Customs recovery requires prior invalidation of export incentives and compliant witness procedure before using section 108 statements.
Recovery under section 28AAA of the Customs Act cannot proceed where the export incentive instrument has not first been cancelled or held invalid by the competent foreign trade authority; customs authorities have no parallel power to disregard the instrument on allegations of collusion or suppression. A statement recorded under section 108 is not admissible in adjudication unless the mandatory procedure under section 138B is followed, including examination of the maker as a witness. Because the impugned confiscation and penalties rested on that inadmissible statement and lacked the required foreign trade determination, the recovery, confiscation and penalties were unsustainable.
Issues: (i) Whether proceedings under section 28AAA of the Customs Act, 1962 could be initiated and adjudicated without prior cancellation or adjudication by the DGFT on the export incentive instrument; (ii) Whether the statement recorded under section 108 of the Customs Act, 1962 could be relied upon without compliance with section 138B of the Customs Act, 1962, and whether confiscation and penalties under sections 113, 114(iii) and 114AA of the Customs Act, 1962 could be sustained.
Issue (i): Whether proceedings under section 28AAA of the Customs Act, 1962 could be initiated and adjudicated without prior cancellation or adjudication by the DGFT on the export incentive instrument.
Analysis: Section 28AAA was held to require a prior determination by the competent authority under the foreign trade regime where the validity of the instrument is questioned on grounds of collusion, wilful misstatement, or suppression of facts. The customs authority was held not to have a parallel power to go behind the instrument or deny benefits unless the DGFT had first adjudicated upon its invalidity or cancellation. On the facts, the DGFT had neither cancelled the instrument nor initiated cancellation proceedings.
Conclusion: The invocation of section 28AAA without prior DGFT action was unsustainable and is decided in favour of the appellant.
Issue (ii): Whether the statement recorded under section 108 of the Customs Act, 1962 could be relied upon without compliance with section 138B of the Customs Act, 1962, and whether confiscation and penalties under sections 113, 114(iii) and 114AA of the Customs Act, 1962 could be sustained.
Analysis: A statement recorded during inquiry under section 108 becomes relevant only if the maker is examined as a witness before the adjudicating authority and the statutory procedure for admission in evidence under section 138B is followed. Since that procedure was not followed, the statement could not be treated as evidence. The impugned findings of collusion, fraudulent amendment of shipping documents, confiscation under section 113, and the consequent penalties under sections 114(iii) and 114AA rested on that inadmissible statement and could not stand. The exporter's entitlement to Focus Market Scheme benefits also depended on proof of landing in the specified market, which was not properly addressed in the order, but the impugned adjudication still failed on the evidentiary basis on which liability was imposed.
Conclusion: The reliance on the section 108 statement was impermissible, and the confiscation and penalties were unsustainable, in favour of the appellant.
Final Conclusion: The adjudication lacked jurisdictional and evidentiary foundation, so the order of confiscation, recovery, and penalties could not survive.
Ratio Decidendi: Where the legality of an export incentive instrument is questioned, recovery under section 28AAA of the Customs Act, 1962 requires prior determination by the competent foreign trade authority, and statements recorded under section 108 cannot be used in adjudication unless the mandatory procedure under section 138B is followed.