2025 (7) TMI 1270 - AT - Customs

**Drawback recovery requires challenging original assessment order first, denial of cross-examination violates natural justice**

M/s Varun Enterprises, M/s SRM Pvt. Ltd. and M/s Contessa Commerical Co. P. Ltd. Versus Commissioner of Customs, Ludhiana

The CESTAT Chandigarh allowed the appeal in a case involving alleged fraudulent drawback and DEPB credit claims through mis-declared exports. The ... Fraudulent claims of Drawback and DEPB credit by way of exporting mis-declared goods - export of goods of low quality declaring them as Gear Cutting Tools of Cobalt bearing High Speed Steel, Heat Resistant Rubber Tension Tape and Gaskets under Drawback/ incentive schemes - cross-examination of the persons whose statements are relied upon was not allowed - violation of principles of natural justice - HELD THAT:- The established legal principle is that once a shipping bill has been assessed and drawback has been allowed by the competent authority, it cannot be subsequently recovered without first challenging the original assessment order. It is found that after the decision of Apex Court in the case of ITC Ltd [2019 (9) TMI 802 - SUPREME COURT (LB)], Courts and tribunal have been continuously holding that refund is consequential to assessment and unless the assessment is challenged, refund which is executive in nature cannot be initiated. The principle applies equally to rebate already sanctioned by following due process of Law, unless the sanctioning order is challenged and modified by a competent appellate authority, the drawback sanctioned can not be held to be erroneous and be recovered under relevant provisions of Customs, Act. The department conducted enquiries in relation to export of goods cleared as gear cutting tools of cobalt bearing high steel and heat-resistant rubber tension tape by Shri Vinod Garg and Shri N. D. Garg, in the name of companies namely M/s. Garg Forging & Casting Ltd., M/s. SRG Forge Overseas Ltd, M/s. SRG International, M/s. Ragini Steels, M/s. Garg Con-cast and M/s. Goodwill Impex and found that the goods were mis-declared with reference to quality and value; test reports confirmed that the goods were mis declared. Department has extrapolated these findings to the exports of Gaskets by the appellants for the reason that the suppliers were same as in the case of exports by Shri Vinod Garg and Shri N. D. Garg. The case of the appellants stands on a different footing than other exports investigated, the results of the same, thus, cannot be applied to the impugned case by way of assumptions. The only evidence available with the department is the statement of Shri Kishorpuria on 21-22.08.2002, wherein, he was alleged to have admitted colluding with Vinod and N.D. Garg for a 3% commission on export turnover, allowing them to use Contessa’s export licenses in exchange for financial benefits and the statements of Shri Gautam Mukherjee and other persons. However, the reliability of these statements becomes suspect for the reason that Shri Vinod Garg in his statement dated 22.06.2000 replied, to a specific question, that he had no association with the Appellant or its associated persons/ firms. Shri N.D. Garg in his statement recorded at a later date, i.e. 25-08-2003 accepted relationship. The statements are contradictory to each other - The Adjudicating Authority has not examined these persons under the provisions of Section 138 B thus, vitiating the proceedings. The Adjudicating Authority has also denied cross examination in violation of principles of Natural Justice. Revenue did not cause enquiries at the all-available addresses of the alleged fake suppliers. The impugned goods were examined, tested and allowed export by the officers and the report was not challenged, the case does not stand on a couple of statements which were not examined under the provisions of Section 138B of the Customs Act and allegations are not backed by any corroborative evidence. We find that not allowing Cross-Examination further vitiated the proceedings. Moreover, the original order sanctioning the refund was not challenged, the proceedings cannot be sustained in view of Apex Court’s judgment in the case of ITC Ltd. Thus, no case has been made, by the department that the gaskets exported by them are mis-declared, with incontrovertible evidence. Therefore, the impugned goods are not liable for confiscation and consequently no fine in lieu of confiscation and no penalty can be imposed. In view of the discussion above, no case has been made for recovery of drawback already sanctioned. In so far as the drawback of Rs. 7,98,000, which is yet to be sanctioned, we find that the issue is premature for the Bench to interfere. The competent authority may examine the same and grant the drawback if found otherwise eligible. Appeal allowed. ISSUES: Whether the export goods, specifically gaskets, were mis-declared to fraudulently claim drawback and other export incentives under the Customs Act, 1962.Whether statements recorded during investigation can be relied upon without following the procedure prescribed under Section 138B of the Customs Act, 1962, including examination and cross-examination of witnesses.Whether the imposition of redemption fine is valid in the absence of seizure or confiscation of goods.Whether the department can recover drawback already sanctioned without challenging the original assessment order.Whether the principles of natural justice were violated by denying cross-examination of persons whose statements were relied upon.Whether findings in respect of other goods exported by related parties can be extrapolated to the export of gaskets by the appellants.Whether the suppliers alleged to be non-existent were properly investigated and verified by the department. RULINGS / HOLDINGS: The court held that the impugned goods (gaskets) were examined, tested, and allowed for export by officers, and there was no evidence of mis-declaration with respect to these goods; thus, the goods are not liable for confiscation and no fine or penalty can be imposed.The adjudicating authority erred in relying on statements recorded during investigation without following the mandatory procedure under Section 138B of the Customs Act, including examination and cross-examination of witnesses; such statements cannot be admitted as evidence.Redemption fine cannot be imposed where goods were neither seized nor liable for confiscation at the time of adjudication, as per Section 125 of the Customs Act.Drawback already sanctioned after due assessment cannot be recovered without first challenging the original assessment order; collateral challenge through separate show cause notice is not legally tenable.The denial of cross-examination of witnesses whose statements were relied upon amounted to violation of the principles of natural justice, vitiating the proceedings.The findings regarding mis-declaration of other goods exported by related persons cannot be extrapolated to the export of gaskets by the appellants without corroborative evidence specific to those goods.The department failed to conduct proper inquiries at all addresses of the alleged non-existent suppliers; the adjudicating authority did not examine these suppliers under Section 138B, thereby weakening the case against the appellants. RATIONALE: The court applied the legal framework under the Customs Act, 1962, particularly Sections 113(d), 114(iii), 125, 138B, and the procedural safeguards under Section 9D of the Central Excise Act (analogous to Section 138B of Customs Act) regarding admissibility of statements recorded during investigation.The court relied on precedent emphasizing that statements recorded during investigation must be admitted in evidence only after examination and cross-examination of the declarants before the adjudicating authority, ensuring compliance with natural justice.The principle that redemption fine is an option only when goods are liable for confiscation and are available at the time of adjudication was reaffirmed, consistent with statutory language and judicial precedents.The court followed the Supreme Court's rulings on the finality of assessment orders and the proper procedure for recovery of drawback or refund claims, holding that such recovery cannot be initiated without challenging the original assessment.The court recognized the importance of specific and corroborative evidence relating to the goods in question, rejecting extrapolation of findings from other investigations without direct proof.The decision reflects adherence to statutory procedural safeguards and the doctrine that administrative orders must be supported by evidence admissible under law and respect principles of natural justice.