Penalty under section 112(b)(i) quashed as section 108, 138B and 111 conditions not met, statements inadmissible

CESTAT allowed the appeal and set aside the penalty imposed under section 112(b)(i) of the Customs Act. It held that the penalty was based solely on statements of the appellant and a co-noticee recorded under section 108, which were inadmissible as the mandatory procedure under section 138B had not been followed. No incriminating goods were recovered from the appellant; only nineteen one-rupee notes were found, and thus the condition that goods be liable to confiscation under section 111 was not satisfied. CESTAT also noted that the co-noticee's penalty under section 112(b)(i) had already been quashed in a connected appeal.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether penalty under section 112(b)(i) of the Customs Act, 1962 could be imposed on the appellant when no incriminating goods were found in his possession and the condition of liability to confiscation under section 111 was not met.

1.2 Whether statements recorded under section 108 of the Customs Act, 1962 could be relied upon to impose penalty when the requirements of section 138B were not complied with.

1.3 Whether the burden of proof under section 123 of the Customs Act, 1962 could be shifted to the appellant in the absence of recovery of incriminating goods from his possession.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of penalty under section 112(b)(i) in absence of incriminating goods and non-fulfilment of section 111 pre-condition

Legal framework (as discussed)

2.1 The Tribunal recorded that the pre-requisite condition for imposition of penalty under section 112(b)(i) of the Customs Act is that the goods in question must be liable to confiscation under section 111 of the Customs Act.

Interpretation and reasoning

2.2 The Tribunal noted that, during the personal search of the appellant, only 19 notes of one-rupee denomination were found, which were voluntarily submitted by him, and that no incriminating gold or other goods were recovered from his possession.

2.3 On this factual basis, the Tribunal held that the essential requirement for invoking section 112(b)(i)-namely, that goods liable to confiscation under section 111 should be involved-was not satisfied in the case of the appellant.

2.4 The Tribunal therefore rejected the reasoning of the adjudicating authority that the appellant had "intentionally and knowingly" involved himself in dealing in gold jewellery/articles made from smuggled foreign-origin gold for monetary consideration, in the absence of any incriminating recovery from him.

Conclusions

2.5 The Tribunal concluded that, as nothing incriminating was recovered from the appellant and the statutory pre-condition of liability to confiscation under section 111 was not met, the penalty imposed under section 112(b)(i) could not be sustained and was liable to be set aside.

Issue 2 - Reliance on statements under section 108 without compliance with section 138B

Legal framework (as discussed)

2.6 The Tribunal examined the evidentiary value of statements recorded under section 108 of the Customs Act in light of the procedural safeguards contained in section 138B of the Customs Act.

Interpretation and reasoning

2.7 The Tribunal found that the penalty on the appellant had been imposed "merely on the basis of the statements" made by the appellant and by a co-noticee under section 108.

2.8 It held that such statements could not be treated as relevant and relied upon because the procedure mandated under section 138B had not been followed by the department.

2.9 In support of this view, the Tribunal referred to and followed the ratio of a Division Bench decision holding that statements under section 108, in the absence of compliance with section 138B, could not form the basis for adverse findings.

Conclusions

2.10 The Tribunal held that, since the department had not complied with section 138B, the statements under section 108 could not be considered relevant evidence for imposing penalty, and consequently the penalty order could not stand on that basis.

Issue 3 - Applicability of burden of proof under section 123

Interpretation and reasoning

2.11 The Tribunal took note of the appellant's contention that the burden of proof under section 123 could not be placed on him because no incriminating gold or goods were recovered from his possession.

2.12 It accepted, in substance, that in the absence of recovery from the appellant, the statutory presumption and corresponding burden under section 123 could not be invoked against him.

Conclusions

2.13 The Tribunal proceeded on the footing that section 123 did not operate against the appellant in the facts of the case, reinforcing its conclusion that the penalty under section 112(b)(i) was unsustainable.

Related consideration - Effect of setting aside penalty on co-noticee

Interpretation and reasoning

2.14 The Tribunal noted that, in a connected appeal, the penalty imposed on the co-noticee under section 112(b)(i) arising from the same transaction had been set aside by order of the same date.

2.15 This was treated as an additional supporting circumstance for not sustaining the penalty on the appellant.

Conclusions

2.16 Taking into account the absence of incriminating recovery, the inadmissibility of section 108 statements without section 138B compliance, the inapplicability of section 123, and the setting aside of the co-noticee's penalty, the Tribunal set aside the penalty imposed on the appellant under section 112(b)(i) and allowed the appeal.

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