The Commissioner Of Customs (Export) vs M/s. G.D. Manglam Exim Pvt. Ltd. (Now Known As M/s. Welldone Exim Pvt. Ltd.)

ANIL KSHETARPAL, J.:

The present batch of 22 Appeals under Section 130 of the Customs Act, 1962 [hereinafter referred to as “the Customs Act”] raises common questions arising from the Final Order Nos. 59488-59509/2024 dated 25.11.2024 passed by the Customs, Excise and Service Tax Appellate Tribunal, New Delhi [hereinafter referred to as “CESTAT”]. The said order allows a batch of appeals arising from Order-in-Original No. 07/2023/VCG/PR.Commr/ ICD/Export/TKD dated 30.05.2023 passed by the Commissioner of Customs (Export), Inland Container Depot, Tughlakabad, New Delhi [hereinafter referred to as “the Adjudicating Authority”].

Since the Appeals arise from the same investigation, the same adjudication proceedings and the aforesaid common order of the CESTAT, they have been heard together and are being disposed of by this common judgment.

In order to appreciate the controversy involved in the present batch of Appeals, the relevant facts are required to be noticed. For convenience, CUSAA 92/2025 is being treated as the lead Appeal for setting out the factual background, while the facts and issues pertaining to the other connected Appeals shall be noticed, to the extent necessary, at the appropriate stage.

The controversy has its genesis in the export of readymade garments by, inter alia, M/s G.D. Manglam Exim Pvt. Ltd. (now known as M/s Welldone Exim Pvt. Ltd.), M/s Yogmaya Traders Pvt. Ltd., M/s Konark Exim Pvt. Ltd., M/s Sidh Designer Pvt. Ltd. and M/s DSM International during the period commencing from 2008-09 and extending up to March, 2014.

The exporters sent 13,008 consignments of readymade garments to the United Arab Emirates [hereinafter referred to as “UAE”] under shipping bills on which they claimed drawback under Section 75 of the Act and benefits under the Focus Product Scheme/Focus Market Scheme [hereinafter referred to as “FPS/FMS”] under the Foreign Trade Policy then in force. The drawback was sanctioned through the Customs authorities at the port of export, whereas the duty credit scrips under the aforesaid schemes were issued by the Directorate General of Foreign Trade [hereinafter referred to as “DGFT”] on the basis of exports authenticated by the Customs authorities.

The investigation subsequently undertaken by the Directorate General of Revenue Intelligence [hereinafter referred to as “DRI”] revealed, according to the Revenue, that the values declared in the shipping bills were substantially higher than the actual values of the goods exported. It was alleged that such overvaluation was resorted to with a view to obtaining higher drawback and benefits under the FPS/FMS. The Revenue’s case was that, in these circumstances, the third-party remittances received by the exporters could not necessarily be regarded as genuine payments made towards the goods covered by the relevant shipping bills.

According to the Revenue, the exporters were connected with a network of persons who allegedly facilitated procurement of the garments, movement of funds through various bank accounts and remittances from overseas entities, including persons described as diamond traders. It was alleged that such remittances were thereafter reflected as export proceeds against the relevant shipping bills, on the strength of Bank Realisation Certificates [hereinafter referred to as “BRCs”] issued by Punjab National Bank [hereinafter referred to as “PNB”]. The investigation, thus, sought to establish that the apparent realisation of export proceeds was part of a larger arrangement involving third-party remittances and alleged round-tripping of funds.

On the basis of the investigation, show cause notices came to be issued by the concerned Customs authorities proposing, inter alia, recovery of drawback under Rule 16/Rule 16A of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, recovery of the duty foregone in respect of imports made against the duty credit scrips under Section 28AAA of the Act, along with applicable interest and penalties. The proceedings were premised, inter alia, on the allegation that the exporters had not received the export proceeds from the consignees and that the goods covered by the shipping bills had been overvalued/incorrectly declared. For the purposes of adjudication of the notices, the Commissioner of Customs (Export), ICD Tughlakabad, was appointed as the common adjudicating authority.

The adjudication proceedings ultimately resulted in partial confirmation and partial dropping of the proposals contained in the show cause notices. Insofar as the present controversy is concerned, the Adjudicating Authority treated the cancellation of 1,650 BRCs issued by PNB as material for determining that the corresponding remittances could not be treated as realised export proceeds. On that basis, demands towards drawback and duty foregone were confirmed in respect of those consignments.

At the same time, the proposals for recovery in respect of the remaining consignments, for which the corresponding BRCs had not been cancelled, were dropped for want of sufficient material to substantiate the allegations in respect of those consignments.

Revenue, aggrieved by the dropping of the demands in respect of the consignments where the BRCs continued to remain uncancelled, preferred appeals before the CESTAT. The exporters, on the other hand, challenged the demands and penalties which had been confirmed against them. Certain individual noticees also preferred appeals against the penalties imposed upon them. Thus, the CESTAT was called upon to examine both the Revenue’s challenge to the dropping of the demands and the corresponding challenges by the exporters and other noticees to the portions of the adjudication order which were adverse to them.

Insofar as M/s G.D. Manglam Exim Pvt. Ltd. is concerned, the present Appeal arises out of Customs Appeal No. C/50137/2024 filed before the CESTAT against the Order-in-Original dated 30.05.2023. The said appellant was issued Importer-Exporter Code [hereinafter referred to as “IEC”] No. 0503078786 and, during the relevant period, had undertaken exports of readymade garments. The period relevant to the present Appeal, as set out in the proceedings, commenced from 02.05.2013 and extended up to 26.10.2013.

During the aforesaid period, M/s G.D. Manglam Exim Pvt. Ltd. is stated to have filed 842 shipping bills through different ports. Of these, 157 shipping bills were filed at ICD Tughlakabad, in respect of which drawback amounting to Rs. 6,29,52,531/- and benefits under the Focus Product Scheme/Focus Market Scheme amounting to Rs. 3,91,89,195/- were claimed. At ICD Patparganj, 274 shipping bills were filed, involving drawback of Rs. 6,59,18,371/- and FPS/FMS benefits of Rs. 3,73,30,853/-. At the Air Cargo Complex, Export, IGI Airport, Delhi, 392 shipping bills were filed, involving drawback of Rs.14,26,96,040/- and FPS/FMS benefits of Rs.8,34,24,634/-. A further 19 shipping bills were filed at JNPT, Nhava Sheva, involving drawback of Rs. 11,20,000/- and FPS/FMS benefits of Rs.47,83,249/-.

The investigation conducted by the DRI was triggered, inter alia, by information concerning substantial movement of funds through the banking accounts of entities allegedly connected with the exporters. One such account referred to in the investigation was that of M/s Ganapati Trading Company, Jodhpur, maintained with Citibank, Punjabi Bagh, bearing Account No. 0036522-224. The investigation recorded that substantial amounts had been received in the said account through RTGS from entities including Noticee Nos.1-5 which, according to the Revenue, did not have any apparent connection with the business of the beneficiary. These amounts were thereafter transferred onwards from the account.

