2025 (6) TMI 549 - 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 statement made by the appellant on 30.08.1999 under section 108 of the Customs Act that he was involved in the withdrawal of cash from the Bank. 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 questions considered by the Tribunal in this appeal include:

(a) Whether the valuation of exported goods (CD-ROMs) can be re-determined under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, given that the goods had already been exported;

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

(c) Whether the appellant was liable for penalty under section 114 of the Customs Act based on alleged involvement in illegal cash withdrawals from the bank;

(d) Whether the confiscation of goods under section 113(d) of the Customs Act was valid in the facts of the case where the goods had already been exported;

(e) The interplay between confiscation of goods under section 113 and imposition of penalty under section 114 of the Customs Act.

Regarding the first issue on valuation and export goods, the appellant contended that once goods are exported, they no longer fall within the definition of "export goods" under section 2(19) of the Customs Act, and hence the Customs Valuation Rules cannot be invoked to re-determine their value. The appellant relied on a High Court judgment supporting this position. The Tribunal noted this submission but did not dwell extensively on it since the penalty imposed was not directly premised on revaluation but on the appellant's alleged involvement in illegal activities.

The second issue concerning the admissibility and reliance on statements recorded under section 108 of the Customs Act was central to the Tribunal's analysis. The impugned order relied heavily on the appellant's statement recorded on 30.08.1999, wherein he admitted to involvement in cash withdrawals from the bank on instructions from another individual. The appellant challenged the reliance on this statement, arguing that it was recorded during an inquiry and not in accordance with the procedural safeguards mandated by section 138B of the Customs Act.

The Tribunal undertook a detailed examination of the relevant legal framework governing the admissibility of statements recorded during inquiry or investigation. It referred extensively to the provisions of section 108 and section 138B of the Customs Act, and analogous provisions under the Central Excise Act (sections 14 and 9D). The Tribunal reiterated the settled legal position that statements recorded under section 108 cannot be used as evidence unless the person making the statement is examined as a witness before the adjudicating authority, and the adjudicating authority forms an opinion that the statement should be admitted in the interests of justice. Further, an opportunity for cross-examination must be provided to the party against whom the statement is used.

The Tribunal cited its earlier decisions and various High Court judgments emphasizing the mandatory nature of the procedure prescribed under section 138B, and the rationale behind it-to guard against statements recorded under coercion or compulsion during investigations. The Tribunal specifically referred to a recent decision where it was held that failure to comply with these procedural safeguards renders the statements inadmissible and irrelevant for adjudicatory purposes.

Applying this legal framework to the facts, the Tribunal observed that the impugned order relied solely on the appellant's statement recorded under section 108 without following the procedure under section 138B. There was no evidence that the appellant was examined as a witness before the adjudicating authority or that the statement was admitted in evidence after due consideration. Consequently, the Tribunal held that the statement could not be relied upon for imposing penalty under section 114 of the Customs Act.

Regarding the appellant's alleged involvement in illegal cash withdrawals, the Tribunal noted that the finding of the Commissioner was based exclusively on the inadmissible statement. No other independent evidence was brought on record to substantiate the appellant's involvement. The appellant had repeatedly denied operating any bank account or withdrawing cash, and had maintained that his signatures were misused. The Tribunal found that without admissible evidence, the penalty could not be sustained.

On the issue of confiscation under section 113(d) of the Customs Act, the Tribunal examined the legal provisions. Section 113(d) provides for confiscation of goods attempted to be exported contrary to prohibitions imposed under the Act. The Tribunal noted that in the present case, the goods had already been exported and therefore could not be classified as goods "attempted to be exported." Consequently, the confiscation under section 113(d) was not sustainable.

The Tribunal further clarified the relationship between confiscation of goods under section 113 and imposition of penalty under section 114. Penalty under section 114 can be levied only if the goods are liable to confiscation under section 113. Since confiscation was not sustainable, the penalty imposed on the appellant could not stand.

The competing arguments were carefully considered. The department contended that the penalty was justified based on the appellant's statement and the overall fraudulent scheme involving overvaluation of exports and misuse of DEPB scrips. The department also pointed to the cancellation of DEPB license of one of the exporters and the re-import of goods as evidence of fraud. However, the Tribunal found that none of these facts, except the inadmissible statement, were linked directly to the appellant's culpability. The appellant's repeated denials and explanations were also noted. The Tribunal held that the procedural lapses in admitting statements fatally undermined the penalty proceedings.

In conclusion, the Tribunal set aside the penalty imposed under section 114 of the Customs Act on the appellant. It held that the reliance on statements recorded under section 108 without compliance with section 138B was impermissible. The confiscation of goods under section 113(d) was also invalid as the goods had already been exported. Since penalty under section 114 is contingent on confiscation, the penalty could not be sustained.

The following significant legal principles and holdings were 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."

"Section 138B(1)(b) of the Customs Act contemplates that when the provisions of clause (a) are not applicable, the statements made under section 108 during inquiry shall be relevant for proving truth only when the person who made the statement is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion that the statement should be admitted in evidence in the interests of justice, and the party against whom the statement is used is given an opportunity for cross-examination."

"The provisions of section 138B of the Customs Act are mandatory and failure to comply with the procedure renders the statements inadmissible."

"Goods already exported cannot be confiscated under section 113(d) of the Customs Act which applies only to goods attempted to be exported contrary to prohibitions."

"Penalty under section 114 of the Customs Act can be imposed only if the goods are liable to confiscation under section 113."

Accordingly, the penalty order dated 31.01.2006 imposing a penalty of Rs. 2 lakhs on the appellant under section 114 of the Customs Act was set aside and the appeal allowed.