appellant denied any connection with Sundram Export or the export of CD-ROMs and contended that the statements implicating him were retracted and recorded under duress. The Tribunal noted that the impugned order's conclusion was based solely on the inadmissible statements under section 108 and no other material evidence was considered to establish the appellant's involvement.

Given the inadmissibility of the statements, the Tribunal found that the appellant's connection with the fraudulent export was not established beyond doubt.

3. Applicability of Customs Valuation Rules and Definition of Export Goods

The appellant contended that the goods once exported 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 could not be invoked for re-determining the valuation of the goods. The appellant relied on a High Court judgment supporting this position.

The Tribunal, however, did not delve deeply into this issue since the penalty was set aside on other grounds. The issue remains relevant but was not determinative in this appeal.

4. Confiscation of Goods under Section 113(d) and Consequent Penalty under Section 114

The department had confiscated the goods under section 113(d) of the Customs Act, which pertains to confiscation of goods "attempted to be exported or brought within the limits of any customs area for the purpose of being exported, contrary to any prohibition." The appellant argued that since the goods had already been exported, section 113(d) was not applicable.

The Tribunal agreed with the appellant, observing that the goods had been exported and thus could not be confiscated under section 113(d). Since penalty under section 114 can only be imposed if the goods are liable to confiscation under section 113, the penalty could not be sustained in absence of valid confiscation.

5. Treatment of Competing Arguments

The department relied on the detailed findings of the Commissioner, cancellation of DEPB license by DGFT, and the statements made under section 108 to support the penalty. The appellant challenged the admissibility of these statements and his alleged connection with the fraudulent export, emphasizing procedural violations and lack of substantive evidence.

The Tribunal gave primacy to procedural safeguards and statutory requirements regarding admissibility of evidence, holding that the failure to comply with section 138B mandates exclusion of the statements relied upon by the department. This procedural non-compliance outweighed the department's reliance on the statements and other circumstantial findings.

Significant holdings include the following:

"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."

"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."

"The provisions of section 9D of the Central Excise Act and section 138B(1)(b) 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. As the confiscation cannot be sustained, penalty under section 114 of the Customs Act cannot also be sustained."

In conclusion, the Tribunal set aside the penalty imposed under section 114 of the Customs Act on the appellant, primarily on the ground that the statements relied upon were inadmissible due to non-compliance with section 138B, and the confiscation under section 113(d) was not sustainable as the goods had already been exported. The appellant's alleged involvement was not established by admissible evidence, leading to the quashing of the penalty order.