2025 (6) TMI 692 - AT - Customs

Levy of penalty u/s 114 of the Customs Act 1962 - export of CD-ROMs under Duty Entitlement Pass Book - wrongful availment of DEPB scrips - evasion of Customs Duty - reliability of statements made u/s 108 of the Customs Act - HELD THAT - 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. This is what was held by the Tribunal in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner CGST Raipur 2025 (4) TMI 441 - CESTAT NEW DELHI . The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act 1944 and observed that What therefore follows is that 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. Except for the statement made by Pankaj Soni 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 this statement 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 of the Customs Act is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

(a) 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 following the procedural safeguards prescribed under section 138B of the Customs Act;

(b) Whether the goods exported, being CD-ROMs, fall within the ambit of "export goods" as defined under section 2(19) of the Customs Act, and consequently, whether the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 apply for re-determination of valuation;

(c) Whether the appellant was involved in the day-to-day affairs of the company M/s. Netcompware Pvt. Ltd., thereby attracting penal consequences;

(d) Whether the confiscation of goods under section 113(d) of the Customs Act was legally sustainable given that the goods had already been exported;

(e) Whether imposition of penalty under section 114 of the Customs Act can be sustained in the absence of valid confiscation under section 113.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Reliance on Statements under Section 108 vis-`a-vis Procedural Safeguards under Section 138B

The legal framework involves sections 108 and 138B of the Customs Act. Section 108 empowers officers to record statements during inquiry or investigation, while section 138B prescribes the conditions under which such statements can be admitted as evidence in adjudication proceedings. The statutory scheme mandates that statements recorded under section 108 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. Additionally, the party against whom the statement is used must be given an opportunity to cross-examine the witness.

Precedents cited include the Tribunal's decision in M/s. Surya Wires Pvt. Ltd. and M/s. Drolia Electrosteel P. Ltd., which emphasize the mandatory nature of section 138B and the analogous section 9D of the Central Excise Act, 1944. The rationale is to prevent coercion or compulsion in recording statements during investigation and to ensure fairness in evidence admission.

The Court observed that the impugned order relied solely on the statement of Shri Pankaj Soni 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, nor was there any opinion formed regarding admissibility of the statement. Consequently, the statement was inadmissible and could not form the basis for penalty imposition.

The competing argument by the department that the statement was sufficient was rejected on the ground that statutory safeguards were not complied with. The Court underscored that failure to follow the procedure renders the statement irrelevant and inadmissible.

Conclusion: Statements under section 108 without compliance with section 138B cannot be relied upon for penalty proceedings under the Customs Act.

Issue (b): Applicability of Customs Valuation Rules and Definition of Export Goods

The appellant contended that once goods are exported, they do not fall within the definition of "export goods" under section 2(19) of the Customs Act, and hence the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 cannot be invoked to re-determine the valuation of exported goods. Reliance was placed on a High Court judgment supporting this position.

The Court noted this submission but did not delve deeply into this issue as the penalty imposition was set aside on other grounds. However, the argument raises the principle that valuation rules apply to goods at the time of export and do not permit revaluation post-export for penalty purposes.

Conclusion: The valuation rules cannot be invoked to re-determine value of goods already exported, limiting the scope of penalty for overvaluation post-export.

Issue (c): Involvement of the Appellant in Day-to-Day Affairs of Netcompware

The department alleged that the appellant was actively involved in the day-to-day affairs of Netcompware and was complicit in the fraudulent export and DEPB scrip procurement scheme. The impugned order relied on statements under section 108, particularly that of Pankaj Soni, which indicated the appellant's involvement in handling pay orders and cash withdrawals linked to the company's accounts.

The appellant denied involvement, asserting permanent residence in Srinagar and non-participation in company affairs. The department countered this by highlighting the appellant's failure to appear before the investigating authorities despite repeated summons, suggesting deliberate avoidance.

The Court, however, found that the evidence relied upon was inadmissible due to non-compliance with section 138B procedures. Without admissible evidence, the finding of involvement could not be sustained.

Conclusion: The appellant's alleged involvement was not established on admissible evidence; therefore, the penalty based on such involvement could not be upheld.

Issue (d): Legality of Confiscation under Section 113(d) of the Customs Act

Section 113(d) provides for confiscation of goods attempted to be exported contrary to prohibitions under the Act or other laws. The Court noted that the goods in question had already been exported and, therefore, could not be confiscated under section 113(d), which applies to goods attempted to be exported.

This interpretation aligns with the statutory language restricting confiscation to attempts or goods brought within customs limits for export contrary to law, not goods already exported.

Conclusion: Confiscation under section 113(d) was not legally sustainable as the goods had been exported.

Issue (e): Consequence of Invalid Confiscation on Penalty under Section 114

Section 114 of the Customs Act allows imposition of penalty where goods are liable to confiscation under section 113. Since the confiscation was not sustainable, the penalty imposed under section 114 could not stand.

The Court emphasized that penalty is contingent upon valid confiscation; absence of the latter vitiates the former.

Conclusion: Penalty under section 114 cannot be sustained without valid confiscation under section 113.

3. SIGNIFICANT HOLDINGS

The Court held that:

"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."

"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."

The Court conclusively set aside the penalty imposed on the appellant under section 114 of the Customs Act due to the inadmissibility of evidence and invalidity of confiscation.