Custom, Excise & Service Tax Tribunal
Bestech Hospitalities Pvt Ltd vs New Delhi on 5 August, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. I
CUSTOMS APPEAL NO. 55309 OF 2013
(Arising out of Order-in-Original No. 24/SU/Commr./2012 dated 10.01.2013 passed by
the Commissioner of Customs (Preventive), New Delhi)
M/s. Bestech Hospitalities Pvt. Ltd. ....Appellant
Bestech House, 124, Sector-44,
Gurgaon
VERSUS
Commissioner of Customs (Preventive), ....Respondent
New Customs House, New Delhi WITH CUSTOMS APPEAL NO. 55310 OF 2013 (Arising out of Order-in-Original No. 24/SU/Commr./2012 dated 10.01.2013 passed by the Commissioner of Customs (Preventive), New Delhi) Mr. D. Bhandari ....Appellant A-126, Sushant Lok, Gurgaon VERSUS Commissioner of Customs (Preventive), ....Respondent New Customs House, New Delhi AND CUSTOMS APPEAL NO. 55311 OF 2013 (Arising out of Order-in-Original No. 24/SU/Commr./2012 dated 10.01.2013 passed by the Commissioner of Customs (Preventive), New Delhi) Mr. Sunil Satija ....Appellant A-125, Sushant Lok, Gurgaon VERSUS Commissioner of Customs (Preventive), ....Respondent New Customs House, New Delhi APPEARANCE:
Shri B.L. Narasimhan, Ms. Anjali Gupta and Ms. Ashwani Bhatia, Advocates for the Appellant Shri Shashi Kant Sharma, Authorized Representative for the Department CORAM:
HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) 2 C/55309/2013 & 2 others DATE OF HEARING: 19.03.2025 DATE OF DECISION: 05.08.2025 FINAL ORDER NO‟s. 51143-51145/2025 JUSTICE DILIP GUPTA:
Customs Appeal No. 55309 of 2013 has been filed by M/s.
Bestech Hospitalities Pvt. Ltd.1 to assail that part of the order dated 10.01.2013 passed by the Commissioner (Preventive) that confiscates the two BMW Cars that were imported against Export Promotion Capital Goods2 authorization on payment of concessional rate of customs duty with an option to the appellant to redeem the same on payment of fine.
The order also holds that the appellant is liable to pay duty under section 125(2) of the Customs Act 19623. Penalty under section 112(a) of the Customs Act has also been imposed on the appellant.
2. Customs Appeal No. 55310 of 2013 has been filed by D. Bhandari, Director of the appellant against that part of the order dated 10.01.2013 passed by the Commissioner (Preventive) that imposes a penalty upon him under section 112(a) of the Customs Act.
3. Customs Appeal No. 55311 of 2013 has been filed by Sunil Satija, Director of the appellant against that part of the order dated 10.01.2013 passed by the Commissioner (Preventive) that imposes a penalty upon him under section 112(a) of the Customs Act.
4. The appellant is inter-alia engaged in the business of running hotels. The appellant imported two BMW cars and claimed benefit of Notification No. 97/2004-Cus. dated 17.09.20144 in terms of EPCG Scheme. The cars were imported for the purpose of rendering services
1. the appellant
2. EPCG
3. the Customs Act
4. the Notification 3 C/55309/2013 & 2 others to foreign guests staying at Hotel Park Plaza, Gurgaon, owned by the appellant at the relevant time, and earn foreign exchange through the services rendered with the help of such cars.
5. The appellant claims that the cars were used in the hotel for rendering services like pick-up and drop from/to airport for its customers without charging any separate amount towards this service as the charges for such a facility were included in the room rent.
6. The appellant claims to have fulfilled the export obligation contemplated under the Notification and applied for grant of Export Obligation Discharge Certificate5 before the Directorate General of Foreign Trade6. The DGFT issued the EODC on 30.06.2008. The appellant also claims that proceedings have not been initiated by the DGFT till date against the appellant for cancellation of EODC.
7. Around September/October, 2009, an investigation was conducted by the preventive wing of the department which concluded that the two cars imported by the appellant under the EPCG scheme were not used for transport of foreign guests or Non-Resident Indians, but were used for personal use by the two Directors.
