Penalty under s.112(a) set aside where s.108 statements used without s.138B process; appellant only certified installation

CESTAT, New Delhi allowed the appeal and set aside the penalty imposed under s.112(a) Customs Act. The tribunal found the appellant was added only by corrigendum to the SCN and relied on s.108 statements without following s.138B procedure, rendering those statements irrelevant. The appellant's role was limited to certifying installation, not use of the imported vehicles. As confiscation and penalties on the importer and directors were set aside, imposing penalty on the appellant could not be sustained.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the customs authority could confirm demand, confiscation and penalties for alleged breach of conditions of an EPCG-derived concession when the Directorate General of Foreign Trade (DGFT) had issued an Export Obligation Discharge Certificate (EODC) and the EODC had not been cancelled by DGFT.

2. Whether statements recorded under section 108 of the Customs Act could be relied upon by the Commissioner (Preventive) for adjudication of breach of the Notification when the procedural protections under section 138B of the Customs Act had not been invoked.

3. Whether a professional who issued installation/utilization certificates (a Chartered Engineer) could be held liable to penalty under section 112(a) of the Customs Act for alleged facilitation/abetment of evasion of customs duty where (a) the certificate concerned installation (not use), (b) DGFT had issued an EODC and the DGFT proceedings had not cancelled it, and (c) reliance was placed on statements under section 108 without section 138B having been followed.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Customs authority's jurisdiction where DGFT has issued and not cancelled EODC

Legal framework: The EPCG scheme and Notification authorize concessional import benefits subject to export obligations; DGFT issues EODC upon satisfaction of export-obligation fulfillment; the FTDR (Foreign Trade Development/Regime) statutory scheme confers administration of export obligation discharge to DGFT whereas Customs administer import duties and concessions under the Customs Act.

Precedent Treatment: The Tribunal relied on the Supreme Court precedent holding that where a licence/certificate issued by the licensing authority is not questioned by that authority, customs cannot refuse exemption on an allegation of misrepresentation; it treated that principle as followed by a High Court decision which held that Customs cannot ignore or deprive a holder of a certificate issued under the FTDR/EXIM regime absent adjudication or declaration of invalidity by DGFT, and that there cannot be overlapping/parallel adjudicatory power between DGFT and Customs over the same instrument.

Interpretation and reasoning: The Tribunal reasoned that once DGFT exercised its jurisdiction, satisfied itself that export obligation was fulfilled and issued EODC (with bank guarantee redeemed), the Customs department lacks jurisdiction to sit in judgment over the EODC. The Tribunal treated the EODC as an administrative certificate whose validity, origin and cancellation fall within DGFT's domain; therefore confirmation of demand, confiscation or denial of concession by Customs in the absence of prior DGFT cancellation of EODC would amount to impermissible interference with DGFT's certificate.

Ratio vs. Obiter: Ratio - where an instrument (EODC) is issued by DGFT and not cancelled, Customs cannot adjudicate to deny concession or confirm demand premised on alleged breach of export obligation; such power to question the EODC belongs to DGFT and requires DGFT adjudication/cancellation first. Obiter - ancillary remarks on administrative propriety of concurrent inquiries were explanatory.

Conclusions: Demand, confiscation and penalties premised on alleged non-fulfilment of export obligation could not be sustained in absence of DGFT cancellation of EODC; Customs lacked jurisdiction to adjudicate validity of EODC and therefore could not confirm demand based on the same facts absent DGFT action.

Issue 2 - Admissibility and weight of statements under section 108 when section 138B procedure not followed

Legal framework: Section 108 permits recording of statements by customs officers; section 138B prescribes a specific procedural route for examination and use of statements obtained during investigation (including protections/conditions for use in adjudication/prosecution) - the statutory scheme contemplates that certain procedural safeguards must precede reliance on such statements.

Precedent Treatment: The Division Bench placed reliance upon Tribunal decisions (as cited in the order) holding that statements made under section 108 are not automatically admissible or determinative where the procedure under section 138B has not been complied with; those decisions were applied to disallow reliance on section 108 statements in the absence of section 138B procedure.

Interpretation and reasoning: The Tribunal held that the Commissioner (Preventive) was not justified in using the appellant's statements recorded under section 108 to conclude that the Notification's provisions had been violated because the mandated procedural safeguards under section 138B had not been followed. The Tribunal emphasized procedural compliance before such statements can be given evidentiary weight for penal or confiscatory outcomes.

Ratio vs. Obiter: Ratio - statements under section 108 cannot be relied upon for adjudication of violations unless the procedural prescriptions of section 138B (and related safeguards) have been complied with; failure to follow section 138B renders reliance on such statements improper. Obiter - comments on the appropriate investigatory sequence were explanatory.

Conclusions: The Commissioner's reliance on section 108 statements (without section 138B compliance) was unjustified, and such statements could not sustain findings of violation or penalties.

Issue 3 - Liability of professional certifier under section 112(a) where certificate related to installation, EODC not cancelled, and evidentiary procedure defective

Legal framework: Section 112(a) contemplates penalty for certain offences including aiding/abetting evasion of customs duty; professionals issuing certificates may be liable where their act or omission knowingly facilitates evasion; however, liability requires proper proof of culpability and compliance with evidentiary/procedural requirements.

Precedent Treatment: The Tribunal applied the reasoning from its consideration of Issues 1 and 2 and precedent that limits Customs' capacity to challenge DGFT-issued instruments and that limits reliance on section 108 statements absent section 138B compliance.

Interpretation and reasoning: The Tribunal noted that the Corrigendum/Addendum relied on the appellant's section 108 statements and alleged that the appellant issued installation/utilization certificates without verifying conditions, thereby aiding evasion. The Tribunal observed (i) the appellant's function was to certify installation (not usage), (ii) EODC had been issued by DGFT and not cancelled, and (iii) the impugned statements were improperly relied upon because section 138B procedure was not followed. Given that confiscation, demand and penalties against the importer and directors had been set aside, and the EODC remained intact, the imposition of penalty on the professional could not be sustained.

Ratio vs. Obiter: Ratio - penalty under section 112(a) cannot be imposed on a professional certifier where (a) the certificate was limited to installation (not use), (b) the EODC stands uncancelled by DGFT, and (c) the only incriminating material relied upon comprises section 108 statements obtained without compliance with section 138B. Obiter - observations on the timing and manner of issuance of corrigenda to show-cause notices are explanatory.

Conclusions: The penalty imposed under section 112(a) on the professional certifier was unsustainable and was set aside because (i) the Customs authority lacked jurisdiction to challenge an uncancelled EODC issued by DGFT, (ii) statements under section 108 were improperly relied upon absent section 138B procedure, and (iii) the certificate issued related to installation and did not substantiate aiding of duty evasion once import-related penalties against the importer and directors were vacated.

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