Customs cannot Confiscate Already Exported CD-ROMs with Inflated Freight on Board Value: CESTAT quashes ₹25L Penalty u/s 114 [Read Order]

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a penalty of ₹25,00,000 imposed by the Commissioner of Customs under section 114 of the Customs Act, 1962 on an assessee,and observed that the penalty could not be sustained as the goods had already been exported.

The appellant-assessee, Bimal Kumar Jain was involved in a case of exporting CD-ROMs and alleging the misuse of the Duty Entitlement Passbook (DEPB) and thereby evading Customs duty.

It was alleged by the department in the show cause notice that the company Sundram Export, to which the Appellant was connected had exported 96,800 pieces of CD-ROMs at a highly inflated Freight on Board value of US$19 per piece, which were used to import goods without paying customs duty.

The 5 shipping bills covering the fraudulent exports were filed under the DEPB Scheme.

The department contended that the exporter fraudulently overvalued the exports to obtain DEPB scrips, which could be sold and used for evading the duty on imports.

In the impugned order, the Commissioner of Customs had imposed a penalty of ₹25,00,000 under section 114 of the Act, relying mainly on statements made by the appellant and others under section 108 of the Customs Act.

The appellant contended that the goods once exported do not fall within the ambit of “export goods” as defined under section 2(19) of the Customs Act. Thus, the provisions of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 cannot be invoked for re-determining the valuation of the goods, and also relied upon the judgment of the Punjab and Haryana High Court in Jairath International vs. Union of India (2019) to support the statement.

The appellant also argued that the impugned order is based on the statements made by the appellant under section 108 of the Customs Act. Such statements cannot be relied upon given the provisions of section 138B of the Customs Act, and relied upon the decision of the Tribunal in M/s. Drolia Electrosteel P. Ltd. vs. Commissioner, Customs, Central Excise & Service Tax(2023).

The Tribunal bench comprising Dilip Gupta (President) and P.V. Subba Rao (Technical Member) noted that, except for the statements made under section 108 of the Act, there is no other evidence which has been considered by the Commissioner in the impugned order for imposing a penalty upon the appellant under section 114 of the Customs Act.

The tribunal further held that these statements could not be relied upon since they were not tested as per the procedure under section 138B of the Customs Act.

The tribunal noted that the goods had been exported. Therefore, the goods could not have been confiscated under section 113(d) of the Act. The penalty under this section can only be levied if the goods are held liable to confiscation under section 113.

Accordingly, the Tribunal allowed the appeal and set aside the order imposing the penalty.

The appellant was represented by Naveen Malhotra along with Ritvik Malhotra, while Rajesh Singh represented the Revenue.

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