The investigation further noted that M/s Ganapati Trading Company had itself not undertaken any import or export activity, whereas the accounts of the five exporter entities, namely, M/s G.D. Manglam Exim Pvt. Ltd., M/s Yogmaya Traders Pvt. Ltd., M/s Sidh Designers Pvt. Ltd., M/s Konark Exim Pvt. Ltd. and M/s DSM International, were reflected to have transferred funds to the account of M/s Ganapati Trading Company. The DRI, on the basis of the material gathered during investigation, alleged that the movement of funds through these accounts formed part of a larger arrangement concerning the exports undertaken by the aforesaid entities.

According to the investigation, amounts exceeding US$ 76 million were received by the five exporter entities from third parties stated to be located in Hong Kong, the British Virgin Islands and the UAE through the International Banking Branch of PNB, notwithstanding that the goods were shown in the shipping documents as having been exported to buyers in Dubai. The investigation alleged that the persons through whom the remittances were received were not the overseas buyers named in the relevant export documents and that the accounts of certain such remitters were allegedly operated through or fronted by Indian residents who occasionally travelled to Hong Kong.

The DRI also relied upon inquiries conducted with the overseas buyers. According to the Revenue, certain overseas entities whose names appeared as consignees in the export documents denied having purchased the goods in question or stated that the amounts actually paid by them were substantially lower than the values declared in India. The investigation consequently proceeded on the allegation that the amounts reflected in the Indian banking records as export realisations did not represent genuine sale consideration received from the actual overseas buyers.

The investigation further alleged that the goods exported by the five entities had been substantially overvalued. According to the Revenue, the garments had been procured from domestic suppliers at considerably lower values and the values declared in the shipping bills were thereafter inflated, allegedly with the object of obtaining higher drawback and other export-related benefits.

In support of the allegation of overvaluation, the DRI sought information regarding the corresponding imports in the countries of destination. According to the material relied upon by the Revenue, details of 964 consignments were forwarded to the Consulate General of India at Dubai on a sample basis. The material received in response included 12 Bills of Entry covering 39 shipping bills in respect of 12 containers. According to the Revenue, comparison of the values declared in India with the values declared before the foreign customs authorities disclosed substantial differences, and the excess drawback attributable to the consignments covered by the material received from Dubai was stated to be Rs. 1,52,54,678/-.

The investigation also relied upon documents obtained from customs authorities in other countries. In one instance concerning M/s G.D. Manglam Exim Pvt. Ltd., the invoice bearing No. GDM/7285/2013-14 dated 23.04.2013 was compared with the corresponding import document, namely, DUA No. 13 ES 0281 3 251251 7, in Spain. The Revenue relied upon the difference between the value declared in the Indian export documents and the value reflected in the foreign import documentation as indicative of overvaluation.

Similarly, in respect of another consignment of M/s G.D. Manglam Exim Pvt. Ltd., invoice No. GMD/7221/2013-14 dated 25.06.2013 and Shipping Bill No. 6211945 dated 29.06.2013 were relied upon. The FOB value declared in India was Rs.3,50,248/-, whereas the value stated to have been declared before the customs authorities in Greece was US$55,000.

The investigation also referred to consignments covered by invoices bearing Nos. GMD/7982 and GMD/7981 dated 26.07.2013 and the corresponding shipping bills bearing Nos. 6641734, 6641964 and 6641649. In these cases, the Indian FOB value was stated to aggregate to Rs. 2,17,18,036/-, whereas the value reflected in the Netherlands import documentation was stated to be Rs. 26,69,161/-.

Similar comparisons were relied upon in respect of consignments exported to other destinations, including Georgia, Singapore, Australia, Belize, Poland and the Netherlands. The Revenue relied upon these documents to contend that the values declared in India were substantially higher than the values declared at the port of import and that the disparity, in certain cases, was several times the corresponding foreign import value.

In particular, in respect of certain consignments of M/s G.D. Manglam Exim Pvt. Ltd. covered by invoices GMD/7529 to GMD/7532 dated 05.03.2013 and Shipping Bills Nos. 5659625, 5659657, 5660850 and 5659656 dated 29.05.2013, the aggregate value declared in India was stated to be Rs.2,50,19,667/-, whereas the corresponding value reflected in the documentation from Belize was stated to be Rs.39,47,078/-. In another set of consignments covered by invoices GMD/7434, GMD/7535, GMD/7536 and GMD/7537 dated 16.05.2013, the aggregate Indian value was stated to be Rs.2,55,61,184/-, as against Rs.24,14,343/- reflected in the Belize documentation. A further two consignments covered by invoices GMD/7947 and GMD/7948 dated 22.07.2013 were stated to have an aggregate Indian value of Rs.1,09,77,520/-, whereas the corresponding Belize value was stated to be Rs.20,99,194/-.

The Revenue also relied upon consignments of M/s Konark Exim Pvt. Ltd. exported to Georgia and other destinations. The investigation compared the values declared in the Indian shipping bills with the values appearing in the corresponding foreign customs documents and alleged substantial differences between the two. Likewise, in respect of a consignment covered by invoice No. KE/7059/2012-13 dated 22.03.2013 and Shipping Bill No. 4620585 dated 23.03.2013, the Indian declared value was stated to be Rs.63,12,492/-, whereas the value reflected in the corresponding documentation from Poland was stated to be Rs.4,81,788/-.

The investigation also referred to a consignment of M/s G.D. Manglam Exim Pvt. Ltd. covered by invoice No. GMD/7936 dated 23.04.2013 and Shipping Bill No. 6619321 dated 25.07.2013, where the Indian declared value was stated to be Rs.37,57,447/- as against Rs.12,18,098/- reflected in the Netherlands import documentation. In another case, the Indian FOB value was stated to be US$5,797.25, whereas the corresponding import value reflected in the foreign documentation was US$748.54.

On the basis of the aforesaid material, the Revenue alleged that the values declared in the shipping bills were inflated, in some cases by multiple times, and that the inflated values had the effect of enhancing the amount of drawback and other export incentives available to the exporters. The Revenue further alleged that the third-party remittances and the alleged overvaluation were not independent circumstances, but formed part of a common arrangement whereby funds were circulated and subsequently brought into the exporters' accounts as purported export proceeds.

Another significant aspect of the investigation concerned the BRCs issued by PNB. The relevant BRCs were issued by the PNB branch at DCM Building, Barakhamba Road, New Delhi, on various dates between 18.11.2013 and 26.11.2013, certifying realization of export proceeds in respect of the relevant exports.

Subsequently, in the year 2015, the DRI informed PNB that an investigation was being conducted concerning alleged misuse and irregularities in the availment of drawback and other export benefits. PNB thereafter cancelled the BRCs which had earlier been issued in respect of the exports.

M/s G.D. Manglam Exim Pvt. Ltd. challenged the cancellation of the BRCs by instituting proceedings before this Court in W.P.(C) No. 1230/2016. The said writ petition was disposed of on 14.03.2016 with a direction to PNB to consider and pass a reasoned order upon the representations submitted by the petitioner dated 21.01.2016 and 29.01.2016.

Pursuant to the aforesaid directions, PNB, by communication dated 01.04.2016, enclosed its reasons dated 30.03.2016 for cancellation of the BRCs. PNB took the view that the third-party realization of export proceeds did not conform to the requirements contained in RBI Circular No. 70 dated 08.11.2013 and Circular No. 100 dated 04.02.2014. The reasons referred, inter alia, to the absence of a firm irrevocable order backed by a tripartite agreement and the absence of the requisite declaration regarding receipt of payment from a third party in the export declaration.

M/s G.D. Manglam Exim Pvt. Ltd., which subsequently came to be known as M/s Welldone Exim Pvt. Ltd., instituted Civil Suit No. 1114/2018 before the competent Civil Court at Patiala House Courts on 18.08.2018, seeking, inter alia, a declaration that the cancellation of the BRCs by PNB was null and void and of no legal effect. The Customs Department was not impleaded as a defendant in the said proceedings, notwithstanding that an investigation by the Customs authorities into the transactions in question was pending.

The said civil suit culminated in a judgment and decree dated 13.03.2020 passed by the learned Additional Senior Civil Judge, New Delhi District, whereby the cancellation of the BRCs was declared null and void and without effect.

In the meantime, the Customs authorities proceeded with the adjudication of the show cause notices issued pursuant to the DRI investigation. In the case of M/s G.D. Manglam Exim Pvt. Ltd., four show cause notices had been issued proposing recovery of the benefits availed by the exporter, together with interest and penalties. The exporter participated in the adjudication proceedings and submitted its written submissions, including a written submission dated 08.05.2023.

The common adjudication proceedings culminated in Order-in-Original No. 07/2023/VCG/PR.Commr/ICD/Export/TKD dated 30.05.2023. The Adjudicating Authority, after examining the material on record, confirmed certain portions of the demands while dropping the remaining proposals.

In respect of M/s G.D. Manglam Exim Pvt. Ltd., the Adjudicating Authority confirmed demands towards drawback and duty foregone in respect of the consignments covered by the cancelled BRCs, besides ordering confiscation and imposing penalties, while dropping the remaining proposals.

The confirmation of the demands was also linked by the Adjudicating Authority to the cancellation of the BRCs in respect of 1,650 consignments. The Adjudicating Authority treated the cancellation of the BRCs as demonstrating that the corresponding export proceeds could not be treated as having been validly realised and consequently proceeded to confirm the consequential demands.

In respect of the remaining consignments, for which the BRCs had not been cancelled, the Adjudicating Authority did not accept the Revenue’s proposals for recovery, holding that the material collected by the Revenue was insufficient to sustain the proposed demands. Accordingly, the proposals in respect of those consignments were dropped.

The Revenue, being aggrieved by the dropping of the demands, preferred appeals before the CESTAT. The exporters, being aggrieved by the confirmation of demands and the penalties imposed upon them, also preferred appeals. Appeals were likewise preferred by certain individual noticees against the penalties imposed upon them. All these appeals came to be heard together by the CESTAT.

The CESTAT, Principal Bench, New Delhi, by Final Order Nos. 59488-59509/2024 dated 25.11.2024, disposed of the batch of appeals by dismissing the appeals preferred by the Revenue and allowing those preferred by the exporters and the concerned individual noticees. The principal observations and conclusions recorded by the CESTAT, insofar as relevant to the present appeals, may be summarised as follows:

It is against the aforesaid common Final Order dated 25.11.2024 that the present batch of Appeals under Section 130 of the Act has been preferred by the Revenue.

Contentions on behalf of the Appellant:

In view of the rival submissions, the following issues arise for determination:

This Court has carefully considered the detailed submissions advanced on behalf of the parties and perused the material on record.

At the outset, it is necessary to deal with the preliminary objection raised by the Respondents regarding the maintainability of the present Appeals under Section 130 of the Act. The objection proceeds on the premise that since the Revenue has alleged that the export goods were overvalued, the Impugned Final Order is an order relating to determination of the value of goods for the purposes of assessment and, consequently, the jurisdiction of this Court stands excluded.

The submission, in the view of this Court, proceeds on an erroneous appreciation of the controversy which actually arose before the CESTAT. It is undoubtedly correct that Section 130 of the Act excludes from the appellate jurisdiction of the High Court an order relating, amongst other things, to determination of any question having a relation to the rate of duty of customs or to the value of goods for the purposes of assessment. However, the statutory exclusion is attracted only where the question concerning value bears the requisite relationship with the assessment of the goods.

The distinction is of considerable significance in the present case. The Revenue does not challenge, in the present proceedings, an assessment order determining the assessable value of the exported goods. Equally, the Revenue does not seek to have the assessable value determined under Section 14 of the Act in these proceedings. The very finding of the CESTAT, which constitutes the basis of the Respondents’ objection, is that the export goods had already been assessed and that no re-determination of their value under Section 14 of the Act read with the Rules, 2007 had been undertaken.

The Supreme Court, while examining the corresponding exclusion contained in the Central Excise Act, 1944 in M/s Alupro Building Systems Pvt. Ltd. v. Commissioner of Central Excise, Bangalore-II^{1515.2026 INSC 582}, has explained that the words “any” and “among other things” give the exclusion a wide ambit. At the same time, the expression “for purposes of assessment” qualifies the reference to the rate of duty as well as the value of goods. Thus, every question which may incidentally touch upon value does not, merely for that reason, stand excluded from the jurisdiction of the High Court. The question must bear a direct and proximate relationship with the assessment.

The principle laid down in Alupro (supra), therefore, is not that the mere presence of an allegation concerning value is sufficient to oust the jurisdiction of the High Court. What is material is the nature of the question which the Court is called upon to decide. If the question concerns the assessable value of the goods and the determination of such value forms part of the assessment, the statutory exclusion would undoubtedly operate. However, where the value is referred to for an altogether different purpose, the exclusion cannot be invoked merely by labelling the controversy as one of “valuation”.

In the present case, the allegation of overvaluation was made in the context of the alleged fraudulent availment of drawback and other export incentives. The Revenue's case was that the exporters had not only deliberately declared inflated values in the shipping bills and, by doing so, had claimed benefits in excess of what would otherwise have been available, but also the third party remittance reflected as payments for the exported goods were also not connected. The valuation material was consequently relied upon as evidence bearing upon the entitlement to retain the benefits already availed and upon the alleged manner in which such benefits had been obtained.

This distinction is borne out from the Impugned Final Order itself. In paragraph 21, the CESTAT recorded that the demands and the consequential action were founded, inter alia, upon the allegation of overvaluation. At the same time, the CESTAT specifically noted that the assessment under Section 17 had not been disturbed and that there had been no notice or finding re-determining the value under Section 14 read with the 2007 Rules.

In other words, the CESTAT itself recognised that there had been no adjudication determining the assessable value of the exported goods in accordance with the statutory valuation mechanism. The question before the CESTAT was whether the material gathered during investigation could nevertheless be relied upon for determining whether the exporters had fraudulently availed drawback and other export benefits.

