2026-VIL-1545-CESTAT-CHE-CU
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CUSTOMS CESTAT Cases

Customs – Fraudulent export allegations under DEEC scheme and clandestine removal of duty-free imported scrap – Appellant was issued a DEEC Licence permitting duty-free import of non-alloy re-rollable scrap cuttings against export obligation of non-alloy steel bars and rods. Material was imported under three Bills of Entry and a portion was manufactured into CTD bars by the manufacturing unit and exported to Bangladesh while the remaining unmanufactured material was exported with special permission. DRI initiated investigation alleging fraudulent export of maize instead of specified goods and clandestine removal of duty-free material. CBI investigation concluded that actual exports to Bangladesh had taken place. The Adjudicating Authority confirmed demand of customs duty forgone with interest and penalties under Sections 112(a) and 114(i) of the Customs Act, 1962 - Whether the Revenue established through reliable and corroborative evidence that duty-free imported material was diverted to the domestic market or that fraudulent exports occurred and whether departmental proceedings based on identical set of facts and evidence can be sustained when criminal proceedings have resulted in acquittal – HELD – The burden of proof lies on the Revenue to establish allegations through cogent and reliable evidence. The CBI as the premier investigating agency examined the material facts including vehicle movement through Immigration Check Posts, DEEC records and realization of export proceeds and found that actual exports of non-alloy steel bars and rods to Bangladesh had taken place. The statements of Surendra Kumar Gangwal, Vikas Kumar Jain and Samir Saha which formed the basis of allegations were subsequently retracted and cannot constitute the substantive basis of allegations in the absence of independent corroboration as laid down by the Supreme Court. No independent evidence was produced establishing diversion of duty-free material including absence of evidence of buyers of alleged diverted goods, cash trail or seizure of offending goods. For allegations of clandestine removal, positive evidence is required such as purchase of excess raw materials, shortage or excess of raw materials or finished goods found in stock or factory premises, excess consumption of electricity or seizure of cash or clandestinely removed goods made during investigation. Despite cash transactions to the extent of Rs.11.23 Crores involved in the transactions, no seizure of cash was made and no clandestinely removed goods were seized or any shortage or excess of materials was found in the factory premises. The Supreme Court in Capt. M. Paul Anthony v. Bharat Gold Mines Ltd. held that when criminal case and departmental proceedings are based on identical set of facts and evidence and the criminal court has acquitted the appellant, there is no basis to sustain punishment in the departmental proceedings as this would amount to double jeopardy. Section 135 of the Customs Act provides for without prejudice clause for both penalty provision and prosecution but there is no provision permitting the imposition of penalty under Section 112 notwithstanding acquittal in prosecution proceedings. The Show Cause Notice was materially defective as the supporting manufacturer was not made a noticee. The Adjudicating Authority traveled beyond the allegations in the Show Cause Notice in arriving at findings. The Export Obligation Discharge Certificate issued by the competent authority was neither shown to have been cancelled nor subjected to any adverse proceedings and cannot be brushed aside without credible evidence to the contrary. The extended definition of manufacture under the EXIM Policy, 1997-2002 then applicable supported the appellant's position. All the allegations against the principal noticee fail for want of reliable and corroborative evidence and the allegations of connivance or abetment against co-appellants cannot independently survive. The principle that fraud vitiates everything cannot be invoked without reliable and corroborative evidence. The entire case of the Revenue is based upon surmises and conjectures while the evidences brought into record are incomplete, inconsistent and not reliable pieces of evidence – Demand of customs duty forgone together with consequential interest and penalties imposed is not sustainable - The impugned order is set aside and the appeals are allowed
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