2025 (10) TMI 978 - AT - Customs

Penalty under s.112 set aside where broker acted only for commission; retracted statements not admissible under s.138B/s.108

CESTAT Kol. allowed the appeal and set aside the penalty under s.112 Customs Act. The appellant, found to have acted only as a broker for a commission, ... Reduction in the quantum of penalty u/s 112(a) of the Customs Act, 1962 - over-invoicing and circular trading - appellant acted only as a broker for a commission - inculpatory statements recorded from persons - corroborative evidences or not - HELD THAT:- It is observed that in the instant case, DRI initiated investigation against the Firms, namely, M/s. Chirayu Impex Pvt. Ltd and M/s. Amrapali Exim Pvt. Ltd., on the allegation of over-invoicing and circular trading. It is on record that the appellant acted only as a broker for a commission. The appellant was introduced to these companies by one Shri Dharmesh Singh, who offered the appellant a brokerage of 2 paisa per US dollar. The appellant also came into contact with Shri Punabhai Vallabbhai Chandpara, also known as ‘Patel’, who has been in the diamond trade for the last several decades and also had an office in the same building where the appellant had his office. It is found that the lower authorities have merely held that the appellant was the link between Punabhai Patel and Dharmesh Patel. However, it is observed that in the impugned order, it has not been explained as to how and in what manner this link can make the appellant be involved in the alleged over-invoicing and circular trading. It is also observe that apart from the inculpatory statements recorded from persons, no other evidence of whatsoever nature has been relied upon in the impugned order to substantiate the allegations. It is also a fact that the appellant has retracted his statements. Thus, the said statements cannot be relied upon against the appellant, without any other corroborative evidence available in support - also, the lower authority failed to appreciate that Section 138B prescribes conditions which are to be fulfilled for taking the evidence recorded under section 108 of the Customs Act, 1962, in adjudication proceedings, whereby the statements should be tested by examining and cross-examining the person. Since the persons were not examined / cross-examined, reliance on such untested statements is bad-in-law. Accordingly, the impugned order is liable to be set aside on this ground itself. In the present case, penalty has been imposed on the appellant under the provisions of Section 112 of the Customs Act,1962. However, there is neither any prohibition in force nor duty is payable and also the value sought to be alleged is lesser than the value declared; also no duty is evaded. Thus, none of the criteria as mentioned in Section 112 of the Customs Act, 1962 stand attracted. Hence, in these set of facts, no penalty can be imposed on the appellant under Section 112 of the Customs Act, 1962. The lower authorities have alleged the role of the appellant in the offence merely because he did not allow both the parties to ‘meet’. However, on such a ground alone, it cannot be alleged that the appellant has played a role in the alleged offence. The penalty imposed on the appellant, as confirmed in the impugned order, is not sustainable - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a penalty under Section 112(a) of the Customs Act, 1962 can be sustained against an alleged broker where the case rests primarily on inculpatory statements that were retracted and were not tested as required by Section 138B. 2. Whether corroborative evidence independent of voluntary statements is necessary to uphold penalty allegations of over-invoicing/circular trading in import consignments of diamonds. 3. Whether mens rea can be inferred merely from the accused having prevented meetings between two other parties, or from non-appearance on summons, such as to attract penal liability under Section 112(a). 4. Whether the conditions/ingredients of Section 112 of the Customs Act are satisfied where (a) no prohibition was in force, (b) no customs duty was payable or evaded, and (c) the alleged value sought to be introduced was less than the declared value. 5. Whether conclusions in the impugned orders properly applied relevant authorities on the need for independent corroboration and the legal standard for valuation disputes (including the applicability of Customs Valuation Rules, 2007). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Reliance on untested/retracted statements under Section 138B Legal framework: Section 108 provides for recording of statements; Section 138B prescribes that evidence recorded under Section 108 may be taken in adjudication proceedings only after the person is produced for examination and cross-examination in accordance with statutory safeguards. Precedent Treatment: The Tribunal referred to established principle that evidence from statements not tested by examination/cross-examination cannot be relied upon without satisfying Section 138B's mandate; and to Apex Court guidance requiring caution in accepting such statements absent corroboration. Interpretation and reasoning: The proceedings show that the adjudicating authority and Commissioner (Appeals) relied principally on voluntary statements recorded by DRI. The appellant retracted his statement and the persons whose statements inculpated him were not produced for testing under Section 138B. The Tribunal held that reliance on such untested and retracted statements is impermissible and bad in law. Ratio vs. Obiter: Ratio - Where statements recorded under Section 108 are not tested by examination/cross-examination as required by Section 138B, they cannot constitute valid evidence for imposing penalty under the Customs Act. Obiter - Observations regarding propriety of DRI's investigative steps beyond the statutory requirement. Conclusion: Penalty cannot be sustained solely on untested and retracted statements; impugned orders