8. Accordingly, a show cause notice dated 17.02.2012 was issued by the Commissioner (Preventive) proposing demand of duty and penalties. The Commissioner (Preventive) passed the impugned order dated 10.01.2013 confirming the demand and penalties against the appellant and the two Directors. The relevant portions of the order passed by the Commissioner (Preventive) are reproduced below:
"6.2 M/s. Bestech Hospitality Pvt. Ltd. have stated that they imported vehicles in the year 2006 and that as per the conditions of the notification, the vehicles
5. EODC
6. DGFT 4 C/55309/2013 & 2 others were not required to be registered as commercial vehicles under section 66(1) of the Motor Vehicles Act, 1988, i.e. as „Taxi‟ and to obtain Tourist Taxi Permit under the Act. They have further stated that the concept of registration of imported vehicles under EPCG scheme as „Tourist Vehicle‟ became effective after issuance of circular no. 7 (RE-2008)/2004-2009 dated 07.05.2008 issued by DGFT; that the vehicles imported prior to this circular were required to be registered as such by 31.08.2008 only if the EODC was not obtained by 30.06.2008; that they had applied to DGFT for EODC in October, 2006, and were given EODC in June, 2008. This contention is misplaced. A motor Vehicle is not registered under either the Customs Act, 1962, and/or notifications issued there under or Export Import Policy or EPCG scheme. The Act which mandates registration of vehicles is the Motor Vehicles Act, 1988. As per the provisions of this Act, a car used for commercial purpose is required to be registered as a „TAXI‟ and not as a private vehicle. The circular merely reiterated and clarified what is obvious and was issued sequel to rampant misuse to cars imported under the EPCG scheme. The fact that the circular required registration of vehicles imported prior to its issue also, for tourist purposes, shows that the circular merely stated what is obvious.
xxxxxxxx 6.3 xxxxxxxxxxx. Even if, as contended by the party, there may be no concept of separate billing/invoices required to be maintained by the importer in respect of cars, there has to be some record in the form of log books / vouchers / duty slips etc. to show usage of cars by the service providers for the purpose these were imported as mandated by the para 5.15. (In fact, even otherwise as a control mechanism, organizations do maintain some such records to keep tab on vehicles, drivers etc.) Further, absence of any evidence documentary or otherwise showing the use of imported cars for the hotel gustes is also confirmed by the statements of Rahul Siddhu, Assistant Manager, Front Office, Park Plaza Hotel, Sushant Lok, Gurgaon, dated 22.09.11. Manish 5 C/55309/2013 & 2 others Yadav, Assistant Manager, Front Office, Radisson Suites, Gurgaon. statement dated 28.09.2011. Nishant Singh, Front Office Manager in Radisson Blu Marina Hotel, Connaught Place, New Delhi statement dated 18.10.2011. Sh. Rubal Chowdhry, General Manager, Hotel Hilton, Janak Puri, Delhi, statement dated 19.10.2011. Arun Vats Manager Security, Park Plaza Hotel, Sushant Lok, Gurgaon, statement dated 22.09.11.
From the statements of the above persons in the foregoing paras following facts emerge
(i) These are statements tendered voluntarily under section 108 of the Customs Act, 1962
(ii) The statements are of independent persons who have/had no vested interest."
(emphasis supplied)
9. The Commissioner (Preventive) then examined the statements made under section 108 of the Customs Act and drew the following conclusions:
"6.3 xxxxxxxxxxxx. From the above, it is beyond doubt that the BMW cars were not used for the intended purpose i.e. providing service to the hotel guests, not even to their high end guests/VIPs. No body knew about their use in the hotel, not even the general manager-the operational head of the hotel. The fact of the matter is that they did not even see these cars at the hotel; even did not know that the hotel owned any BMW car. All this points to only one conclusion of non- use of these vehicles for hotel services/hotel guests. This conclusion is further strengthened by the of statements of Rohit Kumar, chartered engineer, to the effect that (i) He saw during physical examination that the vehicles were parked in the premises of M/s Bestech Hospitalities Pvt. Ltd at 13, Madhya Marg, DLF, Phase-II, Gurgaon. (This was to a query as to how the two vehicles in respect of which he gave certificates of installation and usage were found by him to be utilized by M/s Bestech Hospitalities Pvt Ltd., during his physical verification). It is also worth 6 C/55309/2013 & 2 others mentioning here that this is not the address of hotel park plaza. Hotel park plaza is located at Sushant Lok', Gurgaon. (ii) he issued a certificate of utilization under presumption that the vehicles were being used. (iii) No document evidencing usage of cars were shown/ provided to him. (This reply was in response to question whether to verify the usage, he went through the Log books/vouchers or any other documents evidencing that the two BMW cars (1) HR26AC9119 and (2) HR26AC8822 imported by M/s Bestech Hospitalities Pvt Ltd were being used for hotel services/purposes and whether he asked for or insisted for the documents as mentioned above) From the fact that no documents about the usage of cars were shown/provided by M/s Bestech Hospitality even to their chartered engineer even when he asked for the same, only inference is that they had not made any use of the vehicles for the hotel or related service hence no records were there.
