Customs duty demands and penalties cannot rest on uncorroborated retracted statements and conjectures.

Chessman Impex Pvt. Ltd. obtained a DEEC licence under the EXIM Policy 1997–2002 for duty-free import of 5,350 MTs of non-alloy re-rollable scrap against an export obligation of 5,000 MTs of non-alloy steel bars and rods.

Following DRI investigation, a Show Cause Notice dated 31 August 2004 alleged diversion of the duty-free scrap into the domestic market, fraudulent export of maize instead of steel products, and contravention of the DEEC licence and relevant Customs notifications.

The CBI separately investigated the same allegations and filed a final report stating that the disputed exports had in fact taken place; the report referred to vehicle movements through immigration records, DEEC registers and realisation of export proceeds.

Nevertheless, the Commissioner confirmed customs duty of approximately Rs. 2.16 crore against Chessman Impex and imposed penalties on the company and the co-noticees.

1. Whether the Department established, through reliable and corroborative evidence, that the duty-free imported scrap was diverted into the domestic market and that maize was exported in substitution for the stipulated steel products?

2. Whether the adjudicating authority could sustain the demand and penalties despite the CBI’s closure report, accepted by the Criminal Court, and the contemporaneous export records, official certifications and Export Obligation Discharge Certificate?

3. Whether the adjudicating authority travelled beyond the Show Cause Notice by examining issues concerning classification of CTD bars, availability of 16 mm bars, licence amendment and bank realisation certificates?

4. Whether the retracted and allegedly inconsistent statements could, without adequate corroboration and compliance with Section 138B of the Customs Act, form the basis for demand and penalties?

5. Whether the penalties imposed upon the co-noticees could survive when the principal allegation against Chessman Impex was not established?

The Tribunal applied Sections 111(o), 112(a), 113(d), 113(i) and 114(i) of the Customs Act, 1962, holding that confiscation, duty recovery and penal liability for breach of DEEC conditions or fraudulent exports must be founded on cogent, reliable and corroborative evidence.

It relied on Commissioner of Customs, Trichy v. Duraiappa, 2019 (367) E.L.T. 628 (Mad.), and the principles in Capt. M. Paul Anthony v. Bharat Gold Mines Ltd., 1999 (3) SCC 679, Control Print Ltd. v. Narcotics Control Bureau, 2017 (50) S.T.R. 114 (S.C.), and CIT v. Bhupen Champaklal Dalal, (2001) 248 ITR 830 (S.C.), that where criminal and departmental proceedings arise from substantially identical facts and evidence, an acquittal or accepted closure report is a material circumstance and adverse departmental findings cannot be sustained without independent material.

The Tribunal further applied the rule that an adjudicating authority cannot travel beyond the allegations in the Show Cause Notice; retracted statements require cautious examination, corroboration and compliance with Section 138B; and suspicion, conjecture or “grey areas” cannot substitute for proof of clandestine diversion or removal.

It also relied on Sheshank Sea Foods Pvt. Ltd. v. Union of India, 1996 (11) TMI 67 (S.C.), distinguishing the Customs authorities’ jurisdiction to examine DEEC compliance from the separate requirement of proving the alleged diversion on the facts of the case.

The Tribunal found that the CBI had examined the same alleged fraudulent exports and that its closure report, accepted by the Criminal Court, supported the actual movement of the export consignments.

Although the adjudicating authority was not automatically bound by the CBI’s conclusion, it had failed to identify any additional evidence capable of displacing it.

The official permission for exports through Ghojadanga, Customs examination and appraisement, Central Excise certification of the AR-4s/ARE-1s, confirmation by Goyal Ispat Ltd. and DRI regarding manufacture and export, realisation of export proceeds, and the unchallenged Export Obligation Discharge Certificate materially supported the appellant’s case.

Conversely, the Department produced no buyers of the allegedly diverted material, cash trail, procurement or transport evidence concerning maize, proof of domestic disposal, seizure of goods, or other direct link connecting the appellant with the alleged fraud.

The communications from Bangladeshi Customs and the Indian Embassy did not establish that Chessman Impex had exported maize or that the declared vehicles had failed to cross the border.

The relied-upon statements were retracted, internally inconsistent and insufficiently corroborated; material witnesses, including persons allegedly involved in arranging the trucks, were not examined.

The Tribunal also held that the Commissioner had introduced grounds concerning product classification, bar sizes, licence amendment and bank realisation that were not properly contained in the Show Cause Notice.

The customs duty demand of approximately Rs. 2.16 crore, consequential interest and penalties imposed on Chessman Impex were set aside.

As the allegations against the principal noticee failed, the penalties imposed upon the co-noticees were also quashed.

All seven appeals were allowed with consequential relief, and Order-in-Original No. 54992/2017 dated 28 February 2017 was set aside.