Section 108 Customs Statements Can Be Substantive Evidence: Karnataka HC

Commissioner of Customs Vs Imtiaz Ahmed (Karnataka High Court)

Summary: The Karnataka High Court allowed the Revenue’s appeal against CESTAT orders setting aside a penalty of Rs. 2 crore imposed on Imtiaz Ahmed under Section 114 of the Customs Act, 1962. The dispute arose from 21 consignments of ladies’ garments exported by SLN Overseas Traders from New Mangaluru Port to Dubai between August 2007 and May 2009. The Revenue alleged that inferior garments were falsely declared as higher-quality fabric, resulting in inflated export values and improper claims concerning DFIA scrips. The Department had sought to reject a declared FOB value of Rs. 16,07,44,035 and redetermine it at Rs. 2,97,93,000.

The Revenue relied on statements recorded under Section 108 of the Customs Act, including statements of exporter Suresh Prabhu and Feroz Khan, alleging that the respondent arranged payments and transfers from Dubai through associates in India. The respondent argued that he was abroad during the exports, that documentary evidence did not connect him with the foreign consignee or remitting entity, and that a co-noticee’s statement required independent corroboration. The Court examined Supreme Court decisions concerning the admissibility of statements before Customs officers and held that statements recorded under Section 108 could be treated as substantive evidence rather than automatically being excluded as co-accused confessions.

On abetment, the Court referred to Section 114 of the Customs Act and the concept of abetment under Section 107 of the Indian Penal Code. It concluded that the respondent’s role in arranging remittances formed an essential link in the alleged illegal export transactions and that CESTAT’s contrary finding was perverse. The Court also rejected the contention that residence outside India excluded application of the Customs Act where substantial acts and consequences occurred in India. Referring to cross-border conduct and Section 147, the Court answered all substantial questions of law in favour of the Revenue, allowed the appeal and made no order as to costs.

On the question of penalty, the High Court examined Section 114 of the Customs Act, which provides for penalties against persons whose acts, omissions or abetment render export goods liable to confiscation under Section 113. Referring to the meaning of abetment under Section 107 of the Indian Penal Code and the decisions in Vishnu Kumar Vs Commissioner of Customs and Collector of Customs Vs D. Bhoormull, the Court observed that liability in customs penalty proceedings could be established on the preponderance of probabilities. It found that the statements of Suresh Prabhu and Feroz Khan indicated that Imtiaz Ahmed had facilitated remittances from Dubai and participated in arrangements connected with the alleged fraudulent exports. The Court concluded that his involvement constituted an essential link in the transactions and amounted to abetment. Consequently, it held that the adjudicating authority was justified in imposing the penalty and that CESTAT’s contrary findings were perverse.

The High Court also rejected the respondent’s contention that the Customs Act could not apply because he was residing outside India. Considering Section 1(2) and Section 147 of the Customs Act, along with the decisions in Haridas Exports Vs All India Glass Float Manufacturers, Ajay Aggarwal Vs Union of India and Maqsood Yusuf Merchant Vs Union of India, the Court held that activities undertaken abroad could attract legal consequences in India where substantial acts or their effects occurred within Indian territory. It observed that the respondent had allegedly operated through associates in India, that remittances were connected with Indian export transactions and that the goods were detained at Mangaluru Port. The Court therefore held that the respondent’s overseas residence did not exclude the applicability of the Customs Act. Accordingly, the Karnataka High Court allowed the Revenue’s appeal, answered all three substantial questions of law in favour of the Revenue and against Imtiaz Ahmed, and upheld the basis for imposing the Rs. 2 crore penalty. No order as to costs was made.

