2025 (10) TMI 1207 - AT - Customs

Statements under s.108 and printouts inadmissible for non-compliance with s.138B(1)(b); confiscation and penalties under s.111(m), s.112(b)(ii), s.114AA set aside

CESTAT NEW DELHI - AT held that statements recorded under s.108 Customs Act were inadmissible because the mandatory s.138B(1)(b) procedure was not ... Levy of penalty u/s 112(b)(ii) of the Customs Act, 1962 and u/s 114AA of the Customs Act 1962 - reliability of statement of the appellant made u/s 108 of the Customs Act, which was retracted - printouts purportedly taken from the laptop of the appellant by accessing the e-mail account of the appellant, admissible evidence or not - under-valuation of imported goods - Confiscation - HELD THAT:- It would be seen that section 108 of the Customs Act enables the concerned Officers to summon any person whose attendance they consider necessary to give evidence in any inquiry which such Officers are making. The statements of the persons so summoned are then recorded under these provisions. It is these statements which are referred to section 138B of the Customs Act. A bare perusal of subsection (1) of section 138B makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of sub-section (2) of section 138B of the Customs Act, the provisions of sub-section (1) shall apply to any proceedings under the Customs Act as they apply in relation to proceedings before a Court. In Ambika International vs. Union of India [2016 (6) TMI 919 - PUNJAB AND HARYANA HIGH COURT], the Punjab and Haryana High Court examined the provisions of section 9D of the Central Excise Act. The show cause notices that had been issued primarily relied upon statements made under section 14 of the Central Excise Act. It was sought to be contended by the Writ Petitioners that the demand had been confirmed in flagrant violation of the mandatory provisions of section 9D of the Central Excise Act. The High Court held that if none of the circumstances contemplated by clause (a) of section 9D(1) exist, then clause (b) of section 9D(1) comes into operation and this provides for two steps to be followed. The Punjab and Haryana High Court in Jindal Drugs Pvt. Ltd. vs. Union Of India [2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT] also held that unless and until one of the circumstances contemplated by clause (a) of section 138B(1) of the Customs Act applies, the adjudicating authority is bound to strictly follow the procedure contained in clause (b) of section 138B(1) of the Customs Act, before treating a statement recorded under section 108 of the Customs Act as relevant. Thus, both section 138B(1)(b) of the Customs Act and section 9D(1)(b) of the Central Excise Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 108 of the Customs Act or under section 14 of the Central Excise Act during the course of an inquiry under the said Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 138B(1)(b) of the Customs Act and section 9D of the Central Excise Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 108 of the Customs Act or under section 14D of the Central Excise Act - the statement made by the appellant under section 108 of the Customs Act cannot be considered as relevant as the procedure contemplated under section 138B of the Customs Act had not been followed. If the printouts, on which reliance has been placed in the impugned order and the statements made by the appellant under section 108 are discarded, there is no other evidence which may substantiate under valuation of the goods imported through the 14th live consignment. The earlier 13 consignments had been cleared after assessment and the Bills of Entries relating to these consignments have also not been made part of the Relied Upon Documents in the show cause notice. Only an assumption has been drawn that if the appellant had undervalued the 14th consignment, he would also have undervalued the earlier 13 consignments - It is, therefore, not possible to sustain the finding recorded in the impugned order that the imported goods had been undervalued in 14 consignments. The transaction value, therefore, could not have been rejected under rule 12 of the 2007 Valuation Rules, as a result of which it could not have been re-determined under rule 3 of the 2007 Valuation Rules. Confiscation - penalty - HELD THAT:- Section 111 of the Customs Act deals with confiscation of improperly imported goods. Clause (m) of section 111 provides that if the goods do not correspond in respect of the value they can be confiscated. As the charge of under valuation cannot be substantiated, the goods could not have been confiscated under section 111(m) of the Customs Act - Penalty has been imposed upon the appellant, both under sections 112(b)(ii) and section 114AA of the Customs Act. As the goods could not have been confiscated, penalty under section 112(b)(ii) of the Customs Act could not have been levied upon the appellant. Penalty under section 114AA could also not have been imposed upon the appellant as he had not signed any document, much less knowingly or intentionally, concerning the transaction of any business. The imposition of penalty upon the appellant under section 112(B)(ii) and section 114AA of the Customs Act deserves to be set aside and is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether statements recorded under section 108 of the Customs Act, 1962 (section 108) are admissible and relevant in adjudication proceedings without compliance with section 138B(1)(b) of the Customs Act (section 138B). 