2025 (9) TMI 486 - AT - Customs

Statements under s.108 Customs inadmissible without s.138B procedure; proviso to s.3(2) Tariff Act inapplicable, demand set aside

M/s D.D. Industries Ltd Versus Commissioner of Customs, New Delhi

CESTAT held that statements under s.108 Customs are inadmissible where the s.138B procedure was not followed, so such statements could not support ... Power of Commissioner (Appeals) to remand the matter to the adjudicating authority - whether the statements made under section 108 of the Customs Act can be relied upon when the procedure contemplated under section 138B of the Customs has not been followed? - HELD THAT:- The statements could not have been relied upon as the procedure contemplated under section 138B of the Customs Act was not followed. This is what was held by the 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, 1944 held that '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.' It is seen that “and” is between clauses (a) and (b) to the proviso. This means that both the conditions have to be simultaneously satisfied. Thus, there should be a requirement under the 1976 Act to declare on the package the retail sale price and there must be a notification under section 4A of the Central Excise Act in respect of said article. The demand has been confirmed basis the entry at Serial No. 108 of Notification dated 24.12.2008 issued under section 4A of the Central Excise Act. There is no finding regarding the applicability of the provisions of the 1976 Act. The proviso to section 3(2) of the Tariff Act would, therefore, not be attracted. The Commissioner (Appeals) has held that CVD has to be determined on the basis of retail price because of the applicability of the proviso to section 3(2) of the Tariff Act. As the proviso is not attracted in the present case, the finding recorded by the Commissioner (Appeals) cannot be sustained - the impugned order dated 08.08.2012 passed by the Commissioner (Appeals) in so far as it confirms the demand under section 28(1) of the Customs Act with interest and also imposes penalty upon the appellant under section 112(a) of the Customs Act, cannot be sustained and is set aside. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether statements recorded under section 108 of the Customs Act can be relied upon by the adjudicating authority where the safeguards/procedure prescribed by section 138B of the Customs Act have not been complied with. 2. Whether the proviso to section 3(2) of the Customs Tariff Act (read with section 4A of the Central Excise Act and the Standards of Weights and Measures Act, 1976) applies so as to make the retail sale price (RSP) the deemed value of imported CNG kits/components (i.e., whether both limbs (a) and (b) of the proviso are satisfied). 3. Whether CNG kits/components amount to 'parts, components and assemblies of automobiles' within Notification No. 49/2008-CE (N.T.) (Serial No. 108) so as to attract a 30% abatement on RSP and consequent RSP-based assessment. 4. Whether the Commissioner (Appeals) had jurisdiction/power to remand the matter to the adjudicating authority for re-working the demand/penalty calculation. 5. Whether imposition of penalty under section 112(a) of the Customs Act by the Commissioner (Appeals) was legally sustainable when penalty under section 112(a) was not proposed in the show cause notice and no specific finding under section 111 (confiscation) was recorded. 6. Whether the extended period of limitation under proviso to section 28(1) of the Customs Act was invokable on the facts of the case. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility and reliance on statements under section 108 without procedure under section 138B Legal framework: Sections 108 and 138B of the Customs Act govern recording of statements during inquiry and their admissibility in proceedings; section 138B prescribes that statements recorded during inquiry are relevant to prove facts only when the maker is examined as a witness before the adjudicating authority and the authority forms an opinion to admit the statement, with opportunity for cross-examination (parallel to sections 14/9D of Central Excise Act). Precedent Treatment: Tribunal decisions (cited in the judgment) have held the procedure under section 138B to be mandatory; statements recorded under inquiry cannot be relied upon unless admissibility procedure and opportunity for cross-examination are provided. Interpretation and reasoning: The Court accepted the Tribunal's reasoning that statements recorded during inquiry may be the product of compulsion/coercion; to neutralize that risk the statutory procedure requires examination of the declarant as witness before admitting the statement. Because the adjudicating authority based material findings on section 108 statements without compliance with section 138B safeguards, those statements could not furnish a reliable basis for adverse findings. Ratio vs. Obiter: Ratio - mandatory nature of section 138B procedure for admissibility of section 108 statements; reliance on such statements without compliance is impermissible. This forms a central basis for setting aside findings that depended on those statements. Conclusions: Statements under section 108 could not be relied upon in this case because the procedural safeguards of section 138B were not followed; findings founded on those statements are unsustainable. Issue 2: Applicability of proviso to section 3(2) of the Customs Tariff Act (interaction with SWM Act and section 4A CE Act) Legal framework: Proviso to section 3(2) deems value to be RSP only where (a) the article is required by the Standards of Weights and Measures Act, 1976 (or rules/other law) to declare RSP on the package; and (b) the like article is specified by notification under section 4A of the Central Excise Act. Both conditions are connected by 'and', indicating simultaneous satisfaction is necessary. Precedent Treatment: Supreme Court's decision in Jayanti Foods Processing (as reproduced in the judgment) establishes that section 4A applies only where there is a statutory requirement to declare MRP on the package under the SWM Act/rules and a notification under section 4A; mere voluntary display of MRP or a section 4A notification alone is insufficient. Interpretation and reasoning: The Tribunal held that both limbs (a) and (b) must be satisfied. In the present case, while there was a notification under section 4A (Serial No. 108), there was no finding or evidence that a statutory requirement under the SWM Act to declare RSP on the package applied to the imported goods. Hence the proviso to section 3(2) was not attracted. Ratio vs. Obiter: Ratio - both conditions in proviso must be simultaneously satisfied; absence of SWM Act requirement precludes deeming value to RSP even if section 4A notification exists. Conclusions: The proviso to section 3(2) did not apply; therefore RSP-based valuation and consequent demand founded on that proviso could not be sustained. Issue 3: Characterisation of goods as 'parts, components and assemblies of automobiles' (Serial No. 108) and consequence of such characterisation Legal framework: Notification No. 49/2008-CE (N.T.) Serial No. 108 covers 'parts, components and assemblies of automobiles' and prescribes 30% abatement on RSP under section 4A; interaction with proviso to section 3(2) requires SWM Act applicability (see Issue 2). Precedent Treatment: Adjudicating authority had held CNG kits/components suitable for use solely or principally in internal combustion engines and therefore falling within 'parts, components and assemblies of automobiles' (relied in part on statements recorded under section 108). Interpretation and reasoning: The Court accepted that the adjudicating authority and Commissioner (Appeals) treated the goods as parts/components of automobiles, but stressed that this finding was materially founded on inadmissible section 108 statements (see Issue 1). Further, even if Notification entry applied, the proviso to section 3(2) would still require SWM Act applicability which was not demonstrated (see Issue 2). Ratio vs. Obiter: Obiter with respect to classification nuance - Court did not finally determine intrinsic character of the goods as parts vs accessories because infringement by reliance on inadmissible evidence and failure to satisfy proviso precluded sustaining RSP valuation. The essential ratio is evidentiary and statutory requirement failure rather than definitive classification. Conclusions: The classification finding cannot be sustained as a basis for RSP-based duty because it relied on inadmissible statements and did not satisfy the statutory prerequisites of the proviso to section 3(2). Issue 4: Power of Commissioner (Appeals) to remand the matter Legal framework: Appellate authority's power to remand matters to adjudicating authority for limited purposes (e.g., re-calculation) is recognized; scope depends on whether remand alters core issues or only administrative/quantum calculations. Precedent Treatment: Department contended remand was impermissible; Court examined remand purpose. Interpretation and reasoning: The Commissioner (Appeals) remanded only for re-working the demand and calculation of penalty after holding extended period inapplicable and striking down penalties against specified individuals. The remand did not require re-determination of substantive issues or facts but was confined to quantum/penalty arithmetic. Ratio vs. Obiter: Ratio - remand limited to calculation/quantum is within appellate power and not impermissible where substantive issues are not reopened. Conclusions: The Commissioner (Appeals) validly remanded the matter to the adjudicating authority for re-working amounts; departmental appeals against remand were dismissed. Issue 5: Validity of imposing penalty under section 112(a) when not proposed and absence of confiscation finding Legal framework: Penalties must be imposed in accordance with the show cause notice and statutory prescriptions; section 114A and section 112(a) operate differently and consequences/debarments are specifically provided; confiscation under section 111 requires identification to sustain certain penalties. Precedent Treatment: Commissioner (Appeals) set aside penalty under section 114A but imposed penalty under section 112(a) because 114A was held inapplicable and fifth proviso to 114A excludes it if 112 was proposed - yet 112 was not proposed in the original SCN. Interpretation and reasoning: The Court held that substituting or imposing section 112(a) penalty when it was not proposed in the SCN and without recording the statutory finding (under which clause of section 111 goods were liable to confiscation) was impermissible. Imposition of penalty cannot be back-filled merely because one penalty provision is struck down; the show cause notice must have proposed the penalty or due procedure must be followed and requisite findings recorded. Ratio vs. Obiter: Ratio - penalty under section 112(a) cannot be imposed where it was not proposed in the SCN and no statutory basis (confiscation clause/finding) is recorded; such imposition is unsustainable. Conclusions: Penalty under section 112(a) imposed by Commissioner (Appeals) was legally unsustainable and liable to be set aside. Issue 6: Extended period of limitation under proviso to section 28(1) and interest under section 28AB Legal framework: Proviso to section 28(1) permits extended limitation where mis-declaration with intent to evade duty is shown; interest under section 28AB flows from confirmed duty liability. Precedent Treatment: Commissioner (Appeals) had correctly dropped extended period demand (proviso) and penalties on identified individuals; nevertheless confirmed demand for the normal period which depended on RSP valuation (discussed Issues 1-3). Interpretation and reasoning: Because the RSP-based valuation was unsustainable (Issues 1-3), confirmation of demand even for the normal period could not be sustained; consequently interest under section 28AB tied to that demand also fell. Further, factual record did not establish elements necessary to invoke extended period (no mis-declaration regarding description/quantity/value; goods were examined and assessed at time of import). Ratio vs. Obiter: Ratio - absent factual foundation for proviso to section 28(1) and absent sustainable duty confirmation, extended period and interest cannot be imposed. Conclusions: Extended period was inapplicable on facts; demand for normal period and interest could not be sustained in view of failure of RSP valuation; therefore demand and interest under sections 28(1) and 28AB and penalties premised on that demand were set aside.