The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside customs duty demands and penalties imposed on multiple importers of PU leather fabric.
It held that electronic records retrieved from an unsealed laptop kept in investigators’ custody could not be relied upon, as the department had failed to follow the legal procedure required to authenticate electronic evidence under the Customs Act (Section 138C).
A bench of President Justice Dilip Gupta and Technical Member P. Anjani Kumar, also held that statements recorded under Section 108 of the Customs Act could not be relied upon. It said the mandatory legal procedure for relying on statements recorded during the investigation had not been followed (Section 138B).
The dispute arose after the Directorate of Revenue Intelligence (DRI) conducted searches at premises linked to the importers. It seized documents, cash, and a laptop, from which the department claimed to have retrieved parallel invoices and email communications.
The department alleged that the importers undervalued imported PU leather fabric. It also alleged that they misdeclared the thickness of the goods to evade customs duty.
The department relied primarily on statements recorded from Raj Kumar Anand under Section 108 of the Customs Act. It also relied on documents retrieved from the seized laptop to reject the declared transaction value and re-determine the assessable value under the Customs Valuation Rules.
The Tribunal found serious deficiencies in the handling of the electronic evidence. It noted inconsistencies regarding the place of seizure and observed that the laptop remained in the custody of investigating officers in an unsealed condition.
The Bench observed:
“In any case, the laptop was not sealed at the time of recovery and was in the custody of the Investigating Officer in an unsealed condition till the retrieval of the documents from the laptop. This is clear from the panchnama dated 27.05.2005 as it does not record that the laptop was sealed”
The tribunal further found that the documents were not retrieved in the presence of Raj Kumar Anand. It also found that no material had been placed on record to show he had been notified to remain present during the process.
It further held,“the procedure contemplated under section 138C of the Customs Act was not followed for retrieving the documents from the laptop as the required Certificate has not been brought on record.”
On the statements recorded by the customs officer during the investigation, the appellants argued that Raj Kumar Anand retracted them the day after his arrest. They also argued that the safeguards under Section 138B had not been followed.
Accepting the contention, the Tribunal held that statements recorded during investigation could become relevant only after compliance with the mandatory procedure prescribed under Section 138B.
Relying on precedents including Ambika International v. Union of India, Additional Director General (Adjudication) v. Its My Name Pvt. Ltd., and Surya Wires Pvt. Ltd., the Tribunal held:
“failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 14D of the Central Excise Act or under section 108 of the Customs Act.”
The tribunal found no reliable evidence of undervaluation, misdeclaration of thickness, or payment of extra consideration through hawala channels. It held that rejection of the declared transaction value and its re-determination under the Valuation Rules was unsustainable.
Consequently, it set aside the customs duty demands as well as penalties imposed under Sections 112 and 114A of the Customs Act.
For Appellants: Advocates Piyush Kumar, Sharad Srivastava, Reena Rawat and Gunjan Tanwar,
For Respondent: Shiv Shankar, Authorised Representative