It would, therefore, be somewhat anomalous to accept the Respondents' submission that the Appeals are barred under Section 130 because they involve determination of value for purposes of assessment when the very finding of the CESTAT is that no such determination of value for purposes of assessment had taken place.

The reliance placed by the Respondents upon Kishin S. Loungani (supra) does not advance their case. In that matter, the valuation of the goods was itself adjudicated upon and the valuation finding was found to be integral to the conclusions concerning confiscation and denial and recovery of drawback. The Kerala High Court consequently held that the order involved, amongst other things, the issue of valuation of goods for purposes of assessment and that the statutory appellate remedy lay before the Supreme Court.

The factual and procedural position in the present case is materially different. Here, the CESTAT has expressly proceeded on the basis that the declared value had not been re-determined under Section 14 read with the 2007 Rules. The Revenue's grievance is not that the assessable value determined by Customs was incorrectly fixed, but that the exporters allegedly manipulated the declared values for the purpose of obtaining drawback and other export incentives.

The distinction is also consistent with the principle underlying Navin Chemicals (supra). The expression “for purposes of assessment” is the controlling expression. The exclusion concerns questions relating to rate of duty or value in the context of assessment. It does not convert every question in which the value of goods may be relevant into a valuation dispute for purposes of Section 130.

The fact that the Revenue relies upon the difference between the values declared in India and those appearing in the foreign customs documents does not alter the nature of the proceedings. The Revenue relies upon those differences as evidence of alleged inflation and fraudulent availment of benefits. Whether such evidence is ultimately sufficient to establish the alleged fraudulent availment is a matter to be examined on the evidentiary record. It is distinct from determining the assessable value of the goods under Section 14.

This Court is, therefore, unable to accept the preliminary objection raised by the Respondents. The present Appeals are maintainable under Section 130 of the Act. The issue of alleged overvaluation, as it arises in the present proceedings, does not constitute a determination of the value of goods for purposes of assessment so as to attract the exclusion contained in Section 130.

Having answered the question of maintainability, the principal controversy arising in these Appeals concerns the manner in which the CESTAT dealt with the third-party remittances and the material relied upon by the Revenue to question the entitlement of the exporters to retain the drawback.

Section 75 of the Act provides the statutory basis for grant of drawback on exported goods. The second proviso to Section 75(1), as relevant for the present controversy, contemplates the consequence where the sale proceeds in respect of the exported goods are not received by the exporter in India within the period prescribed under the Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder.

The controversy before this Court is not whether a payment received from a third party can, in every conceivable circumstance, be treated as an invalid export realisation. Nor is it necessary for this Court to hold that every third-party remittance is prohibited. The question is narrower: whether the Customs authorities, while examining the entitlement of an exporter to drawback, were entitled to examine whether the amounts shown as export realisations actually represented sale proceeds in respect of the goods for which drawback had been claimed.

In the considered view of this Court, the answer has to be in the affirmative. The reference in Section 75 to “sale proceeds in respect of such goods” necessarily requires the Customs authorities, when the entitlement to drawback is put in issue, to examine whether the amounts relied upon as export realisations have the requisite nexus with the exports in question. The Customs authorities are not thereby exercising the regulatory jurisdiction of the Reserve Bank of India under FEMA. They are examining the statutory entitlement to retain a benefit granted under the Customs Act.

The CESTAT, however, appears to have treated the matter as though the Revenue was seeking to adjudicate upon the validity of the foreign exchange transaction as such. The Revenue's case, properly understood, was different. The Revenue relied upon the identity of the remitters, the identity of the declared overseas buyers, the statements and enquiries concerning those buyers, the movement of funds through various accounts and the surrounding circumstances to prove that the amounts shown as realisations could not be accepted as genuine sale proceeds of the exported goods.

The distinction assumes significance because the material relied upon by the Revenue was not confined to the fact that the remitter was a person other than the named buyer. As recorded in the Order-in-Original, the investigation extended to the entities from which the remittances originated, the nature of their business activities, the persons shown as their directors or partners, the relationship, if any, between such entities and the declared overseas buyers, and the circumstances in which the remittances were received by the Indian exporters.

The adjudicating authority also relied upon the material obtained during overseas enquiries and the documents concerning the corresponding imports. The findings recorded in the Order-in-Original refer to instances where the overseas buyers or consignees allegedly denied having undertaken the transactions attributed to them, as well as instances where the value reflected in the overseas import documentation was substantially different from the value declared before the Indian Customs authorities. The Order-in-Original further refers to the investigation concerning the third-party remitting entities and the banking records relating to the receipt of export proceeds.

In such circumstances, the Customs authorities could not have been precluded from examining the transactions merely because the amounts had physically entered the exporters' bank accounts. Receipt of money in a bank account is a fact; whether that receipt constitutes sale proceeds in respect of the exported goods is a matter which has to be determined from the surrounding circumstances and the evidence available on record.

The CESTAT was, therefore, not justified in proceeding on the basis that the Customs authorities could not examine the nature of the remittances unless the Reserve Bank of India or another authority exercising jurisdiction under the foreign exchange regulatory framework had first declared the remittances to be invalid. The Customs authorities were required to examine the remittances only to the extent necessary for deciding the statutory entitlement under the Customs Act.

Before proceeding further, it is necessary to notice a fundamental aspect of appellate adjudication which assumes particular significance in the present case. When an appellate authority exercises jurisdiction over an adjudication order and proposes to reverse the conclusions recorded therein, it is required to critically analyse the findings recorded by the adjudicating authority and the material on which those findings are founded. The appellate authority must, by a process of reasoning, demonstrate why the conclusions recorded by the adjudicating authority are erroneous or unsustainable before substituting its own conclusion.

The requirement is not merely procedural. It is inherent in the exercise of appellate jurisdiction. An appellate authority is not required merely to state that it has taken a different view. Where the order under challenge is founded upon an investigation involving several pieces of evidence and a series of findings, the appellate authority is required to examine the material findings which constitute the foundation of the adjudication order and record reasons for disagreeing with them.

This aspect assumes particular significance in the present case since the Order-in-Original dated 30.05.2023 records findings based upon documentary material obtained during the investigation, apart from statements recorded under the Customs Act. The CESTAT was, therefore, required to examine the material considered by the adjudicating authority and determine whether the conclusions drawn therefrom were sustainable in law and on facts.

The question before this Court is consequently not whether this Court would itself have arrived at the same factual conclusions as the Commissioner of Customs (Exports). Nor is this Court required, in exercise of jurisdiction under Section 130, to undertake a wholesale re-appreciation of the evidentiary record. The relevant question is whether the CESTAT, while reversing the Order-in-Original, critically examined the findings and material which constituted the basis of the adjudication.

It is, therefore, necessary to notice the nature and extent of the findings recorded by the adjudicating authority. The Order-in-Original contains detailed findings concerning the source and movement of the remittances, the entities through which the funds were routed, the overseas buyers and consignees, the values declared before Indian Customs vis-à-vis those reflected in the overseas documents, the cancellation of e-BRCs by Punjab National Bank and the alleged availment of drawback and other export incentives.

