Retrospective customs penalty and Section 138B compliance bar adverse reliance on investigation statements in adjudication.

Penalty under Section 114(iii) of the Customs Act could not apply to an export in 1999-2000 because the provision was not then in force, and a penal clause cannot operate retrospectively absent clear legislative intent. Penalty under Section 114(i) also could not be sustained where the adjudicating authority relied on investigation statements without complying with Section 138B and without following remand directions; statements used in adjudication must satisfy the prescribed procedure for admissibility, including examination of the maker and any requested cross-examination. The penalties were therefore set aside and consequential relief followed.

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Issues: (i) Whether penalty under Section 114(iii) of the Customs Act, 1962 could be sustained for an export said to have occurred in 1999-2000. (ii) Whether penalty under Section 114(i) of the Customs Act, 1962 could be sustained when the impugned order relied on statements recorded during investigation without compliance with Section 138B of the Customs Act, 1962 and without following the remand directions.

Issue (i): Whether penalty under Section 114(iii) of the Customs Act, 1962 could be sustained for an export said to have occurred in 1999-2000.

Analysis: The relevant export period preceded the introduction of Section 114(iii). A penal provision cannot be applied retrospectively unless the statute clearly so provides. Since the provision was not in force during the material period, the foundation for penalty under that clause was absent.

Conclusion: Penalty under Section 114(iii) was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether penalty under Section 114(i) of the Customs Act, 1962 could be sustained when the impugned order relied on statements recorded during investigation without compliance with Section 138B of the Customs Act, 1962 and without following the remand directions.

Analysis: The earlier remand directions were not complied with, and the adjudicating authority relied on investigation statements without following the mandatory procedure governing their admissibility. The statutory requirement under Section 138B is that such statements can be used only in accordance with the prescribed procedure, including examination of the maker and, where sought, cross-examination. Reliance on statements without satisfying that procedure vitiated the adverse findings. The failure to adhere to the remand directions also rendered the order unsustainable.

Conclusion: Penalty under Section 114(i) was not sustainable and was set aside in favour of the assessee.

Final Conclusion: The penalties imposed on the appellants could not be sustained in law, and the impugned order was set aside with consequential relief.

Ratio Decidendi: A penalty cannot be imposed under a provision that was not in force during the relevant period, and statements recorded during investigation cannot be relied upon in adjudication unless the mandatory statutory procedure for their admissibility is followed.

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