Pranav B Prem

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), consisting of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has held that penalty under Section 114 of the Customs Act, 1962 can only be imposed if the goods are liable to confiscation under Section 113 of the Act. Since confiscation was found to be unsustainable in this case, the Tribunal set aside the penalty imposed on the appellant.

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Background

The appeal was filed by Deept Swarup Aggarwal challenging the order dated 31.01.2006 passed by the Commissioner of Customs, ICD, Tughlakabad, New Delhi, whereby a penalty of ₹20 lakhs had been imposed upon him under Sections 114 and 112 of the Customs Act, 1962. The case originated from intelligence received by the Directorate of Revenue Intelligence (DRI) regarding alleged fraudulent exports by M/s Sundram Export Pvt. Ltd. and M/s Netcompware Pvt. Ltd. under the Duty Entitlement Pass Book (DEPB) Scheme.

According to the department, these firms had exported CD-ROMs at grossly inflated prices of US $19 per piece in order to fraudulently obtain DEPB scrips. These scrips were allegedly sold in the market to facilitate duty-free imports. The DRI conducted an investigation and recorded statements under Section 108 of the Customs Act from several persons, including the appellant, following which a show cause notice dated 04.12.2000 was issued to 26 parties, including the appellant.

The Commissioner, in the impugned order, concluded that the appellant had conspired with other parties to facilitate the fraudulent export of CD-ROMs and the illegal availment of DEPB benefits. Based on the statements recorded during the investigation, the Commissioner imposed a penalty of ₹20 lakhs on the appellant under Sections 114 and 112 of the Customs Act.

Appellant's Contentions

The appellant contended that he was neither the exporter nor the beneficiary of the DEPB scrips, but had only acted as a coordinator in the procurement of goods for export. He argued that he was not involved in the actual export process or in the availing of DEPB benefits. Further, the appellant challenged the reliance on statements recorded under Section 108 of the Customs Act, pointing out that such statements could not be used as evidence unless the procedure laid down under Section 138B was strictly followed. In support of this contention, the appellant relied on various judicial precedents.

Findings of the Tribunal

The Tribunal noted that the Commissioner had relied solely on the statements recorded under Section 108 of the Customs Act for imposing the penalty, without ensuring compliance with the mandatory provisions of Section 138B. CESTAT emphasized that unless such statements are admitted as evidence by following the procedure outlined in Section 138B—including the opportunity for cross-examination—they cannot be treated as admissible evidence. The Tribunal referred to its earlier decisions, highlighting that statements recorded during investigation are not automatically admissible unless these procedural safeguards are met, to prevent the possibility of coercion or undue influence.

Additionally, the Tribunal examined the applicability of Section 113(d) of the Customs Act, which deals with the confiscation of goods. Since the goods in question had already been exported, the Tribunal held that they could not be confiscated under Section 113(d). As a result, the Tribunal ruled that penalty under Section 114—which is contingent upon the goods being liable to confiscation under Section 113—could not be imposed.

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Verdict

In light of these findings, the Tribunal allowed the appeal and set aside the penalty of ₹20 lakhs imposed on the appellant under Sections 114 and 112 of the Customs Act. The Tribunal held: "Penalty under Section 114 of the Customs Act can be levied only if the goods are held liable to confiscation under Section 113 of the Customs Act. As the confiscation cannot be sustained, penalty under Section 114 of the Customs Act cannot also be sustained."  Accordingly, the appeal was allowed, and the penalty imposed on the appellant was quashed.

Appearance

Shri Naveen Malhotra, Shri Ritvik Malhotra, Advocates for the Appellant

Shri Rajesh Singh, Authorized Representative for the Respondent

Cause Title: Sh. Deept Swarup Aggarwal V. Customs Commissioner

Case No: Customs Appeal No. 335 Of 2006

Coram: Hon'ble Mr. Justice Dilip Gupta [President], Hon'ble Mr. P.V. Subba Rao [Member (Technical)]

[Read/Download order]