Statement recorded u/s 108 of Customs Act not a Valid evidence u/s 138B: CESTAT [Read Order]

M/s Colour Cottex Pvt. Ltd., the appellant has filed the appeal to challenge the order passed by the Commissioner of Customs, ICD-Export, Tughlakabad confiscating the goods exported through 211 Shipping Bills under section 113 (d), (g) and (i) of the Customs Act, 19623 but as the goods were not physically available for confiscation nor cleared under a bond, redemption fine in lieu of the confiscation has not been imposed.

The Commissioner has also confirmed recovery of an amount equivalent to ineligible Focus Market Scrip under section 28AAA of the Customs Act with interest. Penalty has also been imposed upon the appellant under section 114(iii) and section 114AA of the Customs Act. The amount of drawback under rule 16 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 has been dropped.

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The appellant is engaged in the manufacture and export of Ready Made Garments. It entered into contracts for supplying Ready Made

Garments with Lagoon Trading LLC, Lagcy Trading LLC, and Royal Readymade Garments based in U.A.E. To encourage exports to remote markets, the Government introduced the Focus Market Scheme , designed to offset higher freight costs borne by buyers. Under the FMS, exporters often offer reduced prices to customers in designated countries like Panama. This approach ensures competitiveness by partially absorbing the elevated freight costs, aligning with the objectives of the FMS.

The appellant claimed benefits on goods exported through 211 shipping bills during the period of dispute from April 2013 to August 2015. All the export documents in possession with the appellant established that the Goods were exported to Panama.

An investigation was initiated by the Commissioner (Export), ICD, Tughalkabad, New Delhi, on the alleged misuse of the benefits of the FMS and other licenses issued under Chapter 3 of the Foreign Trade Policy 2009-14. The appellant claims that later it came to know that the Goods were actually not exported to Panama. The appellant enquired with the buyer regarding change in the country of destination. It was informed by the buyer that they had directed Imran Mirza, proprietor of the Freight Forwarder, to deliver the consignments to Jebel Ali.

A show cause notice dated September 09, 2017 was issued inter alia proposing to demand ineligible benefit availed under the FMS equivalent to Rs. 1,58,44,432/- under section 28AAA of the Customs Act with interest. It also proposed to impose penalties under sections 114AA and 114 (iii) of the Customs Act on the appellant.

The impugned order has relied upon the statement of Imran Mirza, the proprietor of the Freight Forwarder, that the manual amendments in the copies of the shipping bills were made by him in his own handwriting on the directions of the appellant and that to endorse the said manual amendments, he had forged the signatures of the Customs Superintendent and appended the stamps of the Customs Superintendent. The Commissioner, therefore, held that a transaction based on fraud precludes the party from deriving any benefit.

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The issue that arises for consideration is whether the statement of Imran Mirza recorded under section 108 of the Customs Act could be considered as evidence under section 138B of the Customs Act.

Clearly, if the exporter applied for FMS scrips, it is the responsibility of the exporter to ensure that the goods reach that market and to produce proof as above. The responsibility of the exporter does not end with obtaining the Let Export Order. In this case, neither side produced before us the documents which were produced as proof that the goods reached the Focus Market.

The Customs authorities investigating the matter should have summoned the relevant documents from the DGFT. Either the goods must have reached the Focus Market or if they were diverted, the exporter may have submitted fake documents as proof of landing or the DGFT may have issued the scrips without obtaining the proof of landing.

Penalties could not have been imposed under section 114AA and section 114(iii) of the Customs Act. The appellant claims that it was a bona fide exporter who exported goods in terms of the contract on FOB basis. The title of the goods passed to the buyer as soon as the Let Export Order was issued and the appellant was not responsible for any changes that may have been made in regard to the destination port. Section 114AA provides that if a person knowingly or intentionally makes, signs or uses or causes to be made, any material particular, in the transaction of any business for the purposes of the Customs Act, shall be liable to a penalty not exceeding five times the value of goods.

The Commissioner has relied upon the statement made under section 108 of the Customs Act that the changes were made on the instructions given by the appellant. The tribunal held that this statement cannot be relied upon as evidence. Thus, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant.

A two member bench of Justice Dilip Gupta, President and P. V. Subba Rao, Member (Technical) found that the Commissioner has confiscated the goods under section 113 of the Customs Act for the reason that the appellant and Imran Mirza colluded. This finding is again based on the statement made by Imran Mirza under section 108 of the Customs Act, which statement cannot be relied.

The Tribunal while allowing the appeal set aside the confiscation of goods and consequently, the penalty under section 114(iii) of the Customs Act could not have been levied upon the appellant.

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