2025 (8) TMI 105 - AT - Customs

Penalty of Rs. 1 Crore under Section 114 Customs Act quashed based on statements under Section 108, appeal allowed independently

The CESTAT New Delhi set aside the penalty of Rs. 1 crore imposed under section 114 of the Customs Act read with section 13 of FEMA, which was based ... Levy of penalty u/s 114 of the Customs Act, 1962 read with section 13 of the Foreign Exchange Management Act for the various acts of omissions and commission - illegal purchase of foreign currency - reliability of statements u/s 108 of the Customs Act for imposing penalty - HELD THAT:- The impugned order is based solely on the statements made by Manish Garg and Mohammad Kashif under section 108 of the Customs Act. The submission advanced by the learned authorised representative for the department that since Manish Garg, Mohammad Kashif and Shahzad had not filed appeals to assail the impugned order, no relief should be granted to the appellant cannot be accepted. The filing of appeal by the appellant is not dependent upon whether the remaining three persons covered by the impugned order have filed appeals or not. It is, therefore, not possible to sustain the order dated 02.02.2021 passed by the Commissioner in so far as it imposes penalty of Rs. 1 crore upon the appellant. It is, accordingly, set aside and the appeal is allowed. ISSUES: Whether statements recorded under section 108 of the Customs Act can be relied upon as substantive evidence for imposing penalty under section 114 of the Customs Act without following the procedure under section 138B of the Customs Act.Whether failure to comply with the mandatory procedure under section 138B of the Customs Act affects the admissibility and evidentiary value of statements recorded during inquiry.Whether the appellant's liability for penalty depends on the appeals filed or not filed by other noticees involved in the same show cause notice. RULINGS / HOLDINGS: The statements made under section 108 of the Customs Act cannot be relied upon as substantive evidence for imposing penalty under section 114 of the Customs Act unless the procedure under section 138B of the Customs Act is followed, including examination of the person as a witness before the adjudicating authority and forming an opinion to admit the statement in evidence.The provisions of section 138B of the Customs Act are mandatory, and failure to comply with them means that no reliance can be placed on the statements recorded under section 108 during inquiry or investigation.The appellant's right to relief and appeal is independent of whether other noticees have filed appeals or not; non-filing of appeals by others does not preclude granting relief to the appellant. RATIONALE: The Court applied the statutory framework under sections 108 and 138B of the Customs Act, which regulate the recording and admissibility of statements made during inquiry or investigation.Section 138B mandates that statements recorded under section 108 can be admitted as evidence only after the person making the statement is examined as a witness before the adjudicating authority and the authority forms an opinion that the statement should be admitted 'in the interests of justice,' followed by an opportunity for cross-examination.The Court relied on prior authoritative decisions interpreting analogous provisions under the Central Excise Act (sections 14 and 9D) and the Customs Act, emphasizing the mandatory nature of procedural safeguards to prevent coercion and ensure fairness.The Court rejected the department's argument that the absence of appeals by other noticees affects the appellant's entitlement to relief, affirming that each noticee's appeal is independent.This judgment reiterates and affirms the strict procedural requirements for admitting statements recorded during inquiry as substantive evidence for penalty imposition under the Customs Act, reflecting no doctrinal shift but consistent application of existing law.