2025 (9) TMI 415 - AT - Customs

Penalty under s.114AA set aside where scrips issued by officer's mistake; s.108 statements invalid without s.138B procedure

PRINCIPAL COMMISSIONER, CUSTOMS (IMPORT) -NEW DELHI (ICD TKD) Versus SH. ATUL KISHORE GUGLANI

PRINCIPAL COMMISSIONER, CUSTOMS (IMPORT) -NEW DELHI (ICD TKD) Versus SH. ATUL KISHORE GUGLANI - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether statements recorded under section 108 of the Customs Act can be relied upon as evidence for imposing penalty where the procedure contemplated under section 138B of the Customs Act has not been followed. 2. Whether imposition of penalty under section 114AA of the Customs Act can be sustained solely on the basis of a statement recorded under section 108 when no opportunity for examination as witness and cross-examination was afforded in terms of section 138B. 3. Whether absence of direct evidence linking the alleged contravener to fraudulent registration or any pecuniary benefit precludes imposition of penalty under the Customs Act when reliance is placed only upon an untested statement recorded during inquiry. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of statements under section 108 without compliance with section 138B Legal framework: Section 108 empowers officers to summon and record statements during inquiry. Section 138B(1)(b) requires that statements recorded under section 108 be treated as relevant for proving facts only when the person who made the statement is examined as a witness before the adjudicating authority and the authority forms an opinion that, in the interests of justice, the statement should be admitted in evidence; thereafter the person against whom the statement is made is to be afforded opportunity of cross-examination (subject to exceptions such as the witness being dead or not found). Precedent treatment: Tribunal authority examined the analogous provisions in central excise law and customs and held that the procedure in the proviso is mandatory; several High Court and Tribunal decisions were considered and applied to conclude that failure to follow the procedure renders the inquiry statements inadmissible for proving truth of their contents. Interpretation and reasoning: The Court adopts the reasoning that statements recorded during departmental inquiry are susceptible to coercion/compulsion and therefore the statutory safeguards in section 138B are intended to neutralize that risk by requiring examination as witness before the adjudicating authority and judicial consideration of admissibility, followed by cross-examination. A bare reliance on a departmental statement without following this procedure bypasses the statutory protection and cannot be treated as substantive evidence to establish guilt or liability. Ratio vs. Obiter: Ratio - The statutory procedure in section 138B is mandatory; statements under section 108 are inadmissible for proving the facts they contain unless section 138B procedure is complied with. Obiter - Commentary on the rationale (coercion risk) supports the ratio. Conclusion: Statements recorded under section 108 cannot be relied upon by an adjudicating officer to prove facts for imposing penalties unless the procedural safeguards in section 138B are complied with (examination as witness before the adjudicating authority, formation of opinion on admissibility, and opportunity for cross-examination where applicable). Issue 2 - Validity of imposing penalty under section 114AA based solely on an untested inquiry statement Legal framework: Section 114AA prescribes penalty for certain offences under the Customs Act; imposition requires proof of culpability in accordance with principles of evidence and statutory safeguards applicable to departmental inquiries. Precedent treatment: The Tribunal's treatment of section 138B was applied to customs penalty proceedings; prior judicial pronouncements were followed in holding that where section 138B is applicable, the adjudicating authority must adhere to its requirements before placing reliance on inquiry statements to impose penalties. Interpretation and reasoning: The Joint Commissioner imposed penalty solely on the basis of a statement recorded under section 108 without complying with section 138B and without providing cross-examination. The Court accepted the Commissioner (Appeals)'s finding that such reliance was impermissible and that the necessary procedural steps to admit the statement into evidence were not taken. Given the mandatory nature of the procedure, the penalty could not be sustained. Ratio vs. Obiter: Ratio - Imposition of penalty under section 114AA cannot be sustained where it rests solely on an inquiry statement recorded under section 108 unless section 138B requirements are met. Obiter - Observations on fairness and evidence standard underline the ratio. Conclusion: The penalty under section 114AA imposed solely on the untested statement recorded under section 108 is unsustainable where the procedure in section 138B was not followed. Issue 3 - Absence of independent evidence of fraudulent registration or pecuniary benefit and its impact on penalty imposition Legal framework: Principles of proof in adjudicatory proceedings require admissible evidence establishing culpability and, where relevant, a link to fraudulent acts or benefit derived. Precedent treatment: The adjudicative approach in the impugned appeal recognized that mere introduction or facilitation without evidence of involvement in fraudulent registration or receipt of pecuniary benefit is insufficient for imposing penalty; prior authorities were relied upon to support the requirement of concrete proof. Interpretation and reasoning: The Commissioner (Appeals) recorded factual findings that (a) the appellant was neither importer nor CHA who filed the bills of entry; (b) the appellant's role was limited to introducing parties dealing in duty free scrips; (c) sellers of scrips were untraceable; (d) no evidence showed appellant's responsibility for fraudulent registration or prior knowledge of any mistake by the officer; and (e) the scrips appeared on the EDI system and there was no proof of malafides. In the absence of admissible inquiry statements (see Issues 1-2) and independent evidence linking the appellant to fraud or benefit, imposition of penalty was not supported by the record. Ratio vs. Obiter: Ratio - Where there is no admissible evidence of involvement in fraudulent registration or receipt of pecuniary gain, penalty cannot be imposed merely on suspicion or untested statements. Obiter - Observations on the provenance of EDI entries and innocence where scrips appeared genuine are explanatory. Conclusion: Absence of admissible evidence establishing responsibility for fraudulent registration or pecuniary benefit precludes sustaining penalty; the appellate authority correctly set aside the penalty in light of absence of such proof and non-compliance with evidentiary safeguards. Cross-references and Outcome Cross-reference: Issue 1 (mandatory nature of section 138B procedure) is determinative of Issues 2 and 3 because inadmissibility of the inquiry statement removes the sole evidentiary basis for the penalty and, coupled with lack of independent evidence (Issue 3), mandates reversal of the penalty. Final conclusion: The appellate authority correctly held that reliance on the statement under section 108 without compliance with section 138B was impermissible, and in the absence of any other admissible evidence linking the respondent to fraudulent registration or pecuniary gain, the penalties under section 114AA could not be sustained; the department's appeals lack merit and were dismissed.