The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi Principal Bench, has allowed three appeals filed by garment designer setting aside the impugned customs order and the penalties imposed against them in connection with the export of garments through another exporter’s Importer Exporter Code (IEC).

The decision was delivered by P. V. Subba Rao (Technical Member) has observed that under Section 2(19) of the Customs Act, “export goods” are goods intended to be taken outside India. Once the goods have actually been taken out of India, they cease to be “export goods” and become “exported goods.” According to the tribunal, Section 113 provides for confiscation of export goods, not goods that have already been exported.

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The case arose from exports undertaken by the appellant/assessee, described in the tribunal’s order as a garment designer firm. The firm had obtained an IEC from the Directorate General of Foreign Trade but had not yet obtained GST registration when it sought to export garments to a customer in the United States.

According to the tribunal’s account, Dewar, being new to the export business, approached freight forwarder Nitco Air Express, which offered what was described as a single-window solution, including customs clearance. The freight forwarder told Dewar that, in the absence of GST registration, the goods could not be exported in Dewar’s own name and suggested that the shipment could instead be exported through another exporter while being delivered to Dewar’s customer in the United States. The appellants’ counsel also submitted that the shipment was only a sample and that no foreign exchange was involved.

The shipping bills were subsequently filed in the name of Hiba Enterprises, using its IEC. The tribunal recorded that investigation found Hiba Enterprises had neither knowledge of nor consented to the export of Dewar’s goods in its name. According to the findings recorded in the order, Nitco had access to Hiba’s credentials from an earlier transaction and used its IEC to export goods belonging to several parties, including Dewar, without Hiba’s knowledge.

Following an investigation, a show-cause notice was issued to 20 noticees, including Himalyani Gupta, Gaurav Gupta and Dewar World Design. The Additional Commissioner subsequently passed an order concerning the appellants.

The adjudicating authority held that goods having a declared FOB value of approximately Rs. 9.26 lakh had been exported using Hiba Enterprises’ IEC and alleged that fake invoices and fictitious documents had been used to conceal Dewar’s identity and obtain export incentives under the drawback scheme. The authority ordered recovery of Rs. 1,810 in claimed drawback, along with applicable interest.

It also imposed separate Rs. 5,000 penalties on Dewar World Design, Gaurav Gupta and Himalyani Gupta under Section 114 of the Customs Act, 1962, and another Rs. 5,000 penalty each under Section 114AA.

The Commissioner (Appeals) subsequently upheld the order, leading the three appellants to approach CESTAT. The issues before the tribunal included recovery of the drawback amount with interest and the penalties imposed under Sections 114 and 114AA of the Customs Act.

One of the central issues was whether the alleged drawback amount could be recovered from Dewar.

The appellants argued that Dewar had never received the drawback and that no shipping bill had been filed in Dewar’s name. The tribunal examined how the customs electronic system processes drawback claims. It noted that once a shipping bill is filed, the Let Export Order is issued and the Export General Manifest is filed, the shipping bill enters the drawback process. Once approved, the amount is transmitted to the bank and credited to the account of the IEC holder.

Since the shipments in question had been made using Hiba Enterprises’ IEC, the tribunal observed that any drawback processed through that IEC would automatically have been credited to Hiba’s account.

The tribunal therefore found that no shipping bill had been filed in Dewar’s name and, consequently, no drawback could have been credited to Dewar’s account. It held that recovery of the drawback from Dewar did not arise on the facts before it. At the same time, the tribunal clarified that if the department had evidence showing that any drawback had actually been paid to Dewar, that amount could be recovered along with applicable interest.

The tribunal next considered the penalties imposed under Section 114 of the Customs Act.

The provision concerns penalties for acts or omissions that render goods liable to confiscation under Section 113. The tribunal examined the statutory distinction between goods that are still in the process of being exported and goods that have already left India.

In the present matter, the garments had already been exported. The tribunal therefore concluded that the finding that the garments were liable to confiscation was contrary to Section 113 and could not be sustained. Consequently, the penalties imposed on Himalyani Gupta, Gaurav Gupta and Dewar World Design under Section 114 were also set aside.

The tribunal also examined the penalties under Section 114AA, which deals with the knowing or intentional use or making of false or incorrect declarations, statements or documents in customs transactions.

A key consideration was who had actually filed the disputed documents. The tribunal found that neither Dewar nor Himalyani Gupta nor Gaurav Gupta had filed documents, made statements or submitted declarations under the Customs Act in relation to the disputed shipping bills. Instead, the tribunal found that Nitco had filed the false shipping bills in Hiba Enterprises’ name without Hiba’s knowledge and had exported Dewar’s goods using that IEC.

The tribunal also considered statements made by Himalyani Gupta during the investigation. It recorded that the appellants were new to the export business and had approached Nitco after being offered a single-window clearance arrangement. According to the tribunal, Nitco had told them that the goods could be exported through another party so that they could reach Dewar’s customers in the United States.

While the tribunal noted that using another person’s IEC for exports was a violation of the Foreign Trade (Development & Regulation) Act, 1992, it distinguished that violation from the question of whether the appellants knowingly or intentionally made false declarations before customs.

The tribunal concluded that the record did not establish that Himalyani Gupta, Gaurav Gupta or Dewar World Design had knowledge or intent to make a false declaration, statement or document before customs. It therefore held that the Section 114AA penalties could not be sustained.

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