Penalties under Customs Act Sections 112 and 114AA Set Aside Due to Improper Evidence and Procedure

The CESTAT New Delhi held that penalties under sections 112 and 114AA of the Customs Act, 1962, could not be imposed on the appellant for alleged violation related to export-bound gold jewellery. Statements made under section 108 were inadmissible as evidence since the procedure under section 138B, including examination and cross-examination of witnesses, was not followed. Further, there was no proof that the appellant knowingly made false or incorrect declarations, nor was the appellant involved in documentation or signing of clearance documents. Consequently, the penalties under sections 112 and 114AA were set aside, and the appeal was allowed.

---

---

ISSUES:

Whether penalty under section 112 of the Customs Act, 1962 can be imposed for diversion of export bound gold jewellery to the domestic market when the second proviso to Notification No. 57/2000-Cus dated 08.05.2000 had been omitted.Whether statements recorded under section 108 of the Customs Act, 1962 can be relied upon for imposing penalty under section 112 without compliance with the procedure under section 138B of the Customs Act.Whether penalty under section 114AA of the Customs Act, 1962 can be imposed for knowingly or intentionally making false or incorrect declarations when the appellant neither signed nor caused to be signed any relevant documents.

RULINGS / HOLDINGS:

Penalty under section 112 of the Customs Act cannot be imposed based on the failure to fulfill conditions of the Notification as the second proviso requiring execution of a bond was omitted by Notification No. 33/2015-Cus dated 15.05.2015, and thus the condition was not in existence.Statements recorded under section 108 of the Customs Act are not relevant or admissible for imposing penalty under section 112 unless the procedure under section 138B is followed, which requires examination of the declarant as a witness before the adjudicating authority and forming an opinion to admit the statement in evidence, followed by an opportunity for cross-examination.Penalty under section 114AA cannot be imposed in absence of evidence that the appellant knowingly or intentionally made, signed or caused to be signed any false or incorrect declaration or document; mere involvement without documentation or signing is insufficient.

RATIONALE:

The legal framework involves Notification No. 57/2000-Cus and its amendment by Notification No. 33/2015-Cus, which omitted the second proviso imposing bond execution requirements, thereby removing the condition that the appellant allegedly violated.The Court applied statutory provisions of the Customs Act, specifically sections 112, 114AA, 108, and 138B, along with judicial precedents interpreting the mandatory procedural safeguards under section 138B for admitting statements recorded during inquiry or investigation.Reliance on statements under section 108 without compliance with section 138B was held impermissible, referencing Tribunal decisions emphasizing the mandatory nature of examination and cross-examination before admitting such statements as evidence.The Court rejected imposition of penalty under section 114AA in absence of direct involvement in documentation or false declarations by the appellant, underscoring the requirement of "knowingly or intentionally" making false statements for penalty applicability.

---