In paragraph 43.1 of the Order-in-Original, the Adjudicating Authority recorded that the investigation conducted by the DRI had revealed that substantial amounts had been transferred from the bank accounts of Noticees Nos. 1 to 5 to the bank account of M/s Ganpati Trading Co. during the period from February 2012 to May 2012. The amounts were thereafter transferred by M/s Ganpati Trading Co. to various firms based in Surat and Mumbai. Thus, the investigation traced a sequence of transfers from the accounts of the said noticees to M/s Ganpati Trading Co., and thereafter to other firms.

The Show Cause Notice dated 17.02.2017, in paragraphs 20.7 to 20.10, contains pictorial charts depicting the alleged flow of funds between the five exporting firms, the vendors of the exported goods stated to be controlled by Shri Pavan Sharma, Shri Yogesh Mittal, Shri Gaurav Bhardwaj and Shri Gopal Sharma, the firms based in Surat and Mumbai alleged to be fictitious, and the overseas firms which, according to the Revenue, remitted the funds back as export proceeds. The said charts, as set out in the Show Cause Notice, are reproduced below:

In paragraph 43.2, the adjudicating authority recorded that no import or export had been made by M/s Ganpati Trading Co. and that the entities to whom the money was transferred suggested that their declared line of business was diamond trading. It was further recorded that many of the bank accounts had remained operational for only a short period of time while witnessing substantial monetary transactions.

In paragraph 43.3, the adjudicating authority recorded that the declared addresses of M/s Ganpati Trading Co. and other trading firms controlled by Shri Pavan Kumar, proprietor of M/s Ganpati Trading Co., were found vacant or occupied by other firms, despite invoices allegedly being raised from those addresses for sale of ready-made garments to the five exporting firms till August-September 2013. The purchases shown by Noticees Nos. 1 to 5 from the trading firms controlled by Shri Pavan Kumar were, therefore, recorded as appearing dubious since the vendors were not found at their declared addresses during search and verification.

Paragraph 43.4 records a similar finding in respect of the other supplier firms. The DRI investigation with the different supplier firms was recorded as having revealed that the purchases shown by the five exporters from the supplier firms and their trading firms appeared dubious, since the vendors had not been found at their declared addresses during search and verification.

Paragraph 43.5 records the findings arising from the overseas enquiries conducted by the DRI with various Consulate Generals of India in the importing countries and with the buyers and consignees in respect of the exports made by the five exporting firms. The relevant findings recorded by the adjudicating authority are reproduced below:

The adjudicating authority thereafter recorded findings concerning the investigation into the third-party transactions between the five exporting firms and firms based in Hong Kong. Paragraph 43.6 records as follows:

Paragraph 43.7 records the allegation that the RBI Guidelines concerning third-party remittances, issued vide RBI Circular No. 70 dated 08.11.2013, RBI Circular No. 100 dated 04.02.2014 and the subsequent communications referred to therein, were not followed.

Paragraph 43.8 records that the Enforcement Directorate, Surat had also investigated a case of money laundering concerning three Surat-based companies, namely M/s Harmony Diamonds Pvt. Ltd., M/s Agni Gems Pvt. Ltd. and M/s R.A. Distributors Pvt. Ltd., in relation to remittances of foreign exchange equivalent to more than Rs.4,000 crores against allegedly fake import documents of diamonds. The Order-in-Original records the allegation that a circuitous route had been adopted to circulate the money from one entity to another, which was ultimately remitted abroad through allegedly bogus transactions, and that such remittances were received back by the five Indian exporting firms as third-party payments for the export goods.

The findings recorded in paragraph 43.9 concern the investigation and enquiry with Shri Sahdev Gupta, Director/Controller of the five exporting firms. The adjudicating authority recorded, inter alia, the following: The said paragraph 43.9 is reproduced as under:

The adjudicating authority thereafter recorded that, in view of the aforesaid material, the show cause notice alleged that the remittances received by the exporting firms from Hong Kong/UAE based firms were not in relation to the exported goods but represented the difference corresponding to the overall overvalued exported goods for fulfilment of the requirement of BRC and for availing undue export incentives. The Order-in-Original records that this allegation was further sought to be corroborated by the substantial difference between the prices declared before Indian Customs and the prices at the ports of destination.

Paragraph 43.10 concerns the enquiry conducted by the DRI with Punjab National Bank regarding the procedure prescribed and followed in respect of realisation of export proceeds. The adjudicating authority recorded, inter alia, that PNB officials admitted that the tripartite agreements contemplated under the relevant RBI circular were not available for the relevant period; that the procedure prescribed by the RBI had not been followed in the realisation of export proceeds; and that PNB had thereafter decided to cancel the e-BRCs in respect of shipping bills realised against such non-compliant third-party remittances.

The adjudicating authority further recorded in paragraph 43.10 that PNB, vide letter dated 16.01.2016, had intimated that, in accordance with the observations of the investigating agencies and the findings of its internal audit, it had decided to cancel the e-BRCs in respect of the shipping bills realised against such non-compliant third-party remittances and had requested the DGFT to treat such e-BRCs as cancelled/null and void, with consequential impact upon the export incentives claimed or availed against those shipping bills. The adjudicating authority recorded that PNB had cancelled BRCs relating to 1,650 Shipping Bills pertaining to the five exporting firms, amounting to USD 12,77,16,228.59. The said paragraph 43.10 is reproduced as under:

Paragraphs 43.11 and 43.12 further record the allegation that the overseas enquiries revealed substantial differences between the values declared before Indian Customs and those reflected abroad and that the remittances received by the exporting firms from Hong Kong and UAE based third parties were from entities which were neither buyers nor consignees according to the shipping/export documents. The said paragraphs 43.11 and 43.12 read as under:

Paragraph 43.13 concerns the allegation regarding the diversion of consignments declared for FMS/SFMS countries. The adjudicating authority recorded that Shri Sahdev Gupta, owner/controller of M/s Konark Exim Pvt. Ltd., M/s DSM International and M/s Sidh Designers Pvt. Ltd., in connivance with Shri Nitin Gupta, Director of M/s OAK Shipping Services Pvt. Ltd., had exported goods under 11 Shipping Bills by showing exports to countries falling within the FMS/SFMS scheme for claiming the corresponding benefits, whereas the consignments were allegedly diverted to non-FMS/SFMS countries such as Turkey and Korea. The adjudicating authority further recorded the allegation that the country of destination had thereby been misdeclared and that fraudulent benefits had been availed by wilful misstatement, misrepresentation and suppression of facts.

The adjudicating authority further recorded that Shri Nitin Gupta had abetted Shri Sahdev Gupta in obtaining FMS authorisation from the DGFT by arranging/issuing allegedly fake or bogus landing certificates, which Shri Nitin Gupta had admitted in his statement. The said paragraph 43.13 reads as under:

The aforesaid findings demonstrate the breadth of the material considered by the adjudicating authority. The case was not founded upon a single statement, nor merely upon the fact that the remitters were third parties. The findings proceeded upon banking records, overseas enquiries, documents obtained from foreign customs authorities, statements of persons associated with the overseas entities, statements of the persons controlling the exporting firms, material concerning the declared and actual destinations of the consignments, and the action taken by PNB in respect of the e-BRCs.

