Customs duty demand on VKGUY scrips overturned due to improper use of Section 108 statements without cross-examination

The CESTAT New Delhi allowed the appeal challenging demand of duty foregone on VKGUY scrips. The appellant was accused of exporting meat using pre-signed veterinary certificates without proper animal inspection. The tribunal held that 14 of 22 relied-upon documents were statements recorded under Section 108 of the Customs Act, which could only be admitted as evidence under Section 138B if specific conditions were met. The adjudicating authority failed to follow mandatory procedures by not examining the statement-makers or allowing cross-examination. Without these statements, the remaining evidence was insufficient to establish the allegations. The penalties on all appellants were set aside.

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Issues:
Appeal against common order-in-appeal upholding OIO dated 26.10.2016, demand of duty foregone on VKGUY scrips, personal penalties imposed on individuals.

Analysis:
The appeals were filed challenging the order-in-appeal dated 03.7.2019, which upheld the OIO dated 26.10.2016 passed by the Additional Commissioner. The issues involved the demand of duty foregone on VKGUY scrips and personal penalties imposed on individuals. HAIL, engaged in exporting meat, availed VKGUY scheme benefits and was issued scrips worth Rs. 42,16,084/- which were sold to others. The Customs officers found blank Veterinary Health Certificates signed and stamped by a government veterinarian during a visit to HAIL's premises. It was alleged that HAIL fraudulently obtained VKGUY certificates by exporting meat with invalid certificates. Subsequently, a show cause notice (SCN) was issued proposing duty recovery and penalties.

The main contention by the appellant's counsel was that the recovery of blank certificates did not prove that previous meat consignments were exported under invalid certificates. The counsel argued that the statements relied upon in the SCN were not relevant as the mandatory procedure under section 138B of the Act was not followed. The department, however, contended that the statements established that meat was exported using pre-signed certificates. The key issue was whether the statements recorded by officers under section 108 were admissible as evidence.

The Tribunal analyzed the relevance of the statements under section 138B of the Act. The department's argument that the statements were relevant to prove the case was countered by the appellant's argument that the procedure under section 138B was mandatory and not followed by the adjudicating authority. The Tribunal held that the procedure under section 138B was mandatory and not limited to court proceedings. As the mandatory procedure was not followed, the case against the appellants could not be established.

Consequently, the Tribunal set aside the impugned order, allowing all appeals with consequential relief to the appellants. The decision was based on the lack of proper adherence to the mandatory procedure under section 138B, rendering the case against the appellants unsubstantiated and the penalties imposed unsustainable.

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