Export Confiscation Order of Rs. 34 Cr set aside on Procedural Grounds: CESTAT Emphasizes Mandatory Nature of Section 138B in Customs Proceedings [Read Order]

The Principal Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) at New Delhi, set aside confiscation and penalties of ₹34.01 crore in an export diversion case involving 62 shipping bills under the Focus Market Scheme. The Tribunal held that statements under Section 108 were inadmissible unless Section 138B procedures were followed. Thus, penalties under Sections 114(iii) and 114AA were held unsustainable, reinforcing strict procedural safeguards.

The Appellant, BEN through its partner, Praveen Rao, filed an appeal against the order dated 11.02.2022 of the Commissioner of Customs (Appeals) dismissing their appeal against the Additional Commissioner's order dated 23.01.2019, which confiscated goods exported through 62 Shipping Bills and imposed penalties on the appellant and Praveen Rao.

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The Appellant filed 62 Shipping Bills for export of readymade garments to Armenia/Bulgaria under the Focus Market Scheme (FMS). Investigations revealed that after Let Export Orders were issued, the consignments were diverted to Jebel Ali, UAE, a non-notified country under FMS.

During investigation, shipping lines submitted TR-1/TR-2 copies of Shipping Bills showing manual amendments in handwriting. The original entries of "Bandar Abbas/Burgas" as Port of Discharge and "Armenia/Bulgaria" as Country of Destination were struck out and replaced with "Jebel Ali" and "Dubai" respectively, bearing a Customs Superintendent's stamp.

A show cause notice dated 08.11.2017 was issued. The Additional Commissioner, by order dated 23.01.2019, held the goods (FOB value Rs. 34,01,97,382/-) liable for confiscation under Section 113(d), (g) and (i) of the Customs Act, 1962, and imposed penalties under Section 114(iii) on BEN and Praveen Rao for fraudulently diverting exports to avail undue FMS benefits. The Commissioner (Appeals) confirmed this order on 11.02.2022, leading to the present appeal before CESTAT.

The Counsel for the Appellant, T. Chakrapani Consultant with Anil Kumar, submitted that statements recorded under Section 108 are inadmissible as the mandatory procedure under Section 138B was not followed, requiring witnesses to be examined before the adjudicating authority with opportunity for cross-examination.

Further, the Counsel stated that goods were not liable to confiscation under Section 113(d), (g) and (i), as Section 113 applies only to goods "attempted to be exported" improperly, not to already exported goods. Since the goods were exported between January-July 2015 with Let Export Orders and investigation commenced only in August 2015, confiscation provisions were inapplicable and the allowance of drawback confirmed the goods were legally exported, negating their classification as smuggled goods.

On the other hand, the Authorized Representative for the Respondent, M.K. Shukla, supported the impugned order and supported that the appellant fraudulently diverted goods intended for Armenia and Bulgaria to Jebel Ali, UAE to wrongfully claim Focus Market Scheme benefits.

Further, the Counsel argued that the goods were liable to confiscation as they were exported using fraudulent documentation and were not cleared for export to the actual destination port. The Department maintained that penalties were correctly imposed on the appellant and Praveen Rao.

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The Tribunal consisted of Justice Dilip Gupta, President and Technical Member, P. V Subba Rao, heard and reviewed the matter.

The Tribunal, after considering the submissions made, held that statements recorded under Section 108 are inadmissible without following the mandatory procedure under Section 138B, which requires witnesses to be examined before the adjudicating authority with opportunity for cross-examination.

Relying on M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur, the Tribunal ruled that failure to comply with Section 138B means no reliance can be placed on Section 108 statements, which may be recorded under coercion.

Further, the Tribunal observed that exporters remain responsible for proving goods reached the Focus Market to claim FMS scrips. Neither party produced proof of landing documents, and Customs should have verified DGFT records. The impugned order failed to address this critical issue.

Accordingly, the Tribunal set aside the confiscation order, penalties and impugned order dated 06.04.2022 and allowed the appeal filed. The Order was Pronounced on 06.01.2026.

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