Sole Reliance on Retracted and Untested Statements Impermissible: CESTAT Sets Aside Penalty on Diamond Broker in Overvaluation Case [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that sole reliance on retracted and untested statements is impermissible, and set aside the penalty imposed on a diamond broker in an alleged overvaluation case.

Shri Dulraj Uttamchand Jain, the appellant, had earlier worked as an accountant and later operated as a diamond broker under the name Roop Impex. He was accused of acting as a link between two parties involved in importing diamonds, allegedly overvalued to remit excess foreign exchange.

A penalty of Rs. 2,00,000 was imposed on him under Section 112(a) of the Customs Act, 1962, which was reduced to Rs. 1,50,000 by the Commissioner (Appeals). Aggrieved by the confirmation of the penalty, he filed an appeal before the CESTAT.

The appellant’s counsel argued that he acted only as a broker for a small commission and had no role in the alleged overvaluation. They argued that the case against him was built solely on statements that were later retracted and never tested in cross-examination as required under Section 138B of the Customs Act.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The counsel further argued that no corroborative evidence was produced by the department, and penalty cannot be imposed on assumptions and presumptions. Reliance was placed on the Supreme Court decision in A. Tajudeen and CESTAT rulings in Sundaram Gems Pvt. Ltd., Sahil Diamonds, and Mahalaxmi Gems, where penalties in similar diamond trade cases were set aside.

The revenue’s counsel argued that the appellant admitted in his voluntary statement that he earned brokerage by acting as a link between the main parties and by preventing them from meeting directly, which showed knowledge of the overvaluation and circular trading.

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that the penalty was imposed merely on the basis of statements without any independent evidence. The tribunal observed that the statements were retracted and were never tested as per Section 138B of the Act, making reliance on them impermissible.

The tribunal further observed that no corroborative evidence was produced to show the appellant’s role in the alleged offence and that penalty cannot rest on conjectures or presumptions.

The tribunal pointed out that Section 112 requires proof of a prohibited act or duty evasion, which was not established in this case. The tribunal explained that since there was no corroborative evidence apart from untested statements, the penalty imposed was unsustainable. The penalty was set aside and the appeal was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates