Statements under Customs Act Section 108 inadmissible; penalties under Sections 114A and 114AA quashed; DFIA benefits upheld

The CESTAT New Delhi held that statements under section 108 of the Customs Act were inadmissible as the procedure under section 138B was not followed. Penalty under section 114A was quashed since no duty short payment was found. The Tribunal found no valid basis to reject the declared retail sale price or re-determine it under rule 6 of the 2008 Rules, as no machinery exists for CVD valuation when retail sale price is undeclared and the department's reliance on MRP lists was improper. Penalty under section 114AA was set aside due to lack of evidence of intentional mis-declaration or misuse of DFIA scrips. Duty demands related to Annexure A-2 and A-4 were also unsustainable as the appellant was entitled to DFIA benefits. The Principal Commissioner's order dated 24.09.2019 was set aside and the appeal allowed.

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ISSUES:

Whether the declared retail sale price of imported goods is liable to be rejected and re-determined under Rule 6 of the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 read with Section 4A of the Central Excise Act, 1944.Whether the duty exemption claimed under Notification No. 98/2009-Cus dated 11.09.2009 for goods imported against Duty Free Import Authorisation (DFIA) scrips is admissible.Whether the demand of differential duty under Section 28 of the Customs Act, 1962 along with interest is sustainable.Whether the imported goods are liable to confiscation under Sections 111(d), 111(m), and/or 111(o) of the Customs Act, 1962.Whether penalties under Sections 112(a), 112(b), 114A, and 114AA of the Customs Act, 1962 are imposable on the appellant and the Director.Whether statements recorded under Section 108 of the Customs Act are admissible as evidence without compliance with Section 138B of the Customs Act.Whether the imported lacquers were mis-utilized by importing goods meant for wood application instead of leather industry inputs under DFIA scrips.

RULINGS / HOLDINGS:

The declared retail sale price could not be rejected or re-determined as there was no statutory machinery prescribed under the Customs Tariff Act to determine retail sale price for imported goods, and the department failed to demonstrate that the declared price was incorrect; thus, rejection under Rule 6 was not justified.The duty exemption under Notification No. 98/2009-Cus is admissible as the imported lacquers were "capable of being used in the leather industry as well as in the wood industry," and the appellant was entitled to benefit under the DFIA scheme despite the original exporters being leather exporters.The demand of differential duty and interest under Section 28 of the Customs Act is unsustainable due to the incorrect rejection of declared retail sale price and the admissibility of duty exemption under DFIA.The goods are not liable to confiscation under Sections 111(d), 111(m), and/or 111(o) of the Customs Act, as the confiscation was based on statements recorded under Section 108 which were inadmissible without compliance with Section 138B.Penalties imposed under Sections 112(a), 112(b), 114A, and 114AA of the Customs Act are not sustainable as there was no mis-declaration of retail sale price or mis-utilization of DFIA scrips proven against the appellant or the Director.Statements recorded under Section 108 of the Customs Act cannot be relied upon as evidence unless the person making the statement is examined as a witness before the adjudicating authority and the authority forms an opinion to admit such statements in the interests of justice, as mandated by Section 138B; failure to follow this procedure renders such statements inadmissible.The allegation of mis-utilisation of DFIA scrips by importing lacquers meant for wood application instead of leather inputs is rejected based on expert test reports and policy circulars clarifying that alternative inputs capable of being used in export products are permissible under the DFIA scheme.

RATIONALE:

The Court applied the statutory framework under the Central Excise Act, 1944 (Section 4A), Customs Act, 1962 (Sections 12, 14, 28, 111, 112, 114A, 114AA, 138B), and the Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008, along with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.The Court relied on precedents establishing that retail sale price determination machinery under the Central Excise Rules does not automatically apply to customs valuation for CVD, and that differential duty demands cannot be raised without prescribed statutory procedure.The Court considered expert chemical test reports and DGFT policy circulars clarifying the flexibility in use of alternative inputs under the DFIA scheme, rejecting narrow interpretations limiting usage only to leather industry.The Court emphasized the mandatory procedural safeguards under Section 138B of the Customs Act for admissibility of statements recorded during inquiry, requiring examination of the witness before the adjudicating authority and an opportunity for cross-examination, to prevent reliance on potentially coerced statements.The Court noted a doctrinal consistency with prior Tribunal decisions affirming that duty exemption under DFIA must be allowed if imported inputs are capable of being used in export products, even if originally issued to exporters of different but related products.The Court rejected the Principal Commissioner's findings where they conflicted with statutory provisions and established case law, setting aside the order imposing duty demands, confiscation, and penalties.

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