CESTAT Delhi Sets Aside Penalty Against Company As No Proof It Knew Goods Were Liable To Confiscation

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside a Rs.10 lakh penalty imposed on Rathi Iron & Steel Ind. Ltd., finding no material to show that the company had dealt with goods allegedly removed without payment of duty or had knowledge or belief that they were liable to confiscation.

A bench of President Justice Dilip Gupta and Technical Member P. Anjani Kumar held,

“The appellant had not dealt with the goods that may be liable to confiscation and nor is there anything to show that the appellant had knowledge or belief that such goods were liable for confiscation.”

The case arose from an investigation initiated by the Directorate General of Central Excise Intelligence (DGCEI) against M/s New Tech Abrasives Ltd., a Special Economic Zone (SEZ) unit, over allegations of clandestine removal of M.S. Ingots from the SEZ without payment of customs duty.

During the investigation, statements of three transporters were recorded, based on which the department alleged that vehicles carrying M.S. Ingots were unloaded at the premises of various entities, including the appellant company.

Based on this, the appellant was issued a show cause notice alleging that it had purchased the allegedly clandestinely removed goods and was therefore liable for penalty. However, the notice did not specify the quantity, value or date of the alleged purchases, and no documentary evidence was recovered from the appellant's premises.

Before the tribunal, the appellant argued that the entire case rested solely on the statements of the transporters recorded under Section 108 of the Customs Act and that the procedure under Section 138B for relying on such statements had not been followed.

Accepting the contention, the Tribunal observed:

“The statements made under section 108 of the Customs Act can be considered as relevant only if the procedure contemplated under section 138B of the Customs Act had been followed.”

The tribunal held that a penalty could be imposed only if it was shown that the person had dealt with goods liable to confiscation and had knowledge or belief that such goods were liable to confiscation.

Finding that neither condition was satisfied in the present case, the tribunal allowed the appeal.