xxxxxxxxxxxxxxx Therefore, in view of above statements and findings, the defence of the party that the assumptions and surmises that the vehicles were never used for the purpose they were imported for, merely on the basis of missing log books, are baseless, does not hold good and cannot be accepted. As already explained &discussed above, the allegation of the non use of the cars for the intended purpose/use of the cars for personal & private purpose by the directors is based on evidence of statements of independent persons like driver, hotel staff and chartered engineer etc. The statements of employees discussed above are of their own employees who, at the relevant period/point of time, were employed either at the residence of the directors or at the hotel park plaza and by virtue of the nature of their job assignment were concerned with providing vehicles to the guests of the hotel where the cars were supposed/required to be used by the party to earn foreign exchange and for the import of which (the cars), they had 7 C/55309/2013 & 2 others obtained licence/authorization from DGFT and imported the said cars under EPCG scheme on the strength of this licence. The cars were imported in Feb.; 2006 and were registered in March, 2006 under Motor Vehicles Act. Thus, the imported cars became roadworthy or fit to be used for personal & private use in the instant case as these were registered as private vehicles only in March, 2006. The licence was redeemed by (or EODC was given by) DGFT in June, 2008. Without prejudice to the above findings that the cars were not used for hotel services/hotel guests and assuming that the cars were used, as claimed by the party, for the purpose they were imported, the cars were bound to be/had to be so used by the party till the time DGFT granted them EODC/redemption certificate about the earning of forex through their (cars‟) use i.e. 30th June, 2008 - the date on which EODC was given by DGFT to the party.
xxxxxxxxxxx The issue, therefore, stands settled in view of the principle laid down by the Hon‟ble High Court that only the foreign exchange earned through the use of the capital goods (cars) is to be counted towards fulfillment of the obligation as the judgment has attained finality after dismissal of SLP against this by the Hon‟ble Supreme Court. By not using the cars for the purpose they were imported, the party has violated substantive condition of „actual user‟ in the notification, the Policy as well as the licence."
(emphasis supplied)
10. The dispute in the appeals pertains to denial of benefit of exemption under the Notification on import of two BMW cars though two Bills of Entry, both dated 16.02.2006. The imports were made under the EPCG Scheme though a EPCG License dated 07.02.2006. The impugned order has denied the benefit on the ground that Export Obligation has not been fulfilled as the cars have not been used for the intended purpose.
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11. Shri B.L. Narasimhan, learned counsel for the appellant assisted by Ms. Anjali Gupta and Ms. Ashwani Bhatia, made the following submissions:
(i) Undisputedly, the export obligation has been fulfilled by the appellant within the time granted by the DGFT. Once the EODC has been received, the duty demand is not sustainable. In this connection reliance has been placed on this following decisions:
(a) Titan Medical Systems Pvt. Ltd. vs. 7 Collector of Customs, New Delhi ;
(b) Design Co. & Ors vs. Union of India & Ors.8;
(c) M/s. Super Cassettes Industries Ltd. vs. Commissioner of Customs, New Delhi9;
(d) Devanshi Textiles vs. Commissioner of Customs, Jaipur10; and
(e) Bestech Hospitalities Pvt. Ltd. vs. Commissioner of Customs (Import), New Delhi11
(ii) The appellant has neither voilated any condition of Notification nor violated any provisions of EPCG Scheme. The appellant is, therefore, entitled to the benefit of the Notification;
(iii) The statements made under section 108 of the Customs Act cannot be relied upon as the procedure provided in section 138B of Customs Act was not followed;
(iv) There is no evidence of misuse of the imported cars;
7. 2003 (151) E.L.T. 254 (S.C.)
