Part I Mandatory Compliance of Examination in Chief by adjudicating authorities and Relevancy/admissibility of statements before Custom and indirect tax administration Officers

Mandatory Compliance of Examination in Chief by adjudicating authorities and Relevancy/admissibility of statements before Custom and indirect tax administration Officers

I .Introduction

The recent judgments rendered by the various Constitutional Courts and Benches of Hon’ble CESTAT across India establishes that Section 138B of Customs Act and Section 9D of the Central Excise Act mandates that statements made under section 108 of Customs Act or section 14 of Central Excise Act can only be considered relevant if the person making the statement is examined as a witness before the adjudicating authority, and the authority forms an opinion to admit the statement in evidence. The Courts have emphasized that Section 138 B of Customs Act and Section 9D are mandatory and substantive provisions. The statements recorded during the investigation cannot be relied upon unless the procedure under Section 138B/Section 9D is followed, as established in precedents set by Constitutional Courts. It has been repeatedly held that no tax liabilities can be fastened based on statements where such statement has not been examined and made relevant. Only relevant statement can be used to prove facts by adjudicating authority.

In this article, attempt has been made to make taxpayers aware about the statutory provisions in respect of admissibility and relevancy of statements recorded before Customs and Central Excise Officers. The same may find some applicability in respect of statements recorded under other special statutes also. Attempt has been made to make taxpayers aware about concepts like “Facts”, Evidence; Admissibility of Evidence/Statement/Fact; Relevancy of evidences/statement/fact; Proving a fact etc. In absence of specific definition of these words in Customs Act, Courts/adjudicating authorities exercising quasi judicial powers, have been constrained to refer to Evidence Act/BNSS. What can be gleaned from the statutory provisions and law laid down by Apex Court is that a statement made under S.108/ S.14, while admissible, does not automatically translate into their being relevant to the proceedings unless they satisfy the statutory stipulations laid down to consider them relevant. This is because there is a difference between relevancy and admissibility according to the general principles of evidence law. The adjudicating authority exercising is required to examine whether the statement is voluntary; in other words, whether it was not obtained by threat, duress or promise. If the adjudicating authority is satisfied from the evidence that it was voluntary, then it is required to examine whether the statement is true. If the adjudicating authority on examination of the evidence finds that the retracted confession is true, that part of the inculpatory portion could be relied upon to fasten tax liabilities and penalties. An attempt has been to encapsulate the available jurisprudence on the subject matter.

II.   Relevant statutory provisions

The provisions of the Customs Act, 1962 and Central Excise Act, 1944, relevant for discussion, are reproduced below:

Section 108 of Customs Act. Power to summon persons to give evidence and   produce documents. -

(1) Any Gazetted Officer of customs shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under this Act.

(2) A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the person summoned.

(3) All persons so summoned shall be bound to attend either in person or by an authorised agent, as such officer may direct; and all persons so summoned shall be bound to state the truth upon any subject respecting which they are examined or make statements and produce such documents and other things as may be required:

Provided that the exemption under section 132 of the Code of Civil Procedure, 1908 (5 of 1908), shall be applicable to any requisition for attendance under this section.

(4) Every such inquiry as aforesaid shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code, 1860 (45 of 1860).”

138B. Relevancy of statements under certain circumstances. —

(1) A statement made and signed by a person before any gazetted officer of customs during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, —

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or

(b) When the person who made the statement is examined as a witness in the case before the court and the court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

(2) the provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.”

 Section 14. Power to summon persons to give evidence and produce documents in inquiries under this Act.—

(1) Any Central Excise Officer duly empowered by the Central Government in this behalf shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making for any of the purposes of this Act. A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the person summoned.

(2) All persons so summoned shall be bound to attend, either in person or by an authorised agent, as such officer may direct; and all persons so summoned shall be bound to state the truth upon any subject respecting which they are examined or make statements and to produce such documents and other things as may be required:

Provided that the exemptions under Sections 132 and 133 of the Code of Civil Procedure, 1908 (5 of 1908) shall be applicable to requisitions of attendance under this section.