Cases Discussed

1. C.K. Kunhammad Vs CCE — (1992) 62 ELT 146
2. Romesh Chandra Mehta Vs State of West Bengal — AIR 1970 SC 940
3. Assistant Collector of Central Excise, Rajamundry Vs Duncan Agro Industries Ltd. — (2000) 7 SCC 53
4. Naresh J. Sukhwani Vs Union of India — 1996 SCC (Cri) 76
5. Vishnu Kumar Vs Commissioner of Customs, New Delhi — (2010) 170 DLT 340
6. Collector of Customs, Madras Vs D. Bhoormull — 1983 ELT 1546 (SC)
7. M/s Haridas Exports Vs All India Glass Floats Manufacturers — (2002) 6 SCC 600
8. Ajay Aggarwal Vs Union of India — (1993) 3 SCC 609
9. Maqsood Yusuf Merchant Vs Union of India — (2008) 103 DRJ 634

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

This appeal by the Revenue, directed against the orders dated November 13, 2018 in Miscellaneous Order No. 21273/2018 and Final Order No. 20056/2016 dated January 11, 2016 has been admitted to consider the following questions of law:

i) Whether, in the present facts and circumstances of the case the CESTAT, was right in coming to the conclusion that charges against the respondent Imtiaz Ahmed are baseless even when there are corroborative evidences like statements of the co-noticees, recovering of large sum of money by the Enforcement Directorate from the premises of co-noticee, who is close associate of the respondent and recorded perverse findings?

(ii) Whether, the Tribunal was justified in dropping the penalty on the respondent under Section 114 of the Customs Act, 1962 without examining the controversy in proper perspective and recorded perverse finding?

(iii) Whether, the Hon’ble CESTAT was correct in holding that in view of Section 1(2) no penalty is to be levied under Section 114 of the Customs Act, 1962?

2. Heard Shri. M.B. Nargund, learned Additional Solicitor General for the Revenue and Shri. Phanindra, learned Senior Advocate for the Respondent.

3. Brief facts of the case are, a firm by name M/s. SLN Overseas Traders (‘SLN’ or ‘exporter’ for short), owned by one Suresh Prabhu, situated in Kundapur, Udupi, had exported 21 consignments of ladies garments during August 2007 and May 2009, through New Mangaluru Port to Dubai. According to the Revenue, the Garments were made of inferior quality fabric but, declared to be made of Corduroy/Denim/Viscose fabric to fraudulently avail duty free import credit. The exporter had falsely claimed fulfillment of export obligation against the corresponding DFIA Scrips obtained by making fraudulent exports. Based on the Intelligence, DRI¹ conducted investigation and a show cause notice dated 02.11.2010 was issued calling upon the Proprietor of SLN to show cause as to why the goods declared having FOB value of Rs.16,07,44,035/- should not be rejected and the value of said goods should not be re-determined at Rs.2,97,93,000/-. The DRI also issued a show cause notice to the respondent herein to show cause as to why penalty should not be imposed on him under Section 114(iii) of the Customs Act,1962² for his acts and omissions which had rendered the exported goods liable for confiscation under Section 113(h) and Section 113(i) of the Act read with other relevant provisions.

4. The Commissioner of Customs, Mangaluru adjudicated the show cause notice and imposed a penalty of Rs. Two Crores against the respondent vide order dated December 19, 2011. Respondent challenged the same before the CESTAT³ in Appeal No.C/670/2012 and the same was allowed remitting the matter for fresh consideration.

5. After remand, the Adjudicating Auhority called upon the respondent to submit his reply, if any, to the show cause notice and to appear in person for hearing. Respondent’s Advocate appeared during the personal hearingand submitted a preliminaryreply denying theallegations.

The principal  contention   urged was, the Act extends only to the whole of India and not outside the territory. The noticee at the time of export was based in Dubai and had imported goods in Dubai.

6. The Commissioner of Customs, after hearing the learned Advocate, imposed the same penalty of Rs. Two Crores against respondent. The respondent challenged the said order before the CESTAT and by the impugned order, CESTAT has set-aside the penalty. Revenue filed a miscellaneous petition seeking rectification of mistake in the final order No.20056/2016 passed by the CESTAT. By its order dated November 13, 2018, CESTAT has dismissed the said application also. Hence, this appeal.

