2025 (10) TMI 798 - AT - Customs

Omission of Notification proviso removed duty obligation; recovery under Section 28AA and penalties under Sections 112 and 114AA set aside

CESTAT held that omission of the second proviso to the Notification during 21.09.2015-05.10.2015 removed the obligation relied on by authorities, so ... Challenge to customs duty forgone with interest under section 28AA of Customs Act, 1962 - failure to abide by the conditions of the N/N. 57/2000-Cus dated 08.05.2000 [the Notification] by enforcing the bond executed by the importer of gold with the customs authorities - levy of penalty u/s 112 of the Customs Act - relevancy of statements relied upon. Whether the second proviso to the Notification had been omitted during the relevant period from 21.09.2015 to 21.10.2015? - HELD THAT:- On omission of the second proviso, the condition that required MMTC to execute a bond with the Assistant Commissioner to the effect that MMTC may either itself or through other exporters export gold equivalent to the imported gold within a period of 120 days from the issue of gold to the exporters was not in existence. The Principal Commissioner is, therefore, not justified in asserting that either the MMTC or the appellant had failed to fulfil the conditions stipulated in the Notification. The appellant may have given an undertaking to the MMTC and the MMTC may have executed a bond with the Assistant Commissioner, but as the second proviso to the Notification had been omitted on 15.05.2015, and the period involved is from 21.09.2015 to 05.10.2015 recovery of duty from the appellant could not have been made. Any demand, therefore, made for non-fulfillment of the conditions stipulated in the second proviso to the Notification is without any authority of law. In view of the decision of the Tribunal in M/s. Surya Wires Pvt. Ltd. [2025 (4) TMI 441 - CESTAT NEW DELHI], it has to be held that the statements made under section 108 of the Customs Act, on which reliance has been placed by the Principal Commissioner, could not have been considered as relevant. The Principal Commissioner has also referred to a Circular dated 14.10.2009 which prescribes a detailed procedure for implementing the provisions of the Notification and from this has concluded that the exporter is equally responsible/accountable for compliance of the conditions of the Notification - This Circular dated 14.10.2009 would have no application to the facts of the present appeal for the simple reason that the Circular refers to the second proviso to the Notification which was omitted by a Notification dated 15.05.2015 and the period involved in this appeal is after 15.05.2015. It would, therefore, not be necessary to examine the contention advanced by the learned counsel for the appellant that recovery could have been made from the appellant only under the provisions of section 28 of the Customs Act and not in terms of the bond since the recovery in the present case has been found to be without authority of law. Penalty, for the aforesaid reasons, could not have been imposed upon the appellant under section 112 of the Customs Act. Penalty on partner and manager u/s 114AA of the Customs Act - HELD THAT:- This section provides for penalty for use of false and incorrect material. Not only is the finding based on the statements made by persons u/s 108 of the Customs Act but even otherwise it has not been pointed out which statement was made partner and manager knowingly or intentionally or they had made any declaration or statement which was found incorrect in any material particular. In any view of the matter, as the demand could not have been made, the imposition of penalty upon partner and manager cannot be sustained. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the second proviso to Notification No.57/2000-Cus (requiring execution of a bond and export obligation within 120 days) was in force during the period 21.09.2015 to 21.10.2015 and, if omitted, whether demand for duty forgone and penal consequences could be levied for alleged non-fulfilment of that proviso. 2. Whether statements recorded under section 108 of the Customs Act (recorded during inquiry) could be relied upon by the adjudicating authority for proving diversion/non-export without complying with the procedure prescribed by section 138B of the Customs Act (i.e., examination of makers of statements before the adjudicating authority and forming an opinion on admissibility, with opportunity for cross-examination). 3. Whether a departmental circular prescribing procedural safeguards and exporter obligations (in relation to the now-omitted proviso) applied to the period after omission of the second proviso and could independently sustain a finding of liability. 4. Whether penalties under sections 112 and 114AA of the Customs Act could be sustained against the exporter and responsible individuals where (a) the foundational statutory proviso had been omitted and (b) reliance was placed on statements recorded under section 108 without following section 138B procedure. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Effect of omission of the second proviso to Notification No.57/2000-Cus during the relevant period Legal framework: Notifications under the Customs Act create conditional exemptions; conditions specified therein (including provisos) determine obligations of nominated agencies and exporters. An amendment/omission to a notification operates from its effective date and removes the statutory condition thereafter. Precedent Treatment: Not directly contested by earlier precedents in the text; Tribunal treats notification amendment as determinative of obligations. Interpretation and reasoning: The subsequent Notification No.33/2015-Cus dated 15.05.2015 expressly omitted the second proviso to Notification No.57/2000-Cus. That proviso had required nominated agencies/importers to execute a bond undertaking export of jewellery equivalent to imported gold within 120 days. Since the period in dispute (21.09.2015-21.10.2015) is after the omission date, the statutory condition no longer existed. The Principal Commissioner's order premised the demand on non-fulfilment of that proviso; but omission of the proviso removed the legal basis for such a demand. Ratio vs. Obiter: Ratio - where a statutory proviso creating an export obligation has been omitted before the relevant period, no demand can be sustained for non-fulfilment of that omitted proviso; any recovery predicated