Statements Given to Customs Officers Are Not Admissible Unless Tested in Cross-Examination: CESTAT

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that statements given to customs officers are not admissible unless tested in cross-examination. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has set aside the confiscation of goods and penalties imposed on an exporter accused of diverting consignments to claim benefits under the Focus Market Scheme (FMS). The statements recorded under Section 108 of the Customs Act cannot be relied upon unless the mandatory procedure under Section 138B is followed. The appeal was filed by M/s Sartaj International challenging the Order-in-Appeal dated April 6, 2022, which had upheld the confiscation of goods and imposition of penalties by the Additional Commissioner of Customs. The case arose from two shipping bills filed in March 2015 for export of readymade garments, declaring Mogadishu, Somalia as the port and country of destination to avail benefits under the Focus Market Scheme. During investigation, the Customs authorities alleged that the consignments were fraudulently diverted to Jebel Ali, United Arab Emirates, a non-notified country under FMS, by manually amending TR-1 and TR-2 copies of the shipping bills. It was alleged that the exporter, in collusion with the freight forwarder, changed the port of discharge and country of destination to wrongfully claim export incentives. The show cause notice proposed confiscation of goods under Sections 113(d), (g) and (i) of the Customs Act, recovery of duty drawback amounting to ₹5.30 lakh, interest, and penalties under Sections 114(iii) and 114AA of the Act. The adjudicating authority concluded that the exporter had deliberately diverted the consignments to UAE by making fraudulent amendments in shipping documents and that the goods were liable to confiscation for being exported in violation of law. Relying mainly on statements recorded under Section 108 of the Customs Act from the exporter, freight forwarder, and shipping line officials, the Additional Commissioner held that the exporter had attempted to misuse the Focus Market Scheme. While the Commissioner (Appeals) later set aside the recovery of drawback, he upheld the confiscation and penalties. The Tribunal focused heavily on the admissibility of statements recorded under Section 108. Referring to earlier decisions, including Surya Wires Pvt. Ltd. vs Principal Commissioner, the Tribunal reiterated that Section 138B of the Customs Act lays down a mandatory procedure for treating such statements as evidence. CESTAT noted that, “A person who makes a statement during inquiry has to be first examined as a witness before the adjudicating authority, and only thereafter can such statement be admitted in evidence, subject to cross-examination.” Since this procedure was not followed in the present case, the Tribunal held that the statements relied upon by the Department had no evidentiary value. The Tribunal also examined whether goods already exported could be confiscated under Section 113. It held that Section 113 applies to goods attempted to be exported improperly, not to goods which have already been exported after issuance of Let Export Order. In this case, the goods had already been exported and investigation commenced later. Therefore, CESTAT ruled that Section 113 was not applicable, and consequently, penalties under Section 114(iii) also could not survive. Section 114AA provides for penalty for knowingly using false or incorrect material particulars in customs transactions. The Tribunal observed that the finding of deliberate falsification was based solely on statements recorded under Section 108, which were inadmissible due to non-compliance with Section 138B. As a result, the penalty imposed under Section 114AA was also set aside. CESTAT made an important observation regarding the responsibility of exporters under the Focus Market Scheme. It noted that exporters are required to submit proof of landing of goods in the notified Focus Market to claim scrips, as per Paragraph 3.20.3 of the Handbook of Procedures. Such proof may include bills of entry, delivery orders, arrival notices, or tracking reports. The Tribunal remarked that neither the exporter nor the Department had produced documents showing whether the goods actually reached Somalia or whether fake documents were used. It also observed that Customs should have summoned records from DGFT to verify whether scrips were issued and on what basis. The Tribunal held that confiscation under Section 113(d), (g) and (i) is unsustainable, penalties under Sections 114(iii) and 114AA are liable to be set aside, and statements under Section 108 cannot be relied upon without compliance with Section 138B. Case Details Case Title: M/s Sartaj International Versus Commissioner of Customs Case No.: CUSTOMS APPEAL NO. 55550 OF 2023 Date: 06.01.2026 Counsel For Petitioner: B.L. Narasimhan, Kruti Parashar, Aditi Sharma Counsel For Respondent: Rajesh Singh Click Here To Read Order Read More: ITAT Quashes Reassessment Based on “Fictitious Loan” Allegations, Slams Dept. for Acting on Incorrect Information

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