7. M.B. Nargund, learned Additional Solicitor General, arguing in support of this appeal, submitted that:

• during the investigation by DRI, it had come to light that, respondent was based in Dubai and his cousin brother Feroz Khan was conspiring with Suresh Prabhu, who was the mastermind in export fraud. The co-noticees in the case have admitted in their statements recorded under Section 108 of the Act and implicated the respondent in the case. Respondent did not appear before the Customs Authorities. The ED⁴ investigated the issue of money laundering and a Red Alert notice has been issued against the respondent and hence, his statement could not be recorded;

• the respondent is one of the main accused involved and has played a major role in the export fraud. He has been colluding with his counterparts and associates operating from India, causing damage to Indian economy;
• respondent is an Indian National and holds an Indian Passport. He has indulged in illegal activities, both in India and abroad, in designing, planning and execution of illegal activities in India. The authority in C.K. Kunhammad Vs. CCE⁵ relied upon by the CESTAT, is not applicable to the case on hand;

• respondent did not respond to the summons and has been absconding; his statements could not be recorded. He is the henchman of Suresh Prabhu and has arranged for sending money illegally from Dubai to India under the cover of subject exports of M/s SLN by way of inward remittances from certain Dubai based parties who are neither consignees nor buyers for the subject export goods. The Respondent conspired in the illegal exports of mis-declared goods by making full payment of the inflated value and then recovering the excess payment through hawala mode;
• the mens rea in the case is proved beyond doubt and the respondent’s abetment in the offence has been proved in depth. Respondent cannot take a plea that he was not involved in the illicit exports since he was away from the country, in as much as, he has been hiding abroad and failed to honor the summons issued by the investigating agency.

With these submissions learned ASG prayed for allowing this appeal.

8. In substance, the learned ASG’s argument is, respondent is an Indian Citizen and holds an Indian Passport. He is the master mind of the entire activity. Therefore, the view taken by CESTAT is not sustainable.

9.  Phanindra, learned Senior Advocate for the respondent submitted that:

•  respondent was not in India at the time of export and therefore, the Act is not applicable;
• the CESTAT has recorded a finding in para 6.4 of the impugned order that there was no documentary evidence on record to establish that goods exported by SLN were cleared either directly or indirectly by the respondent at the Foreign Destination;
• the CESTAT has also recorded that the shipment was made to ‘True Trade General Trading’, Dubai and the payment was received from unconnected firm ‘Abdulla Ahamad Electronics’;
• name of the respondent is not found in any document nor there is any evidence to connect the respondent with the Consignee or Abdulla Ahamed Electronics, which had made the payment;
• the CESTAT has recorded in para 6.6 of the impugned order that the amount was withdrawn by the employees of M/s. East

• respondent is a co-accused in the case, hence the confessional statements made by Suresh Prabhu under Section 108 of the Act are not sufficient and they need to be corroborated with the other independent evidence.

With these submissions, he prayed that this appeal may be dismissed.

10. We have carefully considered rival contentions and perused the records submitted by the learned Additional Solicitor General.

Re: Question No: 1.

11. The principal contention urged on behalf of the respondent is that charges against him are baseless even when there are corroborative evidences like statements of co-noticees.

12.Section 108 of the Customs Act, 1962 reads as follows:

“108. Power to summon persons to give evidence and produce documents-

1. xxx

2. xxx

3 All persons so summoned shall be bound to attend either in person or by an authorized agent as such officer may direct; and all persons so summoned shall be bound to state the truth upon any subject, respecting which they are examined or make statements and produce such documents and other things as may be required: Provided that the exemption under section 132 of the Code of Civil Procedure, 1908 (5 of 1908), shall be applicable to any requisition for attendance under this section.

4. xxx”

13. In Romesh Chandra Mehta Vs. State of West Bengal⁶, it is held that a Customs Officer under the Act is not a police officer within the meaning of Section 25 of the Evidence Act and the statements made before him by a person who is arrested or against whom an inquiry is made are not covered by Section 25 of the Indian Evidence Act. It is further held that a statement under Section 108 of the Act is not a statement made by a person accused of an offence, and the person who gives the statement does not stand in the character of an accused person.