relying on such statements must fail on this ground. Issue 2 - Need for independent corroboration of material aspects of statements Legal framework: General evidentiary principle that extra-judicial/confessional statements require independent corroboration of material aspects before being acted upon in adjudicatory proceedings involving penal consequences. Precedent Treatment: The Tribunal applied the Apex Court principle that statements should not be readily believable absent independent corroboration on material points (citing A. Tajudeen principle as applied by the Court). Interpretation and reasoning: The record lacked any documentary or forensic corroboration (no banking trails, transactional records, or valuation evidence) to substantiate the inculpatory assertions. The Tribunal emphasized that in valuation/over-invoicing matters independent sources are essential to link the accused to the alleged scheme. Ratio vs. Obiter: Ratio - Independent corroboration of material aspects is necessary before a penalty can be imposed where the case rests on statements. Obiter - Specific modalities of corroboration in diamond trade transactions. Conclusion: Absence of corroborative evidence renders impugned penal findings unsustainable. Issue 3 - Inference of mens rea from obstruction of meetings/non-appearance Legal framework: Penal liability under Section 112(a) requires satisfaction of statutory ingredients, including mens rea where relevant; inferences must be based on evidence not conjecture. Precedent Treatment: The Tribunal relied on the settled rule that penalties cannot be imposed on conjectures and surmises and that mere suspicion or inference from peripheral conduct is insufficient. Interpretation and reasoning: The lower authorities inferred mens rea from the appellant's alleged prevention of meetings between two parties and from initial non-appearance on summons. The Tribunal found no explanation in the impugned order as to how such conduct establishes culpable participation in over-invoicing or circular trading, and held that such inference was speculative. Ratio vs. Obiter: Ratio - Mens rea cannot be imputed on the basis of speculative inferences such as preventing parties from meeting or initial non-appearance absent supporting evidence linking such conduct to the fraudulent scheme. Obiter - Comments on common trade practices where intermediaries handle settlements. Conclusion: Mens rea not established by the cited inferences; penalty based on such inferences is unsustainable. Issue 4 - Applicability of Section 112 in absence of prohibition/duty evasion and where alleged value is lower than declared Legal framework: Section 112 prescribes penal consequences for specified contraventions; applicability requires satisfaction of statutory criteria such as existence of prohibited act, duty evasion or mis-declaration attracting penal provision. Precedent Treatment: The Tribunal examined comparable decisions where penalties under Sections 112/114 were set aside where statutory ingredients were not satisfied and where no direct involvement or mis-declaration by the appellant was proved. Interpretation and reasoning: The Tribunal observed that in the facts before it there was no prohibition in force, no duty payable or evaded, and the allegedly sought value was less than declared; consequently the material ingredients of Section 112 were not attracted. Further, the investigation's primary allegations concerned importers, not the broker, and no evidence linked the appellant to acts constituting an offence under Section 112. Ratio vs. Obiter: Ratio - Section 112 cannot be invoked where its statutory ingredients are absent (no duty evasion/prohibition/appropriate mis-declaration); penal imposition requires fulfilment of those prerequisites. Obiter - Treatment of intermediary roles in valuation disputes. Conclusion: Penalty under Section 112 was not legally imposable on the facts; the impugned penalty is liable to be quashed for want of statutory foundation. Issue 5 - Applicability of Customs Valuation Rules and reliance on authorities Legal framework: Customs Valuation Rules, 2007 govern transaction value and tests for rejecting declared invoice values; applicability depends on statutory and factual criteria being met. Precedent Treatment: The appellant contended, and the Tribunal noted, that Valuation Rules were inapplicable where criteria for rejecting transaction value were not satisfied; the Tribunal also considered prior Tribunal decisions where penalties were set aside in similar factual matrices. Interpretation and reasoning: The impugned orders adopted valuation conclusions without showing that the statutory criteria for rejecting invoice value under the Valuation Rules were satisfied. Coupled with absence of corroborative evidence and untested statements, the Tribunal held it improper to treat the declared transaction value as rejected for penal purposes. Ratio vs. Obiter: Ratio - Customs Valuation Rules cannot be applied to reject declared invoice value absent satisfaction of their specific criteria and independent evidentiary support. Obiter - References to particular earlier decisions on analogous fact patterns. Conclusion: Valuation Rules were not appropriately applicable on the present record; reliance on those rules without fulfilling their conditions did not sustain the penalty. Overall Disposition (consolidated conclusion) The Tribunal held that (a) the impugned penalty under Section 112(a) was predicated on untested and retracted statements without independent corroboration; (b) inferences of mens rea drawn from preventing meetings and non-appearance were speculative; and (c) the statutory ingredients of Section 112 were not attracted as no duty was shown to be payable or evaded. Applying established authorities and prior analogous Tribunal decisions, the Tribunal concluded that the penalty could not be sustained and set aside the penalty imposed, allowing the appeal with consequential relief as per law.