Pranav B Prem

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), comprising Judicial Member Shri S.K. Mohanty and Technical Member Shri M.M. Parthiban, has held that the provisions of Section 114AA of the Customs Act, 1962, are not applicable in cases where goods have been actually exported. The Tribunal clarified that the section is meant to address cases of fraudulent exports made only on paper without any actual physical movement of goods, and not situations involving genuine export of goods.

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The appeal was filed by Riyaz Sayed Abdul Aziz, proprietor of M/s Rishay International, who was engaged in the export of ready-made garments and fabrics to African countries, primarily Nigeria. The case arose after the Directorate of Revenue Intelligence, Mumbai Zonal Unit, initiated an investigation based on specific intelligence inputs alleging that certain exporters, including the appellant, were engaged in bogus exports using manual shipping bills, without actual export of goods, in order to claim inadmissible duty drawback.

Pursuant to the investigation, a show cause notice was issued to the appellant proposing recovery of drawback amounts allegedly availed irregularly under Rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995. It was further alleged that the appellant had procured fake purchase invoices, bought low-grade garments from the local market, and exported them at inflated prices to avail higher drawback. The show cause notice also proposed confiscation of export goods under Sections 113(d), 113(i), and 113(ia) of the Customs Act and imposed penalties under Sections 114(i), 114(iii), and 114AA of the Customs Act.

The adjudicating authority had confirmed a total penalty of ₹393 lakhs, confiscated the export goods, and denied the drawback claims amounting to ₹295 lakhs. It was held that the goods were of inferior quality and the appellant had inflated their value for the purpose of availing undue benefits. The order also relied on intelligence reports from Dubai customs, although none of the appellant’s consignments had been exported to Dubai.

In appeal, the appellant submitted that all export consignments had been cleared by the customs authorities and Let Export Orders (LEOs) had been issued in each case. It was contended that the export proceeds were duly realized and certified by the concerned banks. The appellant denied any dummy exports and argued that the imposition of penalty under Section 114AA was wholly unwarranted in light of actual export having taken place.

The Tribunal observed that all 577 shipping bills had been duly assessed and cleared by the customs department, and there was no dispute as to the physical movement of goods. It was also noted that the export proceeds had been realized. The Tribunal took note of the fact that during the examination of Section 114AA by the Standing Committee on Finance, concerns had been raised regarding the potential for misuse of the provision. The Ministry of Finance had clarified that the section was intended to address cases of paper exports where no goods had been physically exported and only documents had been created to claim export benefits.

In light of the above, the Tribunal held that the case against the appellant was not one of dummy exports but involved actual export of goods, and hence, the provisions of Section 114AA had no application. The Tribunal found no evidence to establish that the appellant had committed any fraud or made any false declarations or statements as contemplated under Section 114AA. The Tribunal also found no justification for the confiscation of goods or imposition of penalties under Sections 113 and 114, as there was no criminal intent or fraudulent act that could warrant such penal consequences.

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The Tribunal, therefore, set aside the impugned order in its entirety and allowed the appeal. It concluded that since the goods were in fact exported and there was no evidence of paper exports or fraudulent intent, the imposition of penalty under Section 114AA was not sustainable.

Appearance

Shri N.D. George, Advocate for the Appellant

Shri Ram Kumar, Authorized Representative for the Respondent

Cause Title: Riyaz Sayed Abdul Aziz V. Commissioner of Customs (Export)

Case No: Customs Appeal No. 85411 of 2024

Coram: Hon’ble Mr. S.K. Mohanty [Member (Judicial)], Hon’ble Mr. M.M. Parthiban [Member (Technical)]