14. Thus, it is clear that the statements of a person made under Section 108 of the Act 1962 should not and cannot be construed as a statement of a co-accused, for when a Customs Officer records a statement under that sections of the Act, he does not act as a Police Officer, but he merely acts as a Revenue Officer, whose duty is to find out whether or not there is an evasion of customs duty in a particular transaction.

15. The fine difference in a statement made by a person before a Customs Officer under Section 108, who is subsequently made an accused vis-à-vis a statement before a Police Officer, it is a statement made before a person other than a police officer and hence not hit by the bar of admissibility under Section 25 of the Evidence Act.

16. A person summoned to give a statement is not an accused at the time of recording his statement. Such a person is bound by the provisions of sub-section (3) of Section 108 of the Act to state the truth.

17. The Apex Court in the case of Assistant Collector of Central Excise, Rajamundry Vs. Duncan Agro Industries Ltd.,⁷ has held as follows:

“17. We hold that a statement recorded by customs officers under Section 108 of the Customs Act is admissible in evidence. The court has to test whether the inculpating portions were made voluntarily or whether it is vitiated on account of any of the premises envisaged in Section 24 of the Evidence Act.”

(Emphasis Supplied)

18. In Naresh J. Sukhwani Vs. Union of India⁸, relied upon by the Revenue, it is held as follows:

“4. It must be remembered that the statement made before the Customs officials is not a statement recorded under Section 161 of the Criminal Procedure Code, 1973. Therefore, it is a material piece of evidence collected by Customs officials under Section 108 of the Customs Act. That material incriminates the petitioner inculpating him in the contravention of the provisions of the Customs Act. The material can  certainly be used to connect the petitioner in the  contravention inasmuch as Mr. Dudani’s statement clearly inculpates not only himself but also the  petitioner. It can, therefore, be used as substantive  evidence connecting the petitioner with the  contravention by exporting foreign currency out of India. Therefore, we do not think that there is any illegality in the order of confiscation of foreign currency and imposition of penalty. There is no ground warrantaing reduction of fine.”

(Emphasis Supplied)

19. We have perused Suresh Prabhu’s statement. He has admitted that the respondent was making full payment through the bank and asked him to pay specified amounts to specified individuals. It is also stated that the Respondent was not only recovering the excess payment but was also ensuring the transfer of money to his associates in India through non-banking channel.

20. Therefore, the statements made by Suresh Prabhu should be considered not as a confessional statement of a co-accused, but as an independent piece of evidence. It is thus evident from his statements that the respondent was involved in the offence. Hence the contention of Shri Phanindra that other independent evidence is required, is untenable and liable to be rejected.

Re: Question No. 2:

21. The question involved is whether the Tribunal was justified in dropping the penalty.

22. Section 114 of the Customs Act, 1962 reads thus:

Penalty for attempt to export goods improperly, etc.—Any person who, in relation to any goods, does or omits to do any act which act or omission would render such goods liable to confiscation under section 113, or abets the doing or omission of such an act, shall be liable—

ii. in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty [not exceeding three times the value of the goods as declared by the exporter or the value as determined under this Act], whichever is the greater;

iii. in the case of dutiable goods, other than prohibited goods, to a penalty [not exceeding the duty sought to be evaded or five thousand rupees], whichever is the greater; (iii) in the case of any other goods, to a penalty not exceeding the value of the goods, as declared by the exporter or the value as determined under this Act, whichever is the greater.

23. The word “abet” used in Section 114 of the Act is not defined in the Act. For the purpose of understanding the meaning of abet, we refer to Section 107 of the Indian Penal Code, 1860.

“A person abets the doing of a thing, who—

First —Instigates any person to do that thing; or Secondly —Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or

Thirdly—Intentionally aids, by any act or illegal omission, the doing of that thing.