2. Whether printouts alleged to have been retrieved from an importer's e-mail account (and relied upon as proforma invoices) are admissible and capable of substantiating rejection of declared transaction value under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (the Valuation Rules), when the printouts were not covered by a panchnama and the complete set of retrieved pages was not made a relied-upon document. 3. Whether the departmental material (exclusive of the statements and the un-authenticated printouts) suffices to reject declared transaction value and re-determine value under the Valuation Rules (Rules 3, 9 and 12) for the impugned consignment. 4. Whether confiscation under section 111(m) of the Customs Act and penalties under sections 112(b)(ii) and 114AA of the Customs Act can be sustained where undervaluation is not established by admissible evidence and where alleged confessional statements were retracted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility and relevance of statements under section 108 vis-à-vis section 138B Legal framework: Section 108 empowers Gazetted Customs Officers to summon and record statements during inquiries. Section 138B(1) prescribes circumstances in which such statements are relevant for proving truth of facts contained therein; where clause (a) conditions are absent, clause (b) mandates (i) examination of the maker as a witness before the adjudicating authority and (ii) formation of an opinion by the adjudicating authority that, in the interests of justice, the statement should be admitted, followed by opportunity for cross-examination. Sub-section (2) extends the scheme to proceedings under the Act. Precedent treatment: The Court follows a line of authoritative decisions interpreting identical or analogous provisions (section 9D of the Central Excise Act and section 138B of the Customs Act) that treat clause (b) as mandatory. Those decisions require the two-step procedure prior to treating investigation-stage statements as relevant in adjudication; failure to comply renders such statements inadmissible and not to be relied upon. Interpretation and reasoning: The Court reasons that section 138B(1)(b) is designed to guard against coerced/confessional statements recorded during investigation and therefore the procedural safeguards are mandatory. The adjudicating authority must itself examine the declarant and record reasons for admitting the statement; only thereafter may the opposing party test the statement by cross-examination. The Court rejects reliance on investigation-recorded statements that were neither tendered in evidence by examination before the adjudicator nor admitted pursuant to a reasoned opinion of the adjudicating authority. The Court also notes the immediate retraction of the statement and the asserted coercion as reinforcing the need for strict compliance with section 138B. Ratio vs. Obiter: Ratio - The mandatory nature of the two-step procedure in section 138B(1)(b) and the consequent inadmissibility of investigation-stage statements where the procedure is not followed. Obiter - Observations on the rationale (risk of coercion) and cross-references to analogous Central Excise jurisprudence support the ratio but do not expand the statutory requirement. Conclusion: The statement made under section 108 cannot be treated as relevant or relied upon in adjudication because section 138B(1)(b) was not complied with; the retraction further undermines any attempt to admit it without the mandatory procedure. Issue 2 - Admissibility and evidentiary weight of e-mail printouts/proforma invoices not recorded under panchnama Legal framework: Evidence produced during search/seizure or inquiry is required to be properly identified and preserved (including panchnama where relevant) to be admissible and reliably linked to the accused/arraigned party. Valuation re-determination under Rule 12 requires a proper officer to have reasons to doubt correctness of declared transaction value after conducting enquiry with importers; documentary evidentiary basis must be established. Precedent treatment: Courts and tribunals require that electronic records alleged to be retrieved during searches be properly authenticated and recorded in panchnama; reliance on documents not shown to have been taken in the stated manner is vulnerable to challenge. Interpretation and reasoning: The Court observes that 163 pages of printouts were recorded in the investigator's record but those 163 pages were not made part of the relied-upon documents in the show cause notice; only seven proforma invoices were listed as Relied Upon Document No. 5. The department did not substantiate that the seven proforma invoices were the very pages printed from the declarant's e-mail during the section 108 statement. In the absence of such a link or a panchnama for the printouts, it cannot be assumed that the seven documents were