2025 (10) TMI 461 - AT - Customs

Admissibility of s.108 statement rejected for non-compliance with s.138B; r.5 valuation redetermination overturned and appeal allowed

AR Fabrics Pvt. Ltd. Versus Principal Commissioner, Customs (Preventive) New Delhi

CESTAT held the appellant's statement under s.108 Customs Act was inadmissible because the s.138B procedure for examination and admissibility was not ... Reliability of statement made u/s 108 of the Customs Act if the procedure contemplated under section 138B of the Customs Act had not been complied with - rejection of assessable value of polyester knitted fabric mixed - re-determination of value u/r 5 of the 2007 Valuation Rules on the basis of contemporary import data of similar goods - HELD THAT:- This issue was examined by a Division Bench of the Tribunal in M/s. Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur [2025 (4) TMI 441 - CESTAT NEW DELHI]. The Tribunal examined the provisions of sections 108 and 138B of the Customs Act as also the provisions of sections 14 and 9D of the Central Excise Act, 1944 and observed that 'What, therefore, follows is that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as an evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain.' In view of the aforesaid decision of the Tribunal in Surya Wires, the statement of the appellant under section 108 of the Customs Act cannot be considered as relevant. This statement is the sole basis on which the Commissioner (Appeals) has not only rejected the value of the imported goods but has re-determined it under rule 5 of the 2007 Valuation Rules. It is, therefore, not possible to sustain the order dated 28.05.2021 passed by the Commissioner (Appeals) - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a statement recorded under section 108 of the Customs Act during an inquiry can be relied upon by an adjudicating authority (or appellate authority) to prove the truth of facts contained therein when the procedural safeguards of section 138B of the Customs Act have not been complied with. 1.2 Whether reliance on such unadmitted statements is permissible for redetermination of assessable value under rule 5 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and for imposition of differential duty, penalty and confiscation/redemption fine. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility and evidentiary value of statements recorded under section 108 when section 138B procedure is not followed Legal framework: Section 108 of the Customs Act empowers officers to summon persons and record statements during inquiries. Section 138B(1)(b) of the Customs Act governs the admissibility of such statements in proceedings under the Act by requiring that, where clause (a) is not applicable, the person who made the statement must be examined as a witness before the adjudicating authority and the adjudicating authority must form an opinion that the statement should be admitted in evidence; thereafter an opportunity of cross-examination must be afforded. The parallel provisions in the Central Excise Act (sections 14 and 9D) provide analogous procedural safeguards. Precedent Treatment: The Tribunal in Surya Wires (referred to and applied by the Court) analysed sections 108 and 138B and analogous Central Excise provisions, concluding that the procedure in section 138B is mandatory; failure to comply renders statements recorded under section 108 inadmissible for proving the truth of facts contained therein. The Tribunal's reasoning relied on High Court and Tribunal authorities interpreting the mandatory nature and rationale for the procedure. Interpretation and reasoning: The Court accepts the Tribunal's analysis that statements recorded during inquiries are susceptible to coercion or compulsion and therefore require neutralisation by subsequent examination before the adjudicating authority and a judicial-type assessment of admissibility, followed by cross-examination. A bare statement recorded under section 108, in the absence of the steps mandated by section 138B, lacks the procedural foundation to be treated as evidence of truth in adjudicatory proceedings. The appellate order under review relied solely on the voluntary statement recorded under section 108; no compliance with section 138B's requirements was shown. Ratio vs. Obiter: Ratio - the mandatory nature of section 138B's procedure and the consequent inadmissibility of section 108 statements for proving truth when the procedure is not followed. Obiter - explanatory observations regarding the rationale (risk of coercion) and cross-reference to Central Excise provisions are applied as supporting reasoning. Conclusion: The statement made under section 108, without compliance with section 138B, is not admissible evidence for proving the truth of its contents before the adjudicating or appellate authority. Reliance on such a statement as the basis for an adjudicatory determination is impermissible. Issue 2 - Legality of redetermination of value and consