The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside penalties imposed on an exporter and its representative, holding that statements recorded during a customs investigation cannot be relied upon unless the mandatory procedure prescribed under Section 138B of the Customs Act, 1962 is followed.
The bench of Ashok Jindal (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that a penalty under Section 114(iii) could not be imposed for a period when the provision was not even in force.
The dispute arose out of export transactions undertaken during 1999-2000. In an earlier round of litigation, the Tribunal had remanded the matter to the adjudicating authority with specific directions to furnish examination reports, EDI records, contemporaneous export valuation documents, and permit examination or cross-examination of the concerned customs officers wherever required.
However, during the remand proceedings, the adjudicating authority once again confirmed penalties under Sections 114(i) and 114(iii) of the Customs Act, prompting the appellants to approach the Tribunal for a second time.
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The Tribunal observed that the adjudicating authority had failed to comply with the specific directions issued in the earlier remand order. It held that the non-compliance with those binding directions itself rendered the impugned order legally unsustainable.
A significant issue before the Tribunal was whether the customs department could rely upon statements recorded during the investigation without first complying with the requirements of Section 138B of the Customs Act.
The Bench held that the penalties were primarily based on statements recorded during the investigation. However, before such statements can be treated as evidence, the law mandates that the persons making those statements must first be examined as witnesses in the adjudication proceedings unless exceptional circumstances specified under the statute exist. Only thereafter can the adjudicating authority determine whether the statements should be admitted in evidence in the interests of justice.
The Tribunal noted that none of these mandatory safeguards had been followed.
While reaching its conclusion, the Tribunal extensively relied upon earlier judicial precedents interpreting the analogous provisions of Section 9D of the Central Excise Act, including P.C. Jain v. Commissioner of Customs (Port), Kolkata; Commissioner of Central Excise v. Parmarth Iron Pvt. Ltd.; Jindal Drugs; G. Tech Industries v. Union of India; and J.K. Cigarettes Ltd. v. CCE.
The Tribunal reiterated the settled legal principle that if the Revenue intends to rely upon statements recorded during investigation, the makers of those statements must be produced for examination in the adjudication proceedings, failing which such statements lose their evidentiary value. Mere reliance on investigation statements without complying with the statutory procedure violates both the Customs Act and principles of natural justice.
The Tribunal further accepted the appellants’ contention that the alleged exports related to the period 1999-2000, whereas Section 114(iii) was introduced subsequently and was not part of the statute during the relevant period.
Consequently, the Bench held that no penalty could legally be imposed under a provision that was not in force at the time of the alleged contravention.
Allowing both appeals, the Tribunal held that the adjudicating authority failed to comply with the earlier remand directions. Statements recorded during investigation could not be relied upon because the mandatory procedure under Section 138B had not been followed. The penalty imposed under Section 114(iii) was legally unsustainable as the provision was not in force during the relevant period. Accordingly, the penalties imposed on both appellants were set aside, with consequential relief, if any.
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