8. W.P.(C) 14477/2022 decided on 22.11.2024
9. Customs Appeal No. 296 of 2006 dated 03.01.2025
10. Customs Appeal No. 163 of 2012 decided on 17.12.2024
11. Customs Appeal No. 50232 of 2020 decided on 25.08.2021 9 C/55309/2013 & 2 others
(v) The consequent demand of interest, redemption fine and penalties are liable to be set aside since the demand is not sustainable; and
(vi) Duty demand is barred by time and consequently, the impugned order deserves to be set aside.
12. Shri Shashi Kant Sharma, learned authorized representative appearing for the department, however, supported the impugned order and made the following submissions:
(i) The Customs and the DGFT act in different fields.
While the DGFT is the supreme authority in respect of the Licences for import, the Customs are responsible for ensuring the fulfillment of the conditions of the Notification, if the goods have been imported claiming exemption under a Notification;
(ii) Under EPCG scheme, the export obligation is for collection of freely convertible foreign currency for services rendered through the use of capital goods imported. It is a common knowledge that cars could be given for use by others only after registering the vehicles as transport vehicles and after getting permit for use of the vehicles as tourist taxi. These cars were consciously registered as private vehicles and in various statements made by the Manager and Director of the appellant, these two vehicles were used for personal use; and
(iii) The business activity for which the cars were imported was to provide transport to the hotel guests for money. As the evidence suggest, the car was not kept at the hotel resort and the appellant has not 10 C/55309/2013 & 2 others produced any evidence that the cars were used for the transport of guests of the hotel. The appellant has, therefore, not fulfilled the condition of the Notification.
13. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.
14. The dispute centers around the benefit of the Notification claimed by the appellant in respect of the two imported BMW cars through two Bills of Entry, both dated 16.02.2006. The imports were made under the EPCG Scheme. The benefit has been denied to the appellant for the reason that the export obligation contemplated under the Notification was not fulfilled since the cars were not used for the intended purpose.
15. The relevant portion of the Notification is reproduced below: "GENERAL EXEMPTION NO. 64
Effective rates of duty for imports under Export Promotion Capital Goods Scheme (EPCG).-In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Table annexed hereto, from,-
(i) so much of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) as is in excess of the amount calculated at the rate of five per cent ad valorem, and
(ii) the whole of the additional duty leviable thereon under section 3 of the said Customs Tariff Act, when specifically claimed by the importer 11 C/55309/2013 & 2 others
2. The exemption under this notification shall be subject to the fallowing conditions, namely:-
(1) that the goods imported are covered by a valid licence or a valid authorization issued under the Export Promotion Capital Goods Scheme in terms of Chapter 5 of the Foreign Trade Policy permitting import of goods at the rate of five per cent duty and the said licence or authorization is produced for debit by the proper officer of customs at the time of clearance:
Provided that for import of spare parts specified at S. No. 4 of the said Table, the validity period of the licence or authorization shall be deemed to be the period permitted for fulfilment of the export obligation in full;
(2) that the importer executes a bond in such form and for such sum and with such surety or security as may be specified by the Deputy Commissioner of Customs or Assistant Commissioner of Customs binding himself to fulfil export obligation on FOB basis equivalent to eight times the duty saved on the goods imported as may be specified on the licence or authorization, or for such higher sum as may be fixed by the Licensing Authority or Regional Authority, within a period of eight years from the date of issue of said licence or authorization, in the following proportions, namely:-
S.No. Period from the date of issue Proportion of total of licence or authorization export obligation (1) (2) (3)
1. Block of 1st to 6th year 50%
2. Block of 7th to 8th year 50%:
Provided that where the duty saved is not less than Rs. 100 crores, or where the licence or authorization is issued to units in the agri export zone as may be notified by the Licensing authority or Regional Authority, the export obligation shall be fulfilled within a period of twelve years from the date of issue of 12 C/55309/2013 & 2 others licence or authorisation in the following proportions, namely:-
S.No. Period from the date of issue Proportion of total of licence or authorization export obligation (1) (2) (3)
1. Block of 1st to 10th year 50%
2. Block of 11th to 12th year 50%:
16. The EPCG scheme is contained in Chapter 5 of the Foreign Trade Policy and Handbook of Procedure. The relevant portion is reproduced below:
"Export Promotion Capital Goods (EPCG) Scheme 5.1 EPCG Scheme xxxxxxxxxxxxx However, import of motor cars, sports utility vehicles/all purpose vehicles shall be allowed only to hotels, travel agents, tour operations or tour transport operations and companies owning/operating golf resorts whose total foreign exchange earning from the hotel, travel & tourism and golf tourism sectors in the current and preceding three licensing years is Rs. 1.5 crores or more. The „duty saved‟ amount on all EPCG Authorisations issued in a licensing year for import of motor cars, sports utility vehicles/ all purpose vehicles shall not exceed 50% of the average foreign exchange earnings from the hotel, travel & tourism and golf tourism sectors in the preceding three licensing years. However, the parts of motor cars, sports utility vehicles/all purpose vehicles such as chassis etc. cannot be imported under the EPCG Scheme."