(3) every such inquiry as aforesaid shall be deemed to be a “judicial proceeding” within the meaning of Section 193 and Section 228 of the Indian Penal Code, 1860 (45 of 1860).”

9D. Relevancy of statements under certain circumstances.—

(1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, —

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or

(b) When the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

(2) the provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.”

III.        Evolving legal landscape on issue of Examination in Chief

Attention is invited to COMMISSIONER OF CUSTOMS (IMPORTS), MUMBAI Versus M/s GANPATI OVERSEAS THROUGH ITS PROPRIETOR SHRI YASHPAL SHARMA & ANR. - 2023 (10) TMI 364 - Supreme Court wherein after perusing catena of decisions, Apex Court held that “  It is in this context that the customs officer who is empowered under Section 108 to record statement etc. has the onerous responsibility to see to it that the statement is recorded in a fair and judicious manner providing for procedural safeguards to the concerned person to ensure that the statement so recorded, which is admissible in evidence, can meet the standard of basic judicial principles and natural justice. It is axiomatic that when a statement is admissible as a piece of evidence, the same has to conform to minimum judicial standards. Certainly a statement recorded under duress or coercion cannot be used against the person making the statement….. It is for the adjudicating authority to find out whether there was any duress or coercion in the recording of such a statement since the adjudicating authority exercises quasi-judicial powers.” Needless to say, when a statement is used/relied upon as an admissible evidence for proving a fact, the adjudicating authority exercising quasi judicial powers has to ensure that it confirms to minimum judicial standards and mandatory provisions stipulated in statute.

Constitutional Courts have consistently held that Section 9D of the Excise Act will be applicable whether or not it is a case relating to prosecution. If any incriminating material is sought to be used against the appellant, appellant as per principles of natural justice deserves an effective opportunity to rebut the same and cross-examine the witnesses. The Punjab and Haryana High Court in the case of M/s G-Tech Industries Versus Union of India And Another - 2016 (6) TMI 957 - PUNJAB & HARYANA HIGH COURThas held inclear terms that if the person whose statement is recorded before the Gazetted Central Excise Officer is not produced before the adjudicating authority and he was not subjected to cross examination, such statement has to be eschewed from consideration. The Punjab and Haryana High Court in G-Tech Industries (supra) held as under:

“19. Clearly, if this procedure, which is statutorily prescribed by plenary Parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the Commissioner of Central Excise, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.

21. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in COMMISSIONER OF CUSTOMS, MUMBAI Versus BUSSA OVERSEAS PROPERTIES LTD. - 2007 (8) TMI 31 - SC Order, which upheld the decision of the Tribunal in BUSSA OVERSEAS PROPERTIES LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI - 2000 (8) TMI 228 - CEGAT, MUMBAI.

22. It is clear, from a reading of the Order-in-original dated 04.04.2016 supra, that Respondents No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to Respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said sub-section. The Orders-in-Original, dated 04.04.2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.”

The Division Bench of Jharkhand High Court in M/s Bihar Foundry & Casting Ltd. through its Managing Director Sri Hari Krishna Budhia Versus The Commissioner of Central Excise, Ranchi Commissionerate, Ranchi - 2022 (3) TMI 694 - JHARKHAND HIGH COURT opined as under:

“The person summoned is bound to state the truth as there is a threat of prosecution since such enquiry is deemed to be a “judicial proceeding” within the meaning of Section 193 and 228 of the Penal Code, 1860. However, such statements recorded before a Gazetted Central Excise Officer during inquiry or investigation would be relevant only after the statement is admitted in evidence in accordance with the procedure prescribed under Section 9D (1) (b). The rigors of this procedure is exempted only in case in which one or more of the handicaps referred to in clause (a) of Section 9D (1) would apply. The proceedings for recording of the statements during search and seizure operation under C.E.A. 1944 are quasi criminal in nature because it results in imposition of not only duty but also a penalty and in some cases, it may also lead to prosecution. Therefore the statement recorded before a Gazetted Central Excise officer during inquiry or investigation, would be relevant only after the statement is admitted in evidence in accordance with the procedure prescribed under Clause (b) of Section 9D(1). The rationale behind the precaution contained in Section 9D (1) (b) is obvious as the statement recorded during inquiry/investigation by the Gazetted Central Excise Officer has every chance of having been recorded under coercion or compulsion. Therefore, the provisions contained in Section 9D have to be construed strictly and held as mandatory and, non-compliance would result in rendering the statement as irrelevant piece of evidence that cannot be used by the Adjudicating Authority to arrive at its finding. (See: Flevel International Versus Commissioner of Central Excise - 2015 (9) TMI 1151 - DELHI HIGH COURT Para 40-46);M/s Jindal Drugs Pvt. Ltd. And Another Versus Union of India And Another - 2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT, para 9 to 25]; M/s Hi Tech Abrasives Limited Versus The Commissioner, Central Excise And Customs Raipur - 2018 (11) TMI 1514 - CHHATTISGARH HIGH COURT Para 9.3-9.5 and M/s Ambika International and Others Versus Union of India and another - 2016 (6) TMI 919 - PUNJAB AND HARYANA HIGH COURT, [Para 17 to 28]. Para 23, 24, 25 and 27 thereof.”

The Chhattisgarh High Court in M/s Hi Tech Abrasives Limited Versus The Commissioner, Central Excise And Customs Raipur - 2018 (11) TMI 1514 - CHHATTISGARH HIGH COURT held as under:

“A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice.”

The Division Bench judgment of Bombay High Court in Ciabro Alemao, Joaquim Alemao Churchill Alemao, Anthony John Rodrigues, & Subhash Pandey Versus The Commissioner of Customs - 2017 (10) TMI 521 - BOMBAY HIGH COURT  has taken up substantial question for consideration i.e., whether in the teeth of Section 138B of the Customs Act, 1962 (for short ‘Customs Act’),, in departmental adjudication the witness is required to be produced. The Division Bench clearly held that without producing such witnesses in the adjudication proceedings and without subjecting them to cross-examination, those statements cannot be used against the assessee. The Bombay High Court in Ciabro Alemao (supra) has framed question which reads thus:

“(b) Could the Tribunal legitimately have relied on Section 138B of the Customs Act and applied to it departmental adjudication proceedings when the section specifically and clearly applies only to prosecution for offences under the Customs Act?”

After considering this provision, the findings are recorded in para No. 44, which reads thus:

“..material witnesses not produced for cross-examination, through asked for, amounts to a clear breach of natural justice. In UNION OF INDIA Versus TR. VARMA - 1957 (9) TMI 41 - Supreme Court the Court held ““it may be observed that rules of natural justice require that a party should have the opportunity of adducing all relevant evidence on which he relies, that the evidence of the opponent should be taken in his presence, and that he should be given the opportunity of cross-examining the witnesses examined by that party, and that no materials should be relied on against him without his being given an opportunity of explaining them.” In para Nos. 57 and 58 of above judgment in clear terms, it was held that Section 138 (B) of the Customs Act applies to ‘prosecution’ as well as ‘departmental adjudication proceedings’.

In the case of Prakash Raghunath Autade Versus The Union of India & Anr. - 2021 (12) TMI 241 - BOMBAY HIGH COURT, wherein Section 9D of the Excise Act was considered by Bombay High Court  and it was held that during adjudication proceedings, the relevant witnesses needs to be summoned and in absence thereof, such statements shall not be relied upon against the assessee unless he has been given suitable and reasonable opportunity to cross-examine such witnesses. Justice Dipankar Datta (as His Lordship then was) speaking for the Division bench in case of Prakash Raghunath Autade (supra) while considering Section 9D of the Excise Act poignantly held:

“13. In such view of the matter, we dispose of this writ petition with the following order:

(a) to (c)…

(d) if in the course of adjudication proceedings before the relevant authority any witness is summoned in terms of the power conferred by section 14 of the Act and his statement is recorded and found relevant, such statement shall not be relied upon against the petitioner unless he has been given suitable and reasonable opportunity to cross examine such witness;

(e) the evidence of the witness, as above, shall be recorded in the presence of the petitioner; and

(f) based on the evidence and other materials on record, the relevant authority shall proceed to pass a final order in accordance with law.”