24. In Vishnu Kumar Vs. Commissioner of Customs, New Delhi⁹, the Delhi High Court has observed as follows:

“11. As regards the standard of proof required to prove the charge of abetment, for the purpose of Section 112(a) of Customs Act, it is settled proposition of law that though the penalty proceedings under Customs Act,1962 are quasi-criminal in nature, the Department is not required to prove its case beyond reasonable doubt, as is required to prove commission of an offence in a criminal prosecution and it is sufficient if the guilt attributed to the charged person is established on a preponderance of probabilities. As observed by the Supreme Court in Collector of Customs, Madras & Others vs.D. Bhoormull: 1983 ELT 1546(SC), all that is required to be established is such a degree of probability that a prudent man may, on its basis, believe in the existence of the act in issue.”

(Emphasis Supplied)

25. On the facts of that case, the Delhi High Court has taken the following view, which is similar to facts in the instant case:

“19. The facts and the circumstances of the present case show that the appellant was a party to  the conspiracy, pursuant to which customs duty was  being evaded by clearing dutiable goods, without sending the parcels, containing those goods, to the  Foreign Post Office for the purpose of examination  and he also intentionally aided in evasion of duty. The evidence available on record in the form of statement of the appellant recorded under Section 108 of Customs Act, coupled with the statement of Kishori Lal is sufficient to prove the complicity of the appellant in evasion of customs duty.”

(Emphasis Supplied)

26. Feroz Khan in his statement dated October 01, 2009, given before the officers of DRI, has admitted that the respondent is also involved in sending money through SLN Account.

27. In para 9 of its OIO¹⁰ 29/2014 the DRI has recorded thus:

“9.3. From these, it is now established that M/s SLN Overseas Traders exported overvalued garments to Dubai for which remittance was received through Shri. Feroz Khan/ M/s East West Tourist Corporation. As admitted by both, Shri. Suresh Prabhu and Shri Feroz Khan, the cousin of Shri. Feroz Khan- Shri. Imtiaz Ahmed was involved in remittance from Dubai. In these transactions only two parties are involved- one party is the giver (Shri. Imtiaz Ahmed) and the other parties are the receivers (Shri. Feroz Khan and M/s SLN)…”

28. From the above findings of the DRI and statement made by the co-noticees, it is clear that the respondent had received and made payments for the illegal exports. Without his involvement, the chain of circumstances leading to the commission offence would be incomplete. In our view, respondent has aided in making remittance from Dubai which amounts to abetment. Thus, Respondent has played a major role in the commission of the offence.

29. Taking into consideration the facts and circumstances of the case, the abetment by the respondent, adjudicating Authority vide order No.01029/2014 was justified in imposing a penalty under Section 114 of the Act and the view taken by the CESTAT and dropping the penalty is perverse.

Re: Question No. 3:

30. This question is with regard to applicability of the Customs Act, 1962.

31. The Respondent has argued that the provisions of Customs Act, 1962 are not applicable to him because he was not present in India.

32 .Section 1(2) of the Customs Act, 1962 reads:

“It extends to the whole of India”.

18. We may record that Section 1(2) of the MRTP Act, 1969 which is pari materia with Section 1(2) of the Customs Act, reads as follows:

“It extends to the whole of India except the State of Jammu and Kashmir.”

33 In M/s Haridas Exports Vs. All India Glass Floats Manufacturers¹¹, while considering the aspect of jurisdiction of MRTP Act, 1969 the Apex Court has observed that:

“…for example, which results in exporting goods to India at predatory price, which was in effect a restrictive trade practice, had been carried out outside the territory of India if the effect of that had resulted in a restrictive trade practice in India. If power is not given to the MRTP Commission to have  jurisdiction with regard to that part of trade practice  in India which is restrictive in nature then it will mean that persons outside India can continue to indulge in  such practices whose adverse effect is felt in India  with impunity. A competition law like the MRTP Act is a mechanism to counter cross border economic terrorism. Therefore, even though such an agreement may be entered into outside the territorial jurisdiction of the Commission but if it results in a restrictive trade practice in India then the Commission will have jurisdiction under Section 37 to pass appropriate orders in respect of such restrictive trade practice.”

