2026 (3) TMI 1095 - AT - Customs

Admissibility of investigative statements determines evidentiary use; failure of required procedural safeguards invalidates valuation reassessment and penalties.

Admissibility of investigative statements: statements recorded under Section 108 were inadmissible because the statutory safeguards in Section 138B were ... Relevance and admissibility of statements recorded under section 108 without compliance with section 138B - mandatory procedure for admissibility of investigative statements - electronic evidence and provenance of emails - rejection of transaction value under Rule 12 and re-determination under Rule 9 of the CVR, 2007 - redetermination of value under comparable invoices - beneficial owner doctrine. Relevance and admissibility of statements recorded under section 108 without compliance with section 138B - HELD THAT:- The Tribunal accepted the appellant's account of physical assault, supported by medical reports, and held that the Commissioner failed to examine the statutory procedure required before admitting statements recorded under section 108. Relying on analogous authorities and statutory principles, the Court concluded that statements recorded during investigation acquire relevance only after the adjudicating authority examines the person and forms an opinion under section 138B(1)(b); absence of that process and evidence of coercion rendered the statements inadmissible and they could not be used to reject transaction value or to found other findings. [Paras 23, 24, 26, 33] Statements under section 108 recorded without the procedure in section 138B(1)(b) and in circumstances of coercion could not be relied upon and were disregarded. The appellant had asserted that his e-mail account and devices were accessed while he was in custody and that documents were uploaded or coerced on 04.09.2021. The Commissioner did not investigate or address this contention. The Tribunal found no satisfactory explanation for why contemporaneous invoices would be sent on the stated date after import and held that reliance on such e-mails and attachments, without resolving the appellant's challenge about custody and DRI access, was unsustainable. [Paras 36, 37, 38, 39] The e-mails dated 04.09.2021 and their attachments could not be relied upon as parallel/actual invoices for valuation purposes. Rejection of transaction value under Rule 12 and re-determination under Rule 9 of the CVR, 2007 - HELD THAT:- Because the Commissioner primarily relied upon statements recorded under section 108 (held inadmissible) and on e-mails/documents the provenance of which was not satisfactorily established, the statutory preconditions for rejecting the declared transaction value under Rule 12 were not met. Consequently, redetermination under Rule 9 based on those materials and on the questioned price-list/pdf could not stand and the demand for differential duty, interest and penalty based on that valuation was invalid. [Paras 40, 41, 42] Rejection of transaction value under Rule 12 and re-determination under Rule 9 were set aside and the consequent demand for differential duty, interest and penalty could not be sustained. Treatment as beneficial owner under section 2(3A) based on inadmissible evidence - HELD THAT:- The Commissioner treated the appellant as the mastermind and beneficial owner on the basis of the rejected statements. Having held those statements inadmissible, the Tribunal concluded that the factual and legal basis for invoking section 2(3A) did not survive and the finding could not be maintained. [Paras 35] The finding of beneficial ownership under section 2(3A) based on inadmissible statements was set aside. Penalties and confiscation founded on unsupported valuation and inadmissible evidence - HELD THAT:- Since the foundational rejection of transaction value and the determination of beneficial ownership were unsustainable, the ancillary findings of confiscation liability and imposition of penalties under various provisions of the Customs Act lacked a valid basis. The Tribunal therefore set aside penalties imposed on the appellant and co-appellants insofar as they rested on those findings. [Paras 42, 43, 44] Penalties and confiscation-related findings were set aside and appeals allowing relief to the appellant and co-appellants were directed. Final Conclusion: The Tribunal held that statements recorded under section 108 without compliance with section 138B(1)(b) and evidence shown to have been received while the appellant was in custody could not be relied upon; accordingly the rejection of transaction value under Rule 12, re-determination under Rule 9, the finding of beneficial ownership and the consequential demands, penalties and confiscation-related orders were set aside and the appeals allowed. Issues: (i) Whether statements recorded under Section 108 of the Customs Act, 1962 could be admitted and relied upon by the adjudicating authority without following the procedure mandated by Section 138B of the Customs Act, 1962; (ii) Whether the declared transaction value in the Bills of Entry could be rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determined