2025 (1) TMI 1682 - AT - Customs

Penalty under Section 114 Customs Act set aside for lack of corroboration, documents and denied cross-examination rights

The Tribunal allowed the appeal and set aside the penalty imposed under s.114 of the Customs Act, 1962 in a town seizure case. It held that, apart from a ... Levy of penalty u/s 114 of the Customs Act, 1962 - town seizure - in respect of co-noticees by common SCN and common order, the penalties were set aside - HELD THAT:- The Tribunal has recorded a categorical finding of fact that except for the statement there was no evidence that the goods were kept with an intention to export them. In fact, the Tribunal also recorded a finding that no document had been placed to substantiate that red senders was meant for export. The decision of the Tribunal has attained finality as the appeal filed by the department was dismissed by the Delhi High Court, though on monetary limits. In the present case also, the appellant had sought cross-examination which was denied. The appellant may be a freight forwarder, but in the absence of any evidence that the goods were to be exported, penalty could not have been imposed upon the appellant. For the reasons stated by the Tribunal in the order dated 28.02.2020 in the matter of Anil Gadodia, the order impugned in the present appeal deserves to be set aside and is set aside - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether penalty under section 114 of the Customs Act, 1962 could be sustained in the absence of independent evidence showing that the seized red sanders and related goods were kept or dealt with with an intention to export or attempt export. 1.2 Whether, in view of the earlier decisions of the Tribunal in respect of co-noticees arising from the same common show cause notice and common order-in-original, and the dismissal of the department's appeals by the High Court, the penalty on the appellant could be maintained. 1.3 Whether denial of cross-examination of witnesses whose statements were relied upon vitiated the reliance on such statements and the consequent imposition of penalty. 1.4 Whether the mere status and conduct of the appellant as a freight forwarder in a town seizure, without proof of actual or attempted export, justified imposition of penalty under section 114. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Sustainability of penalty under section 114 without independent evidence of intent to export / attempt to export Legal framework (as discussed): 2.1.1 The show cause notice and adjudication orders proceeded on alleged violations involving confiscation under sections 113 and 121 for breach of section 11 of the Customs Act read with Appendix II of CITES, and on imposition of penalty under section 114 for acts of omission and commission in relation to alleged smuggling/attempted export of red sanders. Interpretation and reasoning: 2.1.2 In the earlier appeal of a co-noticee (relating to the same common show cause notice and common order-in-original), the Tribunal had categorically held that, except for statements, there was no evidence to show that the goods were kept with an intention to export or that there was an attempt to export. 2.1.3 The Tribunal in that matter further held that no documents such as invoices, shipping bills or transport documents existed to indicate that the red sanders stored away from the port (at Delhi, while the alleged export was from Mundra) were meant for export; and that the concerned person was a licensed domestic trader in red sanders, reinforcing the absence of evidence of export attempt. 2.1.4 The Tribunal in the present appeal noted that the same common show cause notice and common adjudication order covered the appellant, and that the finding in the co-noticee's case that there was no evidence of intention to export had attained finality. 2.1.5 Applying that reasoning, the Tribunal held that, in the present case as well, there was no evidence on record to establish that the goods were intended to be exported or that there had been any attempt to export, which is a necessary condition for liability under section 114 in the circumstances alleged. Conclusions: 2.1.6 In the absence of independent evidence of intention to export or attempt to export the red sanders, the foundational requirement for invoking section 114 was not met, and the penalty imposed on the appellant under that section could not be sustained. 2.2 Effect of prior Tribunal decisions and High Court orders in co-noticees' cases Interpretation and reasoning: 2.2.1 The appellant, along with other individuals including two co-noticees, had been proceeded against through a single common show cause notice and a common order-in-original, resting on the same set of facts and evidence. 2.2.2 The Tribunal noted that in the appeals of two co-noticees, the confiscation of red sanders and cash and the penalties under section 114 had already been set aside, on the express finding that: (a) there was no evidence of intention to export or attempt to export, (b) the case was based solely on retracted statements whose evidentiary value was rejected, and (c) consequently, no case of confiscation or abetment was made out. 2.2.3 It was further noted that the department's appeals against those Tribunal orders were dismissed by the High Court, albeit on the ground of low tax effect/pecuniary limit as per the relevant CBEC circular, thereby allowing the Tribunal's findings to attain finality. 2.2.4 The Tribunal held that, given the identity of the show cause notice, the common adjudication, and the nature of evidence, the reasoning adopted in the co-noticees' cases applied equally to the appellant, unless a distinct role or separate evidence was demonstrated, which was not shown by the department. Conclusions: 2.2.5 The final findings in the co-noticees' appeals-holding that there was no proof of attempt to export, that confiscation was unsustainable, and that penalties under section 114 were unwarranted-were applied mutatis mutandis to the appellant, warranting setting aside of the impugned penalty. 2.3 Effect of denial of cross-examination and evidentiary value of statements Legal framework (as discussed): 2.3.1 The earlier Tribunal order in the co-noticee's appeal (arising from the same proceedings) had discussed that when cross-examination of witnesses is sought and not granted, statements of such witnesses should not be relied upon; particularly so where such statements have been retracted. Interpretation and reasoning: 2.3.2 The Tribunal relied on its prior reasoning that, in the common proceedings, the adjudicating authority had denied cross-examination of persons whose statements formed the main basis of the case, despite requests from the noticees. 2.3.3 It was held in that context that the statements, being largely retracted and not tested by cross-examination, had no evidentiary value and could not form the sole foundation for confiscation or penalty. 2.3.4 In the present appeal, the Tribunal noted that the appellant had similarly sought cross-examination, which was denied, and that the penalty order likewise rested substantially on statements. 2.3.5 Consistent with the earlier view in the same matter, the Tribunal held that such untested and retracted statements could not be used as reliable evidence to sustain penalty under section 114. Conclusions: 2.3.6 Denial of cross-examination in respect of crucial statements, coupled with the retracted nature of those statements, rendered them devoid of evidentiary value, and the penalty based substantially on such statements was unsustainable. 2.4 Liability of a freight forwarder in a 'town seizure' without proof of export or attempt to export Interpretation and reasoning: 2.4.1 The appellant's role was described by the department as that of a freight forwarder who allegedly arranged export of red sanders and coordinated with other persons in the alleged smuggling syndicate. 2.4.2 The appellant argued that the seizure in issue was a 'town seizure' and not at a port or customs area, and that, in the absence of evidence that the seized goods were actually meant for export or that any attempt to export had commenced, no penalty could be imposed on a freight forwarder. 2.4.3 The Tribunal, noting the absence of evidence of intention to export and following its own findings in the co-noticees' appeals, held that being a freight forwarder by itself did not establish liability under section 114 when there was no legally acceptable evidence of export or attempted export of the seized goods. Conclusions: 2.4.4 In a town seizure, and absent proof of intention to export or attempt to export the seized goods, the mere status or alleged involvement of the appellant as a freight forwarder was insufficient to attract penalty under section 114. 2.5 Final disposition 2.5.1 For the reasons already recorded by the Tribunal in the earlier co-noticee's appeal, particularly the absence of reliable evidence of intention or attempt to export and the lack of evidentiary value of the relied-upon statements, the impugned order upholding penalty on the appellant under section 114 was set aside, and the appeal was allowed.