(Emphasis Supplied)

34. In Ajay Aggarwal Vs. Union of India,¹² it is held as follows:

“25. A conspiracy thus, is a continuing offence and continues to subsist and committed wherever one of the conspirators does an act or series of acts. So long as its performance continues, it is a continuing offence till it is executed or rescinded or frustrated by choice or necessity. A crime is complete as soon as the agreement is made, but it is not a thing of the moment. It does not end with the making of the agreement. It will continue so long as there are two or more parties to it intending to carry into effect the design. Its continuance is a threat to the society against which it was aimed at and would be dealt with as soon as that jurisdiction can properly claim the power to do so. The conspiracy designed or agreed abroad will have the same effect as in India, when part of the acts, pursuant to the agreement are agreed to be finalised or done, attempted or even frustrated and vice versa.”

(Emphasis Supplied)

36. In Maqsood Yusuf Merchant Vs. Union of India¹³, the Delhi High Court has observed thus:

“13. …Once it is found that the offence has been committed, or a violation of the Customs Act has been perpetrated in India, persons who have abetted in the perpetration of this violation would justifiably be charged as abettors. A distinction has to be drawn between the commission of an offence, or the perpetration of a violation of the Customs Act beyond the territory of India, and the abettment of this species of offences committed outside India. Once abettment is proved, the law would take its course even with respect to persons who were at the  material time outside Indian boundaries.”

(Emphasis Supplied)

37. We may also profitably note that in Starke’s International Law¹⁴, the Protective Principle is described as follows:

“International law recognises that each State may exercise jurisdiction over crimes against its security and integrity or its vital economic interests… The rational grounds for the exercise of this jurisdiction are two-fold:

i. The offences subject to the application of the protective principle are such that their consequence may be of utmost gravity and concern to the State against which they are directed

ii. Unless the jurisdiction were exercised, many such offences would escape punishment altogether because they did not contravene the law of the place where they were committed or because extradition would be refused by reason of the political character of the offence.”

38. In view of law laid down in M/s Haridas Exports, we are of the considered view that respondent’s contention that the Act is not applicable because he is not residing in India is untenable and liable to be rejected.

39. Section 147 of the Customs Act, 1962 states that:

“Liability of principal and agent. –

1. Where this Act requires anything to be done by the owner, importer or exporter of any goods, it may be done on his behalf by his agent.

2. Any such thing done by an agent of the owner, importer or exporter of any goods shall, unless the contrary is proved, be deemed to have been done with the knowledge and consent of such owner, importer or exporter, so that in any proceedings under this Act, the owner, importer or exporter of the goods shall also be liable as if the thing had been done by himself.

3. When any person is expressly or impliedly authorised by the owner, importer or exporter of any goods to be his agent in respect of such goods for all or any of the purposes of this Act, such person shall, without prejudice to the liability of the owner, importer or exporter, be deemed to be the owner, importer or exporter of such goods for such purposes including liability therefore under this Act.”

40. Records of this case disclose that respondent was functioning in India through his agent who used to collect money by showing a currency note of a specified number to Suresh Prabhu. Therefore, the provisions of Section 147 would apply in this case in full force.

41. Further, Halsbury’s law of England¹⁵ states that:

“A criminal enterprise may consist of a continuing act which is done in more places than one or of a series of acts which are done in several places. In such cases, though there is one criminal enterprise, there may be several crimes; and a crime is committed in each place where a complete criminal act is performed, although the act may be only a part of the enterprise.”

42. In the instant case, as per the statements of Suresh Prabhu, payments were sent to India by respondent and excess payment was also collected by him through people known to him. The illegal goods were detained in the Mangalore port. A major part of the offence has taken place in India. Therefore, in our view, the provisions of Customs Act are applicable.

45. Hence the following:

ORDER

a. The appeal is allowed.

b. The substantial questions of law are answered in favor of Revenue and against the respondent.

No costs.

Before parting with this judgment, this Court places on record its deep appreciation for the research and assistance rendered by its official Research Assistants-cum-Law Clerks, Ms. Preksha R. Lalwani and Ms. Pooja Umashankar.