17. The appellant was granted EPCG Licence dated 07.02.2006 issued by the Foreign Trade Development Officer and the same is reproduced below:
"To Bestech Hospitalities Pvt. Ltd.
1/2873, Ram Nagar, Loni Road 13 C/55309/2013 & 2 others Shahdara Delhi 110032 Sub: Grant of License (EPCG Scheme Concessional duty 5%) Sir/Madam, You are requested to acknowledge the receipt of license with following details:
Scheme: EPCG Scheme Concessional duty 5% License No: 0530140397 Dated : 07.02.2006 Duty Saved Value (Rs.): 7,437,792.00 To avoid any difficulty in operation of the license, you may check whether it bears signature and seal of licensing authority and is also otherwise correct.
Enclosure: 1) EPCG License in Duplicate
2) Annexure „A‟ in Duplicate Your‟s faithfully Place: New Delhi (RITA MAHANA) Date: 07.02.2006 Foreign Trade Development Officer (Issued from file: 05/34/021/00876/AM06/Dated:30.11.2005) Copy To:
DGFT (EPCG Sec.) Udyog Bhawan New Delhi along with copy of application/license/list of items/catalogue and proforma invoice are forwarded here with in terms of Para No. 5.3 of Hand Book of Procedure 2002-2007 for approval of HQ EPCG Committee please.
Place: New Delhi (RITA MAHANA)
Date: 07.02.2006 Foreign Trade Development Officer"
18. After the appellant had fulfilled the export obligation as per the provision of the EXIM Policy Handbook Procedure, the Foreign Trade Development Officer issued a certificate of discharge of export obligation against Licence dated 07.02.2008 on 30.06.2008 and the relevant portion is reproduced below:14
C/55309/2013 & 2 others "FILE NO. 05/34/21/00876/AM06/EPCG/CLA TO M/S. BESTECH HOSPITALITIES PVT. LTD. 1/2873, RAM NAGAR LONI ROAD SHAHDARA DELHI- 110032 SUJECT: Certificates of Discharge of Export Obligation against Licence No. 0530140397 DT. 07.02.2006 is US$.1242682.05 against actual E.O. Mentioned in the Licence i.e. US$1242682.05 SIR, This office examined your application for redemption of aforesaid EPCG Licence and it was found that you have fulfilled the export obligation as per the provision of the EXIM Policy Handbook Procedure 1997-
2002/2004-09.
Hence the EPCG Licence No. 0530140397 dated 07.02.2006 for a CIF Value/Duty Saved Amount Rs. 7432792.00 Duty Saved Amount utilized by the party Rs. 6739826.00 redeemed by this office. You are therefore advised to approach the Customs Authorities for the release of Bank Guarantee/Lut/Bond.
Yours Faithfully, (K. LALITA) FOREIGN TRADE DEVELOPMENT OFFICER FOR ZONAL JT. DIRECTOR GENERAL OF FOREIGN TRADE Endt.05/34/21/00876/AM-06/EPCG-I/CLA Dated:
Copy forwarded to the Commissioner of Customs, NEW Customs House, ICD, TUGLakabad, that the firm has fulfilled the Export Obligation and has also maintained average level of export as per condition sheet of the Licence.
(K. LALITA) FOREIGN TRADE DEVELOPMENT OFFICER"15
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19. The issue that arises for consideration in these appeals is whether the demand could be confirmed with consequent penalties for violation of the conditions of the Notification, when the EODC was issued in favour of the appellant evidencing fulfilment of export obligation and it has not been cancelled till date.
20. The first submission that has been advanced by the learned counsel for the appellant is that since that export obligation had been fulfilled by the appellant within the time granted by the DGFT and EODC was issued and received by the appellant, duty could not have been demanded from the appellant when proceedings had not been initiated by DGFT against the appellant for cancelling the EODC. The contention, therefore, that has been advanced is that once the DGFT authorities exercised their jurisdiction and satisfied themselves that the export obligation was fulfilled by the appellant within the stipulated time and redeemed the bank guarantee, the customs department does not have any jurisdiction to sit in judgment over the EODC issued by the DGFT.