The adjudicating authority thereafter recorded further findings in paragraph 46.5, which are relevant for appreciating the nature of the investigation. The said paragraph reads:

The adjudicating authority also specifically dealt with the action taken by PNB concerning the e-BRCs. Paragraph 46.14 records that Shri Dhruv Sinha, Assistant General Manager of Punjab National Bank, International Banking Branch, Barakhamba Road Branch, New Delhi, vide letter dated 16.01.2016 addressed to the Additional DGFT, New Delhi-01, with a copy marked to the DRI, intimated that, in accordance with the observations of the investigating agencies and the findings of the bank's internal audit, PNB had decided to cancel the e-BRCs in respect of the shipping bills realised against non-compliant third-party remittances. The gist of the Bills realised during the relevant period was recorded as follows:

Paragraph 46.16 records that, although 13,008 Shipping Bills were involved in the show cause notices in which the sale proceeds were stated to have been received through third-party remittances, the Authorised Dealer, namely Punjab National Bank, had cancelled the e-BRCs only in respect of 1,650 Shipping Bills. The said paragraph 46.16 reads as under:

The adjudicating authority referred to the letter of PNB stating that the e-BRCs had been cancelled in respect of Shipping Bills realised against non-compliant third-party remittances.

The adjudicating authority further referred to the correspondence exchanged during the investigation between the DRI, PNB and RBI concerning the applicable requirements for receipt of third-party payments. The Order-in-Original records the RBI's communication dated 07.04.2014 stating, inter alia, that third-party payments had not been enabled in Notification No. FEMA 14/2000-RB dated 03.05.2000 and that, prior to 08.11.2013, cases involving receipt of export payments from third parties were examined by the RBI on a case-to-case basis and specific approvals were granted depending upon the contract and supporting documentation.

The adjudicating authority thereafter recorded its conclusion that, out of the 13,008 Shipping Bills, e-BRCs had been cancelled only in respect of 1,650 Shipping Bills and that, according to the material before it, the balance 11,358 e-BRCs had not been cancelled. On that basis, the adjudicating authority concluded that, apart from the 1,650 Shipping Bills, there was no additional material before it to doubt the bona fides of the e-BRCs relating to the balance 11,358 Shipping Bills.

The adjudicating authority consequently held that drawback relatable to the 1,650 Shipping Bills was liable to be treated as having never been allowed under the second proviso to Section 75(1) of the Customs Act and recovered under Rule 16A of the Customs and Central Excise Duties Drawback Rules, 1995, together with applicable interest. The amount so determined was Rs.67,46,26,135/-.

The adjudicating authority also separately considered the allegation of excess drawback under Rule 16. Paragraph 47.6 records that the demand of differential excess drawback under Rule 16 was confined to the Shipping Bills in respect of which remittances had been received from third parties and not to the other Shipping Bills forming part of the 13,008 Shipping Bills.

The adjudicating authority further recorded that overseas enquiries had been conducted in respect of 74 Shipping Bills, of which 24 were already part of the 1,650 Shipping Bills considered for recovery under Rule 16A. Of the remaining 50 Shipping Bills, seven (07) were not part of the 13,008 Shipping Bills covered by the show cause notices for recovery under Rule 16/16A. The adjudicating authority consequently proceeded to consider 43 Shipping Bills for recovery under Rule 16, recording that the noticees had not produced evidence or supporting documents contrary to the findings emerging from the overseas enquiries. Paragraph 47.6 of the Order-in-Original reads as under:

The above excess drawback calculation has been arrived prorate/ actual amount on the basis of excess drawback amount reflected in overseas inquiry in SCN.”

The adjudicating authority thereafter dealt with the duty credit scrips under Section 28AAA. Paragraph 48.2 records the following finding:

Paragraph 48.3 records the further allegation concerning the FMS/SFMS benefits obtained by M/s Konark Exim Pvt. Ltd., M/s DSM International and M/s Sidh Designers Pvt. Ltd. The adjudicating authority recorded that the export documents, including invoices and packing lists, showed the countries of destination as FMS/SFMS countries, whereas, after clearance from Customs, the consignments were allegedly diverted to non-FMS/SFMS countries. It was further recorded that M/s OAK Shipping Services Pvt. Ltd. had arranged the containers and booked the consignments with the shipping lines and that fake/bogus landing certificates and House Bills of Lading/Multi-modal Transport documents were allegedly issued as proof of delivery to the consignees in FMS/SFMS countries.

The adjudicating authority concluded in paragraph 48.3 that the aforesaid conduct resulted in obtaining duty credit scrips fraudulently from the DGFT by collusion, suppression of facts and wilful misstatement and held the case to be covered under Section 28AAA of the Customs Act. The adjudicating authority accordingly directed recovery of the FMS/FPS duty scrips relatable to the specified Shipping Bills, including the amounts attributed to M/s Konark Exim Pvt. Ltd., M/s DSM International and M/s Sidh Designers Pvt. Ltd. The said paragraph 48.3 reads as under:

The aforesaid findings are noticed only to demonstrate the material which was before the CESTAT. This Court is not, at this stage, expressing any final opinion upon the correctness of these findings. What is significant is that the Order-in-Original proceeded on the basis of a cumulative body of documentary and other material, and not merely on one isolated circumstance.

The nature of the material considered by the adjudicating authority is further evident from paragraph 22.8 of the Order-in-Original. The adjudicating authority noticed that the Consul (Economic), Consulate General of India, Dubai, vide letter dated 10.07.2014, had forwarded details of 12 Bills of Entry received from Dubai Customs in response to the DRI's letter dated 06.03.2014 concerning the enquiry into alleged overvaluation of exports from India to Dubai by the five Delhi-based exporting firms. The said 12 Bills of Entry covered 38 Shipping Bills and 12 containers. The adjudicating authority recorded the comparative values declared before Indian Customs and those appearing in the corresponding documents before Dubai Customs.

The comparative chart recorded in paragraph 22.8 of the Order-in-Original is reproduced below:

The adjudicating authority further noticed that, in three Bills of Entry, the name of the exporter had changed at Dubai. Similar Bills of Entry were stated to have been received through the First Secretary (Trade), Embassy of India, Brussels/Netherlands, London and Moscow, including 11 Bills of Entry, and through the Consul (Trade, Education and Commerce), New York, including four Bills of Entry. According to the findings recorded in the Order-in-Original, comparison of these documents disclosed substantial differences between the values declared before the Indian Customs authorities and those appearing in the corresponding overseas documents. This material was relied upon by the adjudicating authority in support of the allegation that the invoices had been inflated for the purpose of obtaining higher drawback and benefits under the Focus Product Scheme/Focus Market Scheme.

The adjudicating authority also examined the material relating to the receipt of export proceeds. Paragraph 24.1 of the Order-in-Original records that, upon scrutiny of the SWIFT messages furnished by the bank, remittances had been received from entities based in Hong Kong, the British Virgin Islands and the UAE, which, according to the investigation, were neither the buyers nor the consignees mentioned in the export documents filed before the Indian Customs authorities. The adjudicating authority also recorded the investigation concerning the ownership and activities of certain overseas entities from which such remittances had been received.

