2025 (8) TMI 510 - AT - Customs

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

M/s Esson Furnishing Pvt Ltd. Versus Principal Commissioner, Customs ICD, Tughlakabad New Delhi And Suveet Kalra Director of M/s Esson Furnishing Pvt Ltd. Versus Principal Commissioner, Customs ICD, Tughlakabad New Delhi

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. ... Determination of retail sale price - mis-utilisation of DFIA scrips - suppression of facts - extended period of limitation - Levy of penalty u/s 114AA of the Customs Act, 1962 - HELD THAT:- This issue was examined by a Division Bench of this Tribunal in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur [2025 (4) TMI 441 - CESTAT NEW DELHI]. The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act and observed that 'What, therefore, follows is that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain.' - the statements made under section 108 of the Customs Act would not be relevant as the procedure contemplated under section 138B of the Custom Act was not followed in the present case. The order passed by the Principal Commissioner also imposes penalty upon the appellant under section 114A of the Customs Act. As it has been found that duty was not short paid, penalty under section 114A of the Customs Act could not have been imposed upon the appellant. Determination of the retail sale price - HELD THAT:- There is no dispute that goods imported by the appellant were classifiable under CTH 3208 which is covered under the Notification dated 24.12.2008 issued under section 4A(1) of the Central Excise Act with abatement of 33% of retail sale price. Such goods are, therefore, assessable to CVD on the basis of retail sale price in terms of the first proviso to section 3(2) of the Tariff Act - In the present case, the Commissioner has accepted the proposal in the show cause notice to reject the retail sale price declared on the imported goods and to re-determine it by applying rule 6 of the 2008 Rules. The Tribunal in ABB Ltd vs CC, Bangalore [2010 (12) TMI 1027 - CESTAT, BANGALORE] held that though the Central Excise (Determination of RSP of Excisable Goods) Rues 2008 prescribes the manner of ascertaining the retail sale price of excisable goods but, so far as CVD under Serial No. 3 of the Tariff Act is concerned, the Government has yet to prescribe the manner to ascertain retail sale price when the importer does not declare the retail sale price on the packages imported. Thus, in the absence of a machinery to determine the relevant retail sale price, no demand of differential CVD could have been validly raised. This apart there is nothing on the record to show that the retail sale price declared on the imported goods was found to be incorrect. The two MRP Lists w.e.f. 05.09.2013 and 01.01.2015 found by the department during the course of investigation have been made the basis of re-determining the retail sale price for the entire period covered by the show cause notice - It was also observed that some products imported by the appellant were not mentioned in the MRP Lists. This cannot be the basis for having a doubt about the truth or accuracy of the value declared in relation to imported goods for rejecting the declared value in terms of rule 12 of the 2007 Rules - retail sale price could not have been re-determined. Levy of penalty u/s 114AA of the Customs Act - HELD THAT:- The Principal Commissioner has found that he was responsible for import, purchases, sales and marketing of all the products imported by the appellant but he did not intentionally declare the actual retail sale price and got the goods cleared by mis- declaring the retail sale price. The Principal Commissioner has also noted that Suveet Kalra had mis-utilised the DFIA scrips. It has been found as a fact that neither had Suveet Kalra mis-declared the actual retail sale price nor he had mis-utilised the DFIA scripts. In such a situation, penalty under section 114AA of the Customs Act could not have been imposed upon him - Insofar a duty demands pertaining to Annexure A-2 and A-4 are concerned, the same cannot be sustained as the appellant is entitled to avail the benefit of duty free imports of Lacquers under the DFIAs. The order dated 24.09.2019 passed by the Principal Commissioner cannot, therefore, be sustained and is set aside - Appeal allowed. 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.