Customs evidence admissibility controls confiscation and penalty where a retracted statement lacks independent corroboration.

A statement recorded during customs investigation cannot be treated as admissible evidence unless the mandatory procedure under section 138B of the Customs Act is followed, and its use does not depend on the noticee first seeking cross-examination. Once that statement is excluded, the Revenue must still prove foreign origin and smuggling with independent reliable material; a retracted hearsay statement without corroboration does not discharge the burden under section 123. On that basis, confiscation of the seized gold under section 111 was not sustainable, and penalty under section 112(b) also failed because it depended on proof of smuggling and culpable involvement.

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Issues: (i) Whether statements recorded during investigation could be relied upon without complying with the statutory admissibility procedure under section 138B of the Customs Act, 1962; (ii) Whether the seized gold was proved to be of foreign origin and smuggled so as to attract confiscation under section 111 and the burden under section 123 of the Customs Act, 1962; (iii) Whether penalty under section 112(b) of the Customs Act, 1962 could be sustained.

Issue (i): Whether statements recorded during investigation could be relied upon without complying with the statutory admissibility procedure under section 138B of the Customs Act, 1962.

Analysis: The statement of the co-noticee was the main foundation of the Revenue case. The statutory procedure for admitting such statement in evidence was mandatory and was not dependent on the noticee first demanding cross-examination. Unless the statement was first brought on record in the manner required by section 138B, it could not be treated as admissible evidence.

Conclusion: The statement could not be relied upon and had to be excluded from consideration.

Issue (ii): Whether the seized gold was proved to be of foreign origin and smuggled so as to attract confiscation under section 111 and the burden under section 123 of the Customs Act, 1962.

Analysis: Once the principal statement was excluded, no independent material remained to establish foreign origin or smuggling. The statement itself was also found to be based on what the maker was told by others, making it hearsay in nature. The later pleadings in the bail application were treated as a retraction, and a retracted statement required corroboration by reliable independent evidence, which was absent. In a town seizure case, the initial burden remained on the Revenue, and that burden was not discharged.

Conclusion: Smuggling and foreign origin were not proved, and confiscation was not sustainable.

Issue (iii): Whether penalty under section 112(b) of the Customs Act, 1962 could be sustained.

Analysis: Penalty depended on proof of smuggling and culpable involvement. In the absence of admissible evidence establishing smuggling, the foundation for penalty failed.

Conclusion: Penalty under section 112(b) could not be sustained.

Final Conclusion: The confiscation and penalty were set aside, and the seized gold was directed to be released to the appellant.

Ratio Decidendi: A statement recorded during customs investigation cannot be used as substantive evidence unless the mandatory statutory procedure for admissibility is complied with, and a retracted hearsay statement unsupported by independent corroboration cannot discharge the Revenue's burden to prove smuggling or justify penalty.

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