The relevant portion of paragraph 24.1, including the table referred to therein, is reproduced below:

The aforesaid material demonstrates why the controversy could not have been disposed of merely by observing that the remittances had been credited into the bank accounts of the exporters or that the export goods had not been re-valued under Section 14 of the Act. The Revenue's case involved an interconnected body of material concerning the identity of the buyers, the identity and nature of third-party remitters, overseas import documents, comparative values, banking records, e-BRCs and the alleged availment of export incentives.

One of the submissions advanced on behalf of the Respondents is that the proceedings stand vitiated on account of violation of the principles of natural justice since an opportunity to cross-examine the witnesses whose statements were relied upon by the Revenue was not afforded. This contention requires examination from different perspectives.

First, as noticed above, the material forming the basis of the adjudication was not confined to statements recorded during investigation. The Order-in-Original refers, inter alia, to Bills of Entry and other documents obtained from overseas customs authorities, comparative details of the values declared before Indian Customs and those reflected in the corresponding overseas import documents, SWIFT messages and banking records, as well as enquiries concerning the overseas buyers, consignees and third-party remitting entities. The statements recorded during investigation constitute part of the evidentiary record, but the adjudication cannot, on a reading of the Order-in-Original, be characterised as resting exclusively upon oral statements.

This aspect assumes significance because the necessity and effect of cross-examination cannot be considered in isolation from the nature of the evidence relied upon by the adjudicating authority. Where the findings are founded substantially upon documentary material independently available on record, the question whether every person whose statement has been recorded was required to be offered for cross-examination cannot be answered in the abstract. The precise role played by the statement in the adjudication, the nature of the documentary material corroborating or contradicting it, and the prejudice, if any, caused by denial of cross-examination would necessarily require consideration.

Second, sub-section (2) of Section 138B of the Customs Act provides for an opportunity of cross-examination “so far as may be permitted by the Adjudicating Authority”. The statutory scheme, therefore, does not make cross-examination an inflexible or automatic requirement in every adjudication in which a statement recorded during investigation is relied upon.

Reliance in this regard has been placed upon the judgment of the Supreme Court in Kanungo & Company v. Collector of Customs and Others^{1616.(1973) 2 SCC 438}. In the facts of that case, the Supreme Court considered a contention based upon the denial of an opportunity to cross-examine persons whose statements had been relied upon and held that the principles of natural justice did not require that the persons concerned be examined and offered for cross-examination.

The aforesaid decision, however, has to be understood in the context of the nature of the evidence and the circumstances of that case. It cannot be understood as laying down an absolute proposition that cross-examination can never be necessary in customs adjudication. The requirement has to be considered having regard to the statutory scheme, the nature of the evidence relied upon, the role played by the statements in the findings ultimately recorded and the prejudice, if any, caused to the noticees.

The appropriate enquiry, therefore, was whether the findings against the Respondents rested materially and exclusively upon statements whose makers were not made available for cross-examination, or whether the statements constituted only one component of a larger body of documentary and other evidence independently available to the adjudicating authority. The CESTAT was required to undertake this examination before concluding that the adjudication stood vitiated on account of denial of cross-examination.

There is yet another perspective from which the contention requires consideration. The Revenue placed before the adjudicating authority the material collected during investigation, including the statements recorded during investigation, the Bills of Entry and other documents obtained from overseas sources, the banking and remittance records and the material concerning the overseas buyers, consignees and third-party remitting entities. The adjudicating authority thereafter recorded findings on the basis of the material so placed before it.

Once such material was brought on record and relied upon in support of the allegations contained in the show cause notices, the Respondents were required to meet the case so set up by the Revenue by placing appropriate material in rebuttal. The question of burden cannot be approached on the footing that the Revenue was required to establish the allegations with the degree of proof applicable to a criminal prosecution. The proceedings in question are adjudicatory proceedings concerning the statutory consequences flowing from the alleged availment of drawback and other export incentives.

This does not, however, mean that the Revenue stands absolved of the obligation to establish the statutory ingredients of the provisions invoked by it. The material relied upon by the Revenue must be examined in accordance with law and the Respondents must be afforded a fair opportunity to meet that material. The point is only that, once the Revenue placed substantive documentary and other material on record, the Respondents were required to rebut the case on the merits. The absence of cross-examination, by itself, could not render the remaining documentary material irrelevant or incapable of consideration.

The CESTAT was consequently required to examine the nature of the evidence relied upon by the adjudicating authority, the role played by the statements in the ultimate findings, the documentary material independently available on record and the defence, if any, offered by the Respondents. A conclusion on violation of natural justice without undertaking this exercise would not adequately address the controversy.

The next aspect concerns the allegation of overvaluation. As noticed hereinabove, the Revenue relied upon material obtained from foreign customs authorities, corresponding import documentation and other investigation material to contend that the values declared in the shipping bills were substantially inflated.

The CESTAT rejected this aspect principally on the ground that the value of the export goods had not been re-determined in accordance with Section 14 of the Act read with the Customs Valuation (Determination of Value of Export Goods) Rules, 2007. In doing so, however, the CESTAT proceeded on a premise which does not adequately distinguish between determination of assessable value and examination of an allegation that an exporter deliberately misdeclared the value for the purpose of obtaining an export benefit.

Section 14 read with the 2007 Rules undoubtedly governs determination of the value of goods where such determination is required for assessment. That statutory mechanism cannot be bypassed where Customs seeks to substitute or re-determine the assessable value of the goods. The present controversy, however, does not require this Court to determine a different assessable value of the exported goods.

The relevant question is whether the material relied upon by the Revenue could legally be considered while examining the allegation that the exporters had deliberately inflated the values declared in the shipping bills with the object of obtaining drawback and other export incentives. The absence of a fresh determination of assessable value under Section 14 cannot, by itself, render such evidence incapable of consideration for an altogether different statutory enquiry.

The distinction is important. Determination of assessable value under Section 14 is one enquiry. Examination of whether a declaration made by an exporter was deliberately false or inflated for the purpose of obtaining a statutory benefit is another. The latter enquiry may, in an appropriate case, involve consideration of comparative values, including values reflected in corresponding overseas import documentation. Such consideration does not, by itself, amount to undertaking a fresh assessment of the goods.

The CESTAT erred in failing to examine whether the material relied upon by the Revenue was legally capable of supporting the allegation of deliberate misdeclaration and, thereafter, whether the findings recorded by the adjudicating authority on the basis of that material could be sustained. The absence of a formal re-determination under Section 14 and the 2007 Rules could not, by itself, be treated as dispositive of the entire allegation.

The same consideration bears upon the consequential action for recovery of drawback, confiscation and penalties. If the allegation of deliberate misdeclaration is otherwise established in accordance with law, the fact that the original assessment was not reopened cannot, by itself, constitute an absolute bar to examining the statutory consequences of such misdeclaration in proceedings specifically initiated in respect of the export benefits allegedly obtained on that basis.