21. To support this contention learned counsel placed reliance upon the decision of the Supreme Court in Titan Medical Systems and the decision of the Delhi High Court in Design Company.
22. In Titan Medical Systems the Supreme Court held:
"13. As regards the contention that the appellants were not entitled to the benefit of the exemption notification as they had misrepresented to the licensing authority, it was fairly admitted that there was no requirement, for issuance of a licence, that an applicant set out the quantity or value of the indigenous components which would be used in the manufacture. Undoubtedly, while applying for a licence, the appellants set out the components they would use and their value. However, the value was only an estimate. It is not the respondents‟ case that the components were not used. The only case is that the value which 16 C/55309/2013 & 2 others had been indicated in the application was very large whereas what was actually spent was a paltry amount. To be noted that the licensing authority having taken no steps to cancel the licence. The licensing authority have not claimed that there was any misrepresentation. Once an advance licence was issued and not questioned by the licensing authority, the Customs authorities cannot refuse exemption on an allegation that there was misrepresentation. If there was any misrepresentation, it was for the licensing authority to take steps in that behalf."
(emphasis supplied)
23. In Design Company, the Delhi High Court followed the decision of the Supreme Court in Titan Medical Systems and observed as follows:
"104. As we read the various provisions enshrined in the FTDR Act alongside the FTP as well as the FTDR Rules, we find ourselves unable to recognize a right that may be said to inhere in the customs authorities to doubt the issuance of an instrument. We, in the preceding parts of this decision, had an occasion to notice the relevant provisions contained in the FTDR Act and which anoint the DGFT as the central authority for the purposes of administering the provisions of that statute and regulating the subject of import and exports. The FTP 2015-20 in unequivocal terms provides in para 2.57 that it would be the decision of the DGFT on all matters pertaining to interpretation of policy, provisions in the Handbook of Procedures, Appendices, and more importantly, classification of any item for import/export in the ITC (HS) which would be final and binding. The FTP undoubtedly stands imbued with statutory authority by virtue of Section 5 of the FTDR Act.
105. Of equal importance are the FTDR Rules and which too incorporate provisions conferring an authority on the Director General or the licensing authority to suspend or cancel a license, certificate, scrip or any 17 C/55309/2013 & 2 others instrument bestowing financial or fiscal benefits. Once it is held that the MEIS would clearly qualify as an instrument bestowing financial or fiscal benefits, the power to cancel or suspend would be liable to be recognized as being exercisable by the Director General on the licensing authority alone. It would thus be wholly impermissible for the customs authorities to either ignore the MEIS certificate or deprive a holder thereof of benefits that could be claimed under that scheme absent any adjudication or declaration of invalidity being rendered by the DGFT in exercise of powers conferred by either Rules 8, 9 or 10 of the FTDR Rules. The customs authorities cannot be recognised to have the power or the authority to either question or go behind an instrument issued under the FTDR in law.
106. Taking any other view would result in us recognizing a parallel or a contemporaneous power inhering in two separate sets of authorities with respect to the same subject. That clearly is not the position which emerges from a reading of Section 28AAA. Quite apart from the deleterious effect which may ensue if such a position were countenanced, in our considered opinion, if the validity of an instrument issued under the FTDR Act were to be doubted on the basis of it having been obtained by collusion, wilful misstatement or concealment of facts, any action under Section 28AAA would have to be preceded by the competent authority under the FTDR Act having come to the conclusion that the instrument had come to be incorrectly issued or illegally obtained. The procedure for recovery of duties and interest would have to be preceded by the competent authority under the FTDR Act having so found and the power to recover duty being liable to be exercised only thereafter.
107. Section 28AAA would thus have to be interpreted as contemplating a prior determination on the issue of collusion, wilful misstatement or suppression of facts tainting an instrument issued under the FTDR Act before action relating to recovery of duty could be possibly initiated. A harmonious interpretation of 18 C/55309/2013 & 2 others the two statutes, namely, the Customs and the FTDR Acts leads us to the inescapable conclusion that the law neither envisages nor sanctions a duality of authority inhering in a separate set of officers and agents simultaneously evaluating and adjudging the validity of an instrument which owes its origin to the FTDR Act alone. It is these factors, as well as the role assigned to the DGFT which perhaps weighed upon courts to acknowledge its position of primacy when it come to the interpretation of policy measures referable to the FTDR Act as well as issues of classification emanating therefrom.
