Customs export diversion allegations relying on s.108 statements and Let Export Orders; confiscation and penalties u/s113/s.114 set aside

Statements recorded under s.108 of the Customs Act were held inadmissible because the mandatory procedure under s.138B-examination of the maker before the adjudicating authority, a reasoned finding on admissibility, and opportunity of cross-examination-was not followed; consequently, such statements could not be used to establish diversion or manipulation. Confiscation under s.113(d), (g) and (i) was held unsustainable since the goods had already been exported pursuant to Let Export Orders and s.113 applies to attempted improper export; therefore, no confiscation lay. Penalties under s.114(iii) and s.114AA were also set aside because s.114(iii) depends on an improper export attempt and s.114AA was founded on inadmissible s.108 statements. The appeal was allowed and the impugned order was quashed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether statements recorded during investigation under section 108 of the Customs Act could be treated as relevant evidence for adjudication when the statutory procedure under section 138B was not followed.

(ii) Whether confiscation under section 113(d), (g) and (i) could be sustained when (a) the finding of fraudulent diversion rested only on such section 108 statements, and (b) the goods had already been exported pursuant to Let Export Orders before investigation commenced.

(iii) Whether penalties under section 114(iii) and section 114AA could be sustained when confiscation under section 113 failed and the allegation of intentional use of false material particulars was proved only through inadmissible section 108 statements.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Relevance/admissibility of section 108 statements without compliance with section 138B

Legal framework: The Court examined the relationship between section 108 (power to summon and record statements) and section 138B (conditions governing when such statements become relevant for proving the truth of their contents in adjudication).

Interpretation and reasoning: The Court held that statements recorded under section 108 cannot automatically be treated as relevant evidence in adjudication. For such statements to be relied upon to prove their contents, the procedure contemplated by section 138B must be followed. Since the adjudication relied "merely on the basis" of section 108 statements, and the section 138B procedure was not followed, the evidentiary foundation for the core factual finding (fraudulent diversion by amendment of shipping bill copies) failed.

Conclusion: The section 108 statements were not relevant/admissible for proving the alleged diversion in the absence of compliance with section 138B, and could not be relied upon to sustain the impugned findings.

Issue (ii): Sustainability of confiscation under section 113(d), (g) and (i) after export and when the diversion finding fails

Legal framework: The Court examined section 113 as dealing with confiscation of goods "attempted to be improperly exported."

Interpretation and reasoning: The confiscation finding was derivative of the initial finding of fraudulent diversion, which itself was based solely on inadmissible section 108 statements. Once those statements were held irrelevant, the factual premise for confiscation could not survive. Independently, the Court held that section 113 was inapplicable because the goods had already been exported on the basis of Let Export Orders and the investigation commenced thereafter; section 113 addresses an improper attempt to export, not goods already exported.

Conclusion: Confiscation under section 113(d), (g) and (i) was unsustainable both because the foundational diversion finding collapsed and because section 113 did not apply to goods already exported pursuant to Let Export Orders.

Issue (iii): Sustainability of penalties under sections 114(iii) and 114AA

Legal framework: The Court treated section 114(iii) as imposing penalty in connection with improper export/attempt attracting confiscation, and section 114AA as addressing knowing/intentional making, signing, using, or causing to be made/used a false material particular for purposes of the Customs Act.

Interpretation and reasoning: For section 114(iii), the Court held penalty could not be imposed where section 113 confiscation failed; moreover, section 114(iii) penalises an attempt to export goods improperly, which was not the case when goods stood exported earlier. For section 114AA, the adjudicating authorities relied on section 108 statements to attribute instructions and intent to falsify destination particulars; since those statements could not be relied upon without section 138B compliance, the necessary proof for section 114AA was not established.

Conclusion: Penalties under section 114(iii) and section 114AA could not be sustained and were set aside along with the confiscation findings.

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