recovered in the manner alleged. Since the department's case on undervaluation depends materially on those proforma invoices being authentic recoveries from the declarant's account, lack of authentication is fatal to their evidentiary weight for valuation purposes. Ratio vs. Obiter: Ratio - Electronic/printout documents alleged to have been retrieved during inquiry must be authenticated and the manner of seizure/printout recorded (panchnama or equivalent); absence of such authentication prevents reliance on those documents to reject declared transaction value. Obiter - Remarks about casual panchnama defects (same panch named at two places) illustrate poor investigative care but are not the primary legal basis. Conclusion: The seven proforma invoices cannot be accepted as admissible or proved to be the documents printed from the appellant's e-mail account; absent proper panchnama/authentication the proforma invoices cannot be used to substantiate undervaluation. Issue 3 - Sufficiency of departmental material (excluding inadmissible statements/printouts) to reject declared transaction value under Rule 12 and to re-determine under Rules 3 and 9 Legal framework: Rule 3(1) establishes transaction value as primary; Rule 12 allows rejection of declared transaction value where a proper officer has reasons to doubt correctness after enquiry with importer; sequential application of Rules 4-9 follows if transaction value cannot be determined. Rule 9 addresses additions for certain services/costs. Precedent treatment: Rejection under Rule 12 requires tangible, admissible reasons and evidence justifying doubt about declared value; extrapolation from unrelated or unproven documents is impermissible. Interpretation and reasoning: The Court finds that once the statements and the printouts are excluded, the department lacks independent admissible evidence to show that the declared commercial invoice reflected anything other than the transactional value arrived at after negotiation. The prior 13 consignments were not made part of the relied-upon documents, so the department's inference of a systematic modus operandi is speculative. No other cogent evidence was produced to discharge the burden under Rule 12 to justify rejection of declared transaction value for the 14th consignment. Ratio vs. Obiter: Ratio - Rejection of transaction value under Rule 12 cannot be sustained on the basis of inadmissible materials or uncorroborated inference; the department must produce admissible, case-specific evidence. Obiter - Observations on the limits of extrapolation from other consignments. Conclusion: The declared transaction value could not be rejected under Rule 12 nor re-determined under Rules 3 and 9, because the department's admissible evidence was insufficient once inadmissible statements/printouts were discarded. Issue 4 - Validity of confiscation under section 111(m) and penalties under sections 112(b)(ii) and 114AA where undervaluation is not established Legal framework: Section 111(m) permits confiscation where goods do not correspond with declared value. Section 112(b)(ii) and section 114AA prescribe penal consequences for mis-declaration/false documentation and signing documents knowingly/intentional transactions respectively; proof of underlying violation is essential to sustain confiscation and penalties. Precedent treatment: Penal consequences cannot be imposed where the foundational finding (e.g., undervaluation or false documentation) is not supported by admissible evidence; statutory penalties are contingent on proof of the substantive offence. Interpretation and reasoning: The Court reasons that confiscation under section 111(m) is premised on established undervaluation; since the undervaluation finding fails, confiscation cannot survive. Similarly, penalty under section 112(b)(ii) is unsustainable in absence of proven undervaluation. Penalty under section 114AA was also found misplaced because there was no admissible material to show that the appellant had signed any document knowingly or intentionally concerning the transaction; the retraction and absence of compliance with section 138B further weaken any inference of culpable signing. Ratio vs. Obiter: Ratio - Confiscation and statutory penalties predicated on undervaluation or signed false documents cannot be sustained when the evidentiary basis for those findings is invalid or absent. Obiter - Remarks about immediate retraction and alleged coercion bolster the conclusion but are ancillary. Conclusion: Confiscation under section 111(m) and penalties under sections 112(b)(ii) and 114AA are unsustainable; the penalties are set aside and the impugned order is overturned to that extent. Cross-references and overall disposition All conclusions on valuation, confiscation and penalties are inter-linked: exclusion of the section 108 statements and un-authenticated e-mail printouts (Issues 1 & 2) compels the finding that there is insufficient admissible evidence to reject the declared transaction value (Issue 3), which in turn renders confiscation and penalties unsupportable (Issue 4). The Court accordingly allows the appeal to the extent penalties and confiscation were based on the impugned inadmissible material.