Customs Dept. Illegally Relied On Statements Recorded U/s 108 Of Customs Act Without Following Mandatory Procedure U/s 138B: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi Bench, has quashed the confiscation of export goods worth ₹34.01 crore and penalties imposed, holding that the Customs authorities illegally relied on statements recorded under Section 108 of the Customs Act without following the mandatory procedure under Section 138B. The Bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) allowed the appeal and set aside the order of the Commissioner (Appeals) dated 11 February 2022, which had upheld the confiscation and penalties arising from alleged diversion of export consignments under the Focus Market Scheme (FMS) and Merchandise Exports from India Scheme (MEIS). The case arose from 62 shipping bills filed by M/s BEN, Rewari (Haryana) for export of readymade garments to Armenia and Bulgaria, both notified markets under the Focus Market Scheme. The Directorate of Revenue Intelligence (DRI) and Customs authorities alleged that after obtaining Let Export Orders (LEO), the consignments were diverted to Jebel Ali, UAE, which is not a notified destination under FMS/MEIS, thereby enabling the exporter to fraudulently claim export incentives. Based on this allegation, a show cause notice dated 8 November 2017 was issued, culminating in an order by the Additional Commissioner of Customs on 23 January 2019, which ordered confiscation of goods valued at ₹34.01 crore under Sections 113(d), 113(g) and 113(i) of the Customs Act, 1962, and imposed penalties under Section 114(iii) on the firm and its partner, Praveen Rao. The Commissioner (Appeals) upheld the order in 2022, stating that the “preponderance of probability” showed mala fide intent and unauthorized diversion of goods. The Tribunal delivered a strong rebuke to the departmental approach, particularly on evidentiary lapses and misuse of statutory provisions. The court noted that the statements under section 108 cannot be relied upon without section 138B compliance The core of the department’s case rested on statements allegedly made by Imran Mirza, freight forwarder, and Praveen Rao, partner of BEN, admitting to manual amendments in shipping documents to change the destination from Armenia/Bulgaria to Jebel Ali. However, the Tribunal held that statements recorded under Section 108 are not automatically admissible as evidence. Referring to its earlier decision in Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur, the Bench reiterated that, “The person who made the statement must be examined as a witness before the adjudicating authority, the authority must form an opinion on admissibility, and an opportunity for cross-examination must be given. Only then can the statement be relied upon.” Since none of these mandatory steps under Section 138B were followed, the Tribunal ruled that no reliance could be placed on the statements, completely dismantling the foundation of the department’s case. The Tribunal further held that Section 113 of the Customs Act deals with confiscation of goods “attempted to be exported” improperly. In the present case, it was undisputed that the goods had already been exported between January 2015 and July 2015. The investigation began only in August 2015, after exports were completed. Therefore, the Bench categorically ruled, “Section 113 would not be applicable in the instant case as the goods had already been exported on the basis of Let Export Orders.” Consequently, the confiscation under Sections 113(d), (g) and (i) was declared legally unsustainable. Since confiscation itself was set aside, the Tribunal held that penalty under Section 114(iii) (for attempt to export improperly) could not survive, and penalty under Section 114AA (for use of false or incorrect material particulars) was also invalid as it was solely based on inadmissible statements. The Bench made it clear that penal consequences cannot be imposed on assumptions or probability but must be supported by legally admissible evidence. The Tribunal also criticised the appellate authority for mechanically upholding the order, “The Commissioner (Appeals) failed to take notice of the various submissions made by the appellant and merely relied on ‘preponderance of probability’ to sustain serious allegations of fraud.” The Tribunal noted that under the Focus Market Scheme only the exporter is the beneficiary, and the exporter is required to prove actual landing of goods in the notified market by producing documents such as bill of entry, delivery order, arrival notice, tracking report, etc. However, the Tribunal pointed out, “Neither side produced documents to show whether the goods reached the Focus Market or whether any scrips were issued without proof of landing.” The Bench remarked that the Customs authorities should have summoned records from DGFT to ascertain whether scrips were wrongly issued, but no such exercise was undertaken. Allowing the appeal, the Tribunal held the confiscation of goods worth ₹34.01 crore is set aside, all penalties on M/s BEN and Praveen Rao are quashed and the order of the Commissioner (Appeals) was declared illegal and unsustainable. The appeal was accordingly allowed in full. Case Details Case Title: BEN Versus Customs Commissioner Case No.: CUSTOMS APPEAL NO. 51963 OF 2022 Date: 06.01.2026 Counsel For Petitioner: T. Chakrapani, Consultant Counsel For Respondent: M.K. Shukla, Authorized Representative Click Here To Read Order Read More: Reserved Category Candidates Availing Relaxation Cannot Claim General Cadre Allocation in IFS: Supreme Court

Customs Dept. Illegally Relied On Statements Recorded U/s 108 Of Customs Act Without Following Mandatory Procedure U/s 138B: CESTAT

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