2025 (6) TMI 550 - AT - Customs

Levy of penalty u/s 114 and 112 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 on 28.06.1999 and 24.03.2000 under section 108 of the Customs Act that he was involved in the import of 40, 000 CD-ROMs by Arvind International. The Commissioner has also placed reliance upon the statements made by Pankaj Soni on 22.11.1999 and 03.04.2000 under section 108 of the Customs Act as also the statement made on 28.06.2000 by Raminder Mohan Singh under section 108 of the Customs Act. The Commissioner has also considered the statement dated 21.08.2000 made by the appellant retracting his earlier statements made under section 108 of the Customs Act. 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 revolve around:

(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 complying with the procedural safeguards under section 138B of the Customs Act;

(ii) Whether the goods exported can be subjected to confiscation under section 113(d) of the Customs Act, which deals with attempted improper export or export contrary to prohibition;

(iii) Whether penalty under section 114 of the Customs Act can be sustained when confiscation under section 113 is not justified;

(iv) The applicability of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 in re-determining the valuation of goods once exported;

(v) The appellant's alleged involvement in the import of 40,000 CD-ROMs which were previously exported at allegedly inflated values under the DEPB scheme, and the consequent misuse of DEPB scrips.

Issue-wise Detailed Analysis

1. Reliance on Statements Recorded under Section 108 of the Customs Act

The appellant's primary contention was that the penalty order was based solely on statements recorded under section 108 of the Customs Act, which were not admissible as evidence in the absence of compliance with section 138B of the Customs Act. The appellant relied on the Tribunal's decision in M/s. Drolia Electrosteel P. Ltd. and other precedents to assert that such statements cannot be relied upon unless the procedural safeguards are followed.

The Tribunal examined the relevant statutory provisions and case law. Section 108 empowers officers to record statements during inquiry, but section 138B mandates that such statements are relevant only if the person making the statement is examined as a witness before the adjudicating authority, and the authority forms an opinion that the statement should be admitted in evidence in the interests of justice. The person against whom the statement is used must be given an opportunity to cross-examine the witness.

The Tribunal referred extensively to the decision in M/s. Surya Wires Pvt. Ltd. and related judgments which emphasized that failure to comply with section 138B renders the statements inadmissible. The rationale is to prevent coercion or compulsion during inquiry and ensure fairness by allowing cross-examination before admission of such statements as evidence.

In the present case, the Commissioner relied on statements made by the appellant, Pankaj Soni, and Raminder Mohan Singh under section 108. However, there was no evidence that these witnesses were examined before the adjudicating authority or that the procedural safeguards under section 138B were observed. The appellant had also retracted his statements before arrest, but the Commissioner disregarded this retraction without following the prescribed procedure.

Consequently, the Tribunal held that the statements recorded under section 108 without compliance with section 138B cannot be relied upon. Since these statements formed the sole basis for imposing penalty, the penalty order could not be sustained.

2. Confiscation of Goods under Section 113(d) of the Customs Act

The impugned order also involved confiscation of goods under section 113(d), which applies to goods attempted to be exported or brought into a customs area for export contrary to any prohibition. The appellant contended that since the goods were actually exported, section 113(d) was not applicable.

The Tribunal agreed with the appellant's submission, noting that section 113(d) targets attempted or prohibited exports, not completed exports. Since the goods in question had been exported, confiscation under section 113(d) was not sustainable.

This finding had direct implications on the penalty under section 114, which can only be levied if confiscation under section 113 is justified. Without valid confiscation, penalty under section 114 cannot stand.

3. Applicability of Customs Valuation Rules to Exported Goods

The appellant argued that once goods are exported, they cease to be "export goods" as defined under section 2(19) of the Customs Act, and thus the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 cannot be invoked to re-determine their value. The appellant relied on a High Court judgment supporting this position.

The Tribunal did not delve deeply into this issue as the penalty was set aside on procedural grounds concerning inadmissibility of statements and invalid confiscation. However, the appellant's contention highlights a substantive legal question about the scope of valuation rules post-export, which remains relevant for similar cases.

4. Alleged Role of the Appellant in Import and Misuse of DEPB Scrips

The department's case was that the appellant was involved in facilitating import of 40,000 CD-ROMs through Arvind International, which were previously exported at inflated values by Netcompware under the DEPB scheme, thereby enabling fraudulent procurement and misuse of DEPB scrips.

The impugned order heavily relied on statements under section 108 to establish the appellant's involvement and collusion. The appellant denied involvement and retracted earlier statements.

Given the inadmissibility of these statements without following section 138B, the Tribunal found no other evidence to substantiate the appellant's alleged role. The department's reliance on these statements without procedural compliance was held to be legally untenable.

5. Treatment of Competing Arguments

The appellant's arguments centered on procedural safeguards and lack of evidence beyond inadmissible statements. The department emphasized the detailed nature of the Commissioner's order, the cancellation of DEPB license by DGFT, and the fraudulent scheme involving multiple parties.

The Tribunal acknowledged the department's contentions but underscored the mandatory nature of procedural compliance under section 138B for admitting statements as evidence. The absence of such compliance was decisive, outweighing the department's reliance on the investigative findings.

Significant Holdings

"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."

"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."

"Failure to comply with the procedure prescribed under section 138B 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."

"Since the goods had been exported, 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."

"Except for the aforesaid statements made under section 108 of the Customs Act, there is no other evidence which has been considered by the Commissioner for imposing penalty upon the appellant under sections 114 and 112 of the Customs Act."

The Tribunal ultimately set aside the penalty imposed under sections 114 and 112 of the Customs Act and allowed the appeal, emphasizing the mandatory procedural safeguards for admissibility of statements and the inapplicability of confiscation under section 113(d) to goods already exported.