The CESTAT has also relied upon the judgment and decree dated 13.03.2020 passed in the civil proceedings between M/s G.D. Manglam Exim Pvt. Ltd. and Punjab National Bank, whereby the cancellation of the BRCs by PNB was declared to be null and void. The effect of the said decree, therefore, requires to be examined in its proper legal perspective.

A declaratory judgment and decree passed by a Civil Court in a civil suit operates, in the ordinary course, in personam and not in rem. Its binding effect is upon the parties to the proceedings and those claiming through or under them, subject to the principles governing the binding effect of judgments. A declaration granted in proceedings between two parties cannot, merely by virtue of its existence, operate as an adjudication of the rights and liabilities of a person who was neither a party to the proceedings nor afforded an opportunity of contesting the issues which arose therein.

It is undisputed that the Customs Department was not impleaded as a defendant in Civil Suit No. 1114/2018, instituted by M/s G.D. Manglam Exim Pvt. Ltd. on 18.08.2018, in which a declaration was sought, inter alia, that the cancellation of the BRCs by PNB was null and void and of no legal effect. The said proceedings were instituted against PNB and concerned the validity of PNB’s action in cancelling the BRCs.

The Customs proceedings, on the other hand, concerned an independent statutory question, namely, whether the exporters were entitled to retain drawback and other export benefits under the Customs Act. The Customs authorities were not parties to the civil proceedings and the statutory questions arising under the Customs Act were not the subject matter of adjudication in the said suit.

The CESTAT was, therefore, required to examine the civil decree in its proper legal context and determine the extent to which it could affect the independent proceedings initiated by the Customs authorities under the Act. A declaratory decree does not ordinarily operate as a judgment in rem binding upon the world at large. The Supreme Court, in Razia Begum v. Sahebzadi Anwar Begum^{1717.AIR 1958 SC 886}, explained that a declaration granted in a civil suit operates in personam, binding the parties and, where the law so provides, persons claiming through them. This principle was reiterated in Deccan Paper Mills Co. Ltd. v. Regency Mahavir Properties Pvt. Ltd.^{1818.(2021) 4 SCC 786}, with reference to Sections 34 and 35 of the Specific Relief Act, 1963. In the present case, the Customs Department was not a party to the civil proceedings and was not shown to be claiming through either of the parties thereto. Consequently, the decree declaring the cancellation of the BRCs to be null and void could not, merely by its existence, be treated as conclusively determining the Customs Department’s independent statutory rights or foreclosing examination of the material relied upon in the adjudication proceedings. The CESTAT erred in failing to consider the decree alongside that material and determine its legal effect on the demands in question, rather than treating it as having, by itself, extinguished the foundation of the Revenue’s case.

The next question concerns Section 28AAA of the Act. The CESTAT correctly observed that the provision contains specific statutory requirements and that a mere allegation of fraud, without satisfaction of those requirements, would not be sufficient. However, the CESTAT appears to have proceeded on the basis that because the scrips had not been independently invalidated and the subsequent users of the scrips had not been proceeded against, the proceedings against the exporters could not be sustained.

The scope of Section 28AAA required examination in the light of the specific allegations in the show cause notices and the material relied upon by the Revenue. If the duty credit instruments had been obtained by means of collusion, wilful misstatement or suppression of facts, as alleged, the statutory consequences under Section 28AAA could not be rejected merely by observing that the subsequent users of the instruments had not been proceeded against.

The essential question was whether the ingredients of Section 28AAA stood established against the concerned noticees on the basis of the material on record. The liability under the provision could not be made dependent upon a separate proceeding against every subsequent user of the instruments unless the statute itself made such proceeding a condition precedent.

The CESTAT was, therefore, required to examine the statutory ingredients of Section 28AAA in the context of the findings and evidence available on record, rather than treating the absence of proceedings against the subsequent users as determinative of the proceedings against the exporters.

The questions considered herein consequently constitute substantial questions of law arising from the Impugned Final Order and warrant interference under Section 130 of the Act. The appropriate course, having regard to the nature of the errors identified, is to set aside the impugned order passed by the CESTAT.

A separate consideration arises in respect of the penalty imposed upon Shri Nitin Gupta, Director of M/s Oak Shipping Services Pvt. Ltd. As noticed hereinabove, paragraph 43.13 of the Order-in-Original records the allegation that he had assisted Shri Sahdev Gupta in obtaining benefits under the FMS/SFMS by arranging or issuing allegedly false landing certificates. However, the merits of this allegation must be considered separately from the question whether the statutory requirements governing the imposition of a penalty upon Shri Nitin Gupta were complied with.

In paragraph 24 of the impugned Final Order, the CESTAT specifically recorded that the penalty imposed upon Shri Nitin Gupta had been proceeded with without notice, without service of the relevant documents and without affording him an opportunity of being heard. This finding raises a distinct question of compliance with Section 124 of the Act, which prescribes the procedural safeguards that must be observed before a penalty can be imposed under Chapter XIV of the Act.

Section 124 of the Act mandates that no order imposing a penalty upon a person under the said Chapter shall be made unless the person concerned is given notice in writing of the grounds on which the penalty is proposed, an opportunity to make a representation against those grounds and a reasonable opportunity of being heard. These requirements are not mere procedural formalities. They are intended to ensure that the person against whom penal action is proposed is informed of the case he is required to meet and is afforded a meaningful opportunity to answer it.

In Kothari Filaments & Anr. v. Commissioner of Customs (Port), Kolkata & Ors.^{1919.(2009) 2 SCC 192}, the Supreme Court emphasised that a person proceeded against for misdeclaration is entitled to know the grounds on which the penalty is sought to be imposed and to a proper hearing, which includes access to the documents relied upon by the adjudicating authority. The Court held that adverse findings cannot be founded upon material that has neither been supplied to the affected person nor made available for inspection, thereby depriving that person of an effective opportunity to respond.

In view of the statutory mandate under Section 124 of the Act and the principles laid down in Kothari Filaments (supra), the penalty imposed upon Shri Nitin Gupta cannot be restored unless the requisite notice and opportunity contemplated by law were afforded to him. The allegations recorded in paragraph 43.13 of the Order-in-Original, including the alleged arrangement of false landing certificates, cannot by themselves cure a failure to comply with these mandatory requirements. Accordingly, notwithstanding the conclusions reached in respect of the other noticees, the penalty imposed upon Shri Nitin Gupta must remain set aside, consistently with the finding recorded by the CESTAT on this distinct procedural ground.

Accordingly, the present Appeals are allowed. The Final Order Nos. 59488-59509/2024 dated 25.11.2024 passed by the CESTAT are set aside, except to the extent that the penalty imposed upon Shri Nitin Gupta of M/s Oak Shipping Services Pvt. Ltd. was set aside on the ground of non-compliance with the requirements of notice, supply of documents and opportunity of hearing. The Order-in-Original dated 30.05.2023 passed by the Commissioner of Customs (Export) is restored in all other respects, but the penalty imposed upon Shri Nitin Gupta shall remain set aside.

The present Appeal, along with the pending applications, stands disposed of.