under Rule 9 of the said Rules on the evidence relied upon by the Department; (iii) Whether the appellant could be treated as the beneficial owner under Section 2(3A) of the Customs Act, 1962 and whether penalties and confiscation-related consequences could be sustained.Issue (i): Whether statements recorded under Section 108 of the Customs Act, 1962 were admissible and could be relied upon without compliance with Section 138B of the Customs Act, 1962.Analysis: The decision analyses statutory requirements governing admissibility of statements recorded during investigation and applies binding authorities holding that when circumstances in clause (a) are not present the procedural safeguards in clause (b) of the relevant provision must be followed before such statements acquire evidentiary relevance. The Tribunal examined the appellant's account of coercion, contemporaneous medical reports corroborating physical assault, the appellant's retraction filed before the magistrate, and authorities construing analogous provisions (section 9D of the Central Excise Act and section 138B of the Customs Act) to conclude that statements recorded during investigation cannot be treated as relevant evidence unless the person is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion admitting the statement in evidence.Conclusion: Statements recorded under Section 108 of the Customs Act, 1962 were not admissible for the purposes of the adjudication because the mandatory procedure under Section 138B of the Customs Act, 1962 was not complied with; reliance upon those statements is rejected.Issue (ii): Whether the declared transaction value could be rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and re-determined under Rule 9 of the said Rules on the basis of the e-mails, purported parallel invoices and price list relied upon by the Commissioner.Analysis: The Tribunal reviewed the grounds relied upon by the Commissioner for rejection - primarily the investigative statements and e-mails/attachments said to have been received on the appellant's email on 04.09.2021 - and found that the investigative statements could not be relied upon. The Tribunal further considered the appellant's pleaded explanation that the e-mails and attachments were created or placed into his inbox while he was in custody and the investigating officers had access to his devices and network; the Commissioner did not investigate or address this contention. The Tribunal also found the purported price list to lack indicia of authenticity (not on supplier letterhead, unsigned) and held that e-mails received after importation could not be treated as reliable contemporaneous evidence to reject the declared transaction value under Rule 12. Given the primary evidentiary sources for redetermination were thus unsustainable, the rejection under Rule 12 and consequent re-determination under Rule 9 could not stand.Conclusion: The declared transaction value could not be validly rejected under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and the re-determination under Rule 9 of the said Rules on the impugned material is unsustainable; the demand based on such re-determination is set aside.Issue (iii): Whether the appellant could be treated as the beneficial owner under Section 2(3A) of the Customs Act, 1962 and whether penalties and confiscation-related consequences imposed on the appellant and co-appellants could be sustained.Analysis: The finding of beneficial ownership and resulting penalties/confiscation were founded on the statements and evidence already held inadmissible or unreliable by the Tribunal. With the exclusion of those statements and the rejection of the evidentiary basis for re-determination, the statutory conclusions treating the appellant as beneficial owner and imposing penalties and confiscation-related consequences cannot be maintained.Conclusion: The finding that the appellant was the beneficial owner under Section 2(3A) of the Customs Act, 1962 is set aside; penalties and confiscation-related consequences imposed on the appellant and the co-appellants are quashed.Final Conclusion: The impugned order dated 11.06.2024 is set aside in full; the customs appeals are allowed, the demand of differential duty with interest, penalties and confiscation-related measures are annulled insofar as they rest on inadmissible or unreliable evidence, and the appeals of the appellant and co-appellants succeed.Ratio Decidendi: Where statements recorded during investigation under Section 108 of the Customs Act, 1962 are not shown to fall within the exceptions in clause (a), they acquire relevance for adjudication only after the statutory procedure under Section 138B of the Customs Act, 1962 is complied with (examination of the person as a witness before the adjudicating authority and recorded opinion admitting the statement); absent such compliance and where contemporaneous evidence of coercion or doubts about provenance of electronic materials exist, rejection of declared transaction value under Rule 12 and re-determination under Rule 9 based on such material is unsustainable.