Apart from this, in State of Mysore Versus S.S. Makapur - 1962 (5) TMI 33 - Supreme Court, the Apex Court (Constitution Bench) ruled that the purpose of an examination in the presence of a party against whom an enquiry is made, is sufficiently achieved, when a witness who has given a prior statement is recalled, the statement is put to him, and made known to the opposite party, and the witness is tendered for cross-examination by that party.

In Additional Director General (Adjudication) Versus M/s. Its My Name Pvt. Ltd. - 2020 (6) TMI 72 - DELHI HIGH COURT  decided on 01.06.2020, the Delhi High Court examined the provisions of sections 108 and 138B of the Customs Act. The department placed reliance upon the statements recorded under section 108 of the Customs Act. The Delhi High Court held that the procedure contemplated under section 138B(1)(b) has to be followed before the statements recorded under section 108 of the Customs Act can be considered as relevant. The relevant paragraphs of the judgment of the Delhi High Court are reproduced below: 

“76. We are not persuaded to change our view, on the basis of the various statements, recorded under Section 108 of the Act, on which the Learned ASG sought to rely. Statements, under Section 108 of the Act, we may note, though admissible in evidence, acquire relevance only when they are, in fact, admitted in evidence, by the adjudicating authority and, if the affected assessee so chooses, tested by cross-examination. We may, in this context, reproduce, for ready reference, Section 138B of the Act, thus : *****

A Division Bench of this Court has, speaking through A.K. Sikri, J. (as he then was) held, in J & K Cigarettes Ltd. & Ors. And M/s. GTC Industries Ltd Versus Collector of Central Excise & Ors. - 2009 (8) TMI 64 - DELHI HIGH COURT that, by virtue of sub-section (2), Section 138B(1) of the Act would apply, with as much force, to adjudication proceedings, as to criminal proceedings.”

After analyzing catena of decisions, the Division Bench of Telangana High Court in the case of Commissioner of Customs and Central Excise, Hyderabad-IV. Versus M/s. Venkateswara Silk Mills. - 2025 (1) TMI 424 - TELANGANA HIGH COURT held as under: -

28. In the light of aforesaid judgments, it is clear like noon day that the incriminating material/statements recorded behind the back of the petitioner cannot be used against him, unless, such witnesses are produced in adjudication proceedings and they were permitted to be cross-examined by the petitioner.

****In view of foregoing discussion, substantial questions must be answered in favour of the respondent. We answer it accordingly and hold that in the teeth of Section 9D (1) (b) of the Excise Act, unless, the incriminating material and witnesses are produced in the adjudication proceedings and are permitted to be cross-examined by the assessee, the said incriminating material cannot be used against the assessee.”

The said decision has been consistently followed in the case of Commissioner of Customs and Central Excise, Hyderabad-IV. Versus M/s. Venkateswara Silk Mills. - 2025 (1) TMI 424 - TELANGANA HIGH COURT and many other decisions.

The Bombay High Court, way back in Mohammed Yusuf and Ors. Versus D. and Ors. - 1961 (7) TMI 83 - BOMBAY HIGH COURT, opined that the proof of signature on a document does not mean that the contents are also true. The Supreme Court in Joseph John Peter Sandy Versus Veronica Thomas Rajkumar and Ors. - 2013 (3) TMI 889 - Supreme Court opined as under:

“In view of the law referred to hereinabove, it is crystal clear that even though the document may be admissible, still its contents have to be proved and in the instant case, as the appellant did not examine either the attesting witnesses of the document, nor proved its contents, no fault can be found with the judgment [(2004) 1 MLJ 301] impugned before us.”

Part II to continue .....