xxxxxxxxxx
108. The principles culled out in the aforenoted decisions are in line with what the Supreme Court had succinctly observed in Titan Medical Systems (P) Ltd. Vs. Collector of Customs. We are thus of the firm opinion that it would be impermissible for the customs authorities to either doubt the validity of an instrument issued under the FTDR Act or go behind benefits availed pursuant thereto absent any adjudication having been undertaken by the DGFT. An action for recovery of benefits claimed and availed would have to necessarily be preceded by the competent authority under the FTDR Act having found that the certificate or scrip had been illegally obtained.
We have already held that the reference to a proper officer in Section 28AAA is for the limited purpose of ensuring that a certificate wrongly obtained under the Customs Act could also be evaluated on parameters specified in that provision. However, the said stipulation cannot be construed as conferring authority on the proper officer to question the validity of a certificate or scrip referable to the FTDR Act."
(emphasis supplied)
24. It is not in dispute that EODC had been issued to the appellant by DGFT on 30.06.2008. It is also not in dispute that the said EODC has not been cancelled till date by DGFT.
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25. In Titan Medical Systems the Supreme Court observed that once a licence was issued and it was not questioned by the licencing authority, the customs authorities cannot refuse exemption on an allegation that there was mis-representation. The Supreme Court further observed that if there was any mis-representation, it was for the licencing authority to examine and take steps.
26. The aforesaid decision of the Supreme Court in Titan Medical Systems was followed by the Delhi High Court in Design Company. The Delhi High Court held that it would be wholly impermissible for the customs authorities to ignore the MIES certificate or deprive holder of the said certificate of the benefits that can be claimed in the scheme, absent any adjudication or declaration of invalidity by the DGFT. The Delhi High Court further held that there cannot be a parallel or a contemporaneous power inhering in two separate sets of authorities with respect to the same subject. If an instrument owes its origin to the FTDR Act, than it is the DGFT which will have to inquire and any action for recovery of benefits claimed and availed would have to necessarily be preceded by the component authority and under the FTDR Act. The Delhi High Court further held that Customs authorities would not have the jurisdiction to question the validity of a certificate referable to the FTDR Act.
27. In this view of the matter, the customs authority could not have confirmed the demand in the absence of any adjudication by the DGFT cancelling the EODC certificate earlier issued by it certifying that the export obligation had been fulfilled by the appellant. The Customs department would, therefore, not have any jurisdiction to sit in judgment over the EODC issued by the DGFT. 20
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28. This apart, the findings that the condition of the Notification has not been fulfilled are based on the statements made by various persons under section 108 of the Customs Act.
29. The statements made under section 108 of the Customs Act cannot be relied upon if the procedure followed under section 138B of the Customs Act is not followed. This is what was held by the Tribunal in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur12. The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act, 1944 and observed:
"21. It would be seen section 14 of the Central Excise Act and section 108 of the Customs Act enable the concerned Officers to summon any person whose attendance they consider necessary to give evidence in any inquiry which such Officers are making. The statements of the persons so summoned are then recorded under these provisions. It is these statements which are referred to either in section 9D of the Central Excise Act or in section 138B of the Customs Act. A bare perusal of sub-section (1) of these two sections makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of sub-section (2) of section 9D of the Central Excise Act or sub-section (2) of section 138B of the Customs Act, the provisions of sub-section (1) of these two Acts shall apply to any proceedings under the Central Excise Act or the Customs Act as they apply in relation to proceedings before a Court. What, therefore, follows is that a person who makes a
12. Excise Appeal No. 51148 of 2020 decided on 01.04.2025 21 C/55309/2013 & 2 others statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain."
(emphasis supplied)
30. After examining various judgments of the High Courts and the Tribunal, the Tribunal observed:
"28. It, therefore, transpires from the aforesaid decisions that both section 9D(1)(b) of the Central Excise Act and section 138B(1)(b) of the Customs Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 9D of the Central Excise Act and section 138B(1)(b) of the Customs Act have been held to be mandatory and 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 22 C/55309/2013 & 2 others section 108 of the Customs Act. The Courts have also explained the rationale behind the precautions contained in the two sections. It has been observed that the statements recorded during inquiry/ investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence."
(emphasis supplied)
31. In Drolia Electrosteel, the Tribunal had also while examining the provisions of section 9D of the Central Excise Act held:
"13. Of the above, the 35 statements of various persons recorded under the Central Excise Act will be relevant to the proceedings only as per section 9D which lays down the procedure to be followed to make them relevant and the exceptions to such procedure. *****
14. Evidently, the statements will be relevant under certain circumstances and these are given in clauses (a) and (b) of subsection (1). There is no assertion by either side that the circumstances indicated in (a) existed in the case. It leaves us with
(b) which requires the court or the adjudicating authority to first examine the person who made the statement and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence. Of course, the party adversely affected by the statement will have to be given an opportunity to cross examine the person who made the statement but that comes only after the statement is, in the first place, after examination by the adjudicating authority, admitted in evidence. This has not been done in respect of any of the 35 statements. Therefore, all the statements are not relevant to the proceedings.
15. It has been held in a catena of judgments including Jindal Drugs Pvt. Ltd. versus Union of India [2016 (340) E.L.T. 67 (P&H)] that section 9D is a mandatory provision and if the procedure 23 C/55309/2013 & 2 others prescribed therein is not followed, statements cannot be used as evidence in the proceedings under Central Excise Act. The relevant extracts are as follows:
"13. Once the ambit of Section 9D(1) is thus recognized and understood, one has to turn to the circumstances referred to in the said sub-section, which are contained in clauses (a) and (b) thereof.
14. Clause (a) of Section 9D(1) refers to the following circumstances :
(i) when the person who made the
statement is dead,
(ii) when the person who made the
statement cannot be found,
(iii) when the person who made the
statement is incapable of giving
evidence,
(iv) when the person who made the
statement is kept out of the way by
the adverse party, and (v) when the
presence of the person who made the
statement cannot be obtained without unreasonable delay or expense.
15. Once discretion, to be judicially exercised is, thus conferred, by Section 9D, on the adjudicating authority, it is selfevident inference that the decision flowing from the exercise of such discretion, i.e., the order which would be passed, by the adjudicating authority under Section 9D, if he chooses to invoke clause (a) of subsection (1) thereof, would be pregnable to challenge. While the judgment of the Delhi High Court in J&K Cigarettes Ltd. (supra) holds that the said challenge could be ventilated in appeal, the petitioners have also invited attention to an unreported short order of the Supreme Court in UOI and Another v. GTC India and Others in SLP (C) No. 2183/1994, dated 3-1-1995 wherein it was held that the order passed by 24 C/55309/2013 & 2 others the adjudicating authority under Section 9D of the Act could be challenged in writ proceedings as well. Therefore, it is clear that the adjudicating authority cannot invoke Section 9D(1)(a) of the Act without passing a reasoned and speaking order in that regard, which is amenable to challenge by the assessee, if aggrieved thereby.
16. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.
(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and
(ii) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and
17. There is no justification for jettisoning this procedure, statutorily prescribed by plenary Parliamentary legislation for admitting, into evidence, a statement recorded before the Gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act.
The use of the word "shall" in Section 9D(1), makes it clear that, the provisions contemplated in the sub-section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.
18. The rationale behind the above precaution contained in clause (b) of Section 25 C/55309/2013 & 2 others 9D(1) is obvious. The statement, recorded during inquiry/investigation, by the Gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudicating authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.
19. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the 26 C/55309/2013 & 2 others circumstances of the case, the statement should be admitted in the interests of justice.
20. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in- chief has to precede cross-examination, and cross-examination has to precede re-
examination".
16. Therefore, the 35 statements relied upon in the SCN are not relevant and hence also not admissible."
(emphasis supplied)
32. In view of the aforesaid decisions of the Tribunal, the Commissioner (Preventive) was not justified in considering the statements made under section 108 of the Customs Act as relevant for coming to a conclusion that the provisions of the Notification had been violated.
33. Penalty under section 112(a) of the Customs Act could also, therefore, not have been imposed upon the appellant or the two Directors.
34. The order dated 10.01.2013 passed by the Commissioner (Preventive) cannot, therefore, be sustained and is set aside. Customs Appeal No. 55309 of 2013, Customs Appeal No. 55310 of 2013 and Customs Appeal No. 55311 of 2013 are, accordingly, allowed with consequential benefits, if any.
(Order Pronounced on 05.08.2025) (JUSTICE DILIP GUPTA) PRESIDENT (HEMAMBIKA R. PRIYA) MEMBER (TECHNICAL) Jyoti