2025 (1) TMI 1222 - AT - Customs

Penalties under Sections 112(a)(i) and 114AA set aside due to insufficient evidence and natural justice violations

Shri Puneet Singh C/o. Blue Water Agencies Versus Commissioner of Customs (Port) Kolkata

CESTAT Kolkata allowed the appeal and set aside penalties imposed under Sections 112(a)(i) and 114AA of the Customs Act, 1962 for alleged cigarette ... Levy of penalties u/s 112(a)(i) and Section 114AA of the Customs Act, 1962 - smuggling of cigarettes concealed as 'ladies garments' without statutory health warnings - violation of the Cigarettes and Other Tobacco Products Act, 2003 - HELD THAT:- The money transaction details available in the Bank Statements are due to their normal business on account of trading of cigarettes and other tobacco products. They have no relation with the smuggled cigarettes. There is no evidence brought on record by the Revenue to substantiate the allegation that the transaction between M/s. Blue Water Agencies, the company of the appellant and the companies owned by Mr. Vivek Agarwal were related to illegal smuggling of cigarettes. In the absence of any corroborative evidence, the money transaction through bank between the companies of Mr. Vivek Agarwal and Appellant's company, M/s. Blue Water Agencies cannot be the ground to conclude the involvement of the appellant in the alleged smuggling of foreign cigarettes. From the documents available on record, it is observed that there is no evidence brought on record to indicate that the appellant had prior knowledge about the concealment of cigarettes in the consignments declared as 'ladies garments'. Thus, this evidence cannot be the basis for imposing penalties on the appellant. The impugned order has confirmed the demand mainly on the basis of the statement dated 27.06.2022 of Mr. Vivek Agarwal - HELD THAT:- There is no other evidence brought on record regarding the conspiracy hatched by the appellant in relation to smuggling of the foreign brand cigarettes into the country. Since the main evidence relied upon by the adjudicating authority against the appellant is the statement of Shri. Vivek Agarwal, an opportunity to cross-examine the person who made that statement ought to have been given as provided under Section 138B of the Customs Act, 1962. However, the ld. adjudicating authority has not granted the opportunity for cross-examination of Mr. Vivek Agarwal. Accordingly, the provisions of Section 138B of the Customs Act, 1962 have been violated in this case. When any statement is used against an assessee, an opportunity for cross-examining the person who made such statement ought to be given to the assessee. Since the opportunity of cross examination has not been given to the appellant, the statement of Shri. Vivek Agarwal cannot be relied upon to implicate the appellant in the alleged smuggling of foreign brand cigarettes. Violation of principles of natural justice - HELD THAT:- In the case of ANDAMAN TIMBER INDUSTRIES VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA-II [2015 (10) TMI 442 - SUPREME COURT], the Hon’ble Apex Court has held that denial of cross-examination would be a serious flaw - the statement of Mr. Vivek Agarwal cannot be relied upon to implicate the appellant in the alleged offence as the provisions of Section 138B of the Customs Act, 1962 have not been followed. Penalty - HELD THAT:- Penalty under Section 114AA can be imposed when the evidence available on record indicates that the appellant has made, signed or used, any declaration, statement or document which is false or incorrect. In this case, there is no evidence available on record indicate the involvement of the appellant in the alleged offence of smuggling of foreign brand cigarettes. There is no evidence available on record to implicate the appellant in the offence. The only evidence relied upon by the adjudicating authority to implicate the appellant, i.e., the statement dated 27.07.2022, cannot be relied upon, as the opportunity to cross examine the person who has given the statement was not granted to the appellant. This said statement has been given by another accused in this case, who could have implicated the appellant with a view to extricate himself from the alleged smuggling of cigarettes. Thus, the appellant cannot be penalised only on the basis of the statement given by another accused in this case. Conclusion - The evidence available on record does not indicate that the appellant had prior knowledge about the concealment of cigarettes in the consignments imported as 'ladies garments'. Thus, the ingredients required for imposing penalty under Section 112(a) of the Act have not been established in this case. It is also observe that there is no evidence available on record indicating that the appellant has made, signed or used, any declaration, statement or document which is false or incorrect. Thus, the ingredients required for imposing penalty under Section 114AA of the Act have not been established in this case. Therefore, the penalties imposed on the appellant under both the above provisions/Sections are not sustainable in law. Penalties set aside - appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core issue in this appeal was whether the penalties imposed on the appellant under Section 112(a)(i) and Section 114AA of the Customs Act, 1962, were justified. The penalties were related to the alleged smuggling of cigarettes concealed as 'ladies garments' without statutory health warnings, in violation of the Cigarettes and Other Tobacco Products Act, 2003.ISSUE-WISE DETAILED ANALYSISLegal Framework and PrecedentsThe penalties in question were imposed under Section 112(a)(i) and Section 114AA of the Customs Act, 1962. Section 112(a) pertains to penalties for improper importation of goods, while Section 114AA addresses penalties for using false or incorrect material in business transactions under the Act. The appellant argued that these penalties were unwarranted due to a lack of evidence directly implicating him in the smuggling activities.Court's Interpretation and ReasoningThe Tribunal examined the evidence presented, particularly the statement of Mr. Vivek Agarwal, which was the primary basis for implicating the appellant. The Tribunal noted that the appellant was not given an opportunity to cross-examine Mr. Agarwal, which is a right under Section 138B of the Customs Act. This lack of cross-examination was deemed a violation of the principles of natural justice, as established in precedents such as the Andaman Timber Industries case.Key Evidence and FindingsThe main evidence against the appellant was the statement of Mr. Vivek Agarwal, which accused the appellant of masterminding the smuggling operation. However, the Tribunal found that this statement was uncorroborated by other evidence. The appellant's business dealings with Mr. Agarwal's companies were explained as legitimate transactions unrelated to the smuggling activities. The Tribunal also noted the absence of any direct evidence linking the appellant to the concealment of cigarettes in the shipments.Application of Law to FactsThe Tribunal applied the legal standards for imposing penalties under Sections 112(a) and 114AA. It found no evidence that the appellant had knowledge or involvement in the smuggling operation, nor that he made or used any false declarations. The Tribunal emphasized the importance of corroborative evidence and the right to cross-examination when statements are used against a party.Treatment of Competing ArgumentsThe appellant argued that the penalties were based solely on Mr. Agarwal's statement, without corroboration or the opportunity for cross-examination. The Revenue contended that the appellant was given adequate opportunity to present his case and that Mr. Agarwal's statement was sufficient to justify the penalties. The Tribunal sided with the appellant, highlighting the lack of corroborative evidence and procedural fairness.ConclusionsThe Tribunal concluded that the penalties imposed on the appellant were not sustainable due to the absence of direct evidence and the procedural violation of not allowing cross-examination of Mr. Agarwal. The Tribunal set aside the penalties and allowed the appeal.SIGNIFICANT HOLDINGSThe Tribunal held that the lack of opportunity for cross-examination of a key witness, whose statement was the sole basis for penalties, constituted a violation of natural justice. This principle was supported by the precedent set in Andaman Timber Industries and other cases. The Tribunal emphasized that penalties under Sections 112(a) and 114AA require substantial evidence of involvement or false declarations, which was not present in this case.The Tribunal's final determination was to set aside the penalties imposed on the appellant, as the evidence did not meet the legal standards required for such penalties under the Customs Act, 1962.