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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether action under section 28AAA of the Customs Act, 1962 could be sustained without prior cancellation or initiation of cancellation proceedings by the DGFT in respect of the instrument; (ii) Whether a statement recorded under section 108 of the Customs Act, 1962 could be relied upon without complying with section 138B of the Customs Act, 1962; (iii) Whether the penalties imposed on the exporter and its director were sustainable.
Issue (i): Whether action under section 28AAA of the Customs Act, 1962 could be sustained without prior cancellation or initiation of cancellation proceedings by the DGFT in respect of the instrument.
Analysis: Recovery under section 28AAA was examined in the context of the FTDR regime and the role of the DGFT as the competent authority to determine whether an export incentive instrument was wrongly obtained or invalid. The ruling adopted the principle that customs authorities cannot independently go behind an instrument issued under the foreign trade law and invoke recovery merely on a suspicion of collusion, wilful misstatement, or suppression. The statutory process requires a prior determination by the competent authority under the foreign trade law before customs recovery is initiated.
Conclusion: The action under section 28AAA could not be sustained in the absence of prior cancellation or initiation of cancellation proceedings by the DGFT, and this issue was decided in favour of the assessee.
Issue (ii): Whether a statement recorded under section 108 of the Customs Act, 1962 could be relied upon without complying with section 138B of the Customs Act, 1962.
Analysis: The statement of the freight forwarder was recorded during investigation, but the mandatory procedure under section 138B was not followed. The statement was not first tested by examination before the adjudicating authority, nor was the witness made available in the manner required for admissibility before reliance could be placed on it. In view of the mandatory character of section 138B, such a statement cannot be treated as evidence for proving the facts contained in it.
Conclusion: The statement recorded under section 108 was not admissible for the purpose of fastening liability, and this issue was decided in favour of the assessee.
Issue (iii): Whether the penalties imposed on the exporter and its director were sustainable.
Analysis: The penalties rested on the same foundational material that was found insufficient for recovery, namely the impugned jurisdictional basis and the inadmissible statement. The order also did not establish, on the evidence accepted in law, that the exporter could be fastened with the alleged diversion or that the director had personal culpability warranting penal consequences under the invoked provisions.
Conclusion: The penalties were not sustainable and this issue was decided in favour of the assessee.
Final Conclusion: The impugned order was held unsustainable in law and was set aside, resulting in allowance of both appeals with consequential relief to the appellants.
Ratio Decidendi: Recovery of export incentives under section 28AAA of the Customs Act, 1962 requires a prior adverse determination by the competent foreign trade authority, and statements recorded under section 108 become evidentiary only upon compliance with the mandatory admissibility procedure in section 138B.
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