solely on that omitted condition is without authority of law. Conclusion: The proviso was omitted before the relevant period; therefore the demand for duty forgone founded on non-fulfilment of that proviso was unauthorized and must be set aside. Issue 2 - Admissibility and evidentiary value of statements recorded under section 108 vis-à-vis section 138B procedure Legal framework: Section 108 permits recording of statements during inquiry. Section 138B prescribes the conditions under which such statements may be treated as relevant in adjudication - either where clause (a) exceptions apply (dead, cannot be found, incapable, kept away by adverse party, or presence cannot be obtained without unreasonable delay/expense) or where clause (b) requires the person who made the statement to be examined as a witness before the adjudicating authority and the authority to form an opinion to admit the statement in evidence, followed by allowing cross-examination. Precedent Treatment: Tribunal relied on its prior decisions (including those summarized from Surya Wires and Drolia Electrosteel) and various High Court authorities to hold that the s.138B procedure is mandatory; failure to comply renders statements recorded under s.108 inadmissible as proof of facts in adjudication. Interpretation and reasoning: The adjudicating authority relied on several statements recorded under section 108 to infer a modus operandi and to connect the exporter to diversion. However, the statutory admission procedure under section 138B(1)(b) was not followed - the persons who made the statements were not examined as witnesses before the adjudicating authority and no reasoned opinion admitting their statements into evidence was recorded; cross-examination opportunities were not provided. The rationale of the mandatory procedure (to guard against coerced/confessional statements and to protect procedural fairness) was emphasized. Consequently, those statements could not be treated as relevant evidence to sustain the findings. Ratio vs. Obiter: Ratio - statements recorded under s.108 cannot be relied on for proving facts in adjudication unless the s.138B(1) procedure (either clause (a) or clause (b)) is complied with; non-compliance renders such statements inadmissible. Conclusion: The statements relied upon by the Principal Commissioner were inadmissible for want of compliance with section 138B; they could not form any basis for demand, confiscation or imposition of penalty. Issue 3 - Applicability of the DGEP circular (14.10.2009) after omission of the second proviso and its independent role in sustaining liability Legal framework: Administrative circulars/guidelines implement procedures relating to statutory schemes but cannot re-impose the legal conditions that have been removed by amendment or omission of statutory notifications. Precedent Treatment: Tribunal held the circular applied to the procedural regime when the proviso existed, but cannot supplant statutory amendment. Interpretation and reasoning: The circular prescribes registration/undertaking procedure for exporters receiving precious metal from nominated agencies and references compliance with the second proviso. Once the second proviso was omitted by the 15.05.2015 notification, the circular's procedural prescriptions that hinge on that proviso have no application to the post-omission period. The circular cannot be used as a substitute legal basis to resurrect the omitted statutory obligation or to support a demand or penalty founded on that omitted proviso. Ratio vs. Obiter: Ratio - departmental circulars cannot be used to impose or revive statutory conditions that have been formally omitted; they do not create independent substantive obligations in place of an omitted statutory proviso. Conclusion: The circular did not apply to the period after omission of the second proviso and could not sustain the finding of liability. Issue 4 - Sustainability of penalties under sections 112 and 114AA where foundational demand is without authority and evidence inadmissible Legal framework: Section 112 allows penalty for contravention of customs provisions; section 114AA penalizes use of false or incorrect material. Penalties require a valid foundation of statutory breach and proof of culpable act or use of incorrect material/personally attributable misrepresentation as per statutory thresholds. Precedent Treatment: Tribunal applied the principles that penal consequences cannot be sustained if the underlying demand is without legal foundation or is based on inadmissible evidence; imposition on individuals requires specific findings of knowing/intentional misstatement. Interpretation and reasoning: Given (a) the statutory proviso forming the basis of the demand was omitted and thus no legal breach of that proviso occurred during the relevant period, and (b) the departmental case rested on statements recorded under section 108 which were inadmissible for want of section 138B compliance, there was no legally sustainable basis to impose penalty under section 112 on the exporter. As to penalties under section 114AA on responsible individuals, the order did not identify any specific statement or declaration made by those individuals which was knowingly or intentionally false; and in any event the primary demand itself could not be sustained. Penal measures premised on inadmissible evidence and a non-existent statutory obligation cannot be upheld. Ratio vs. Obiter: Ratio - penalties cannot be sustained where (i) the statutory condition forming the basis of the demand was omitted before the relevant period, and (ii) the evidence relied upon (statements under s.108) is inadmissible for failure to comply with s.138B; imposition of personal penalties requires clear proof of intentional or knowing use of false/incorrect material. Conclusion: Penalties imposed under sections 112 and 114AA could not be sustained and were appropriately set aside. Final Disposition (as derived from conclusions above) The Court held that (a) the second proviso to Notification No.57/2000-Cus had been omitted prior to the relevant period and therefore could not form the basis for demand; (b) statements recorded under section 108 were inadmissible without compliance with section 138B and could not support the findings; (c) the departmental circular was inapplicable after omission of the proviso; and (d) consequential demands and penalties under sections 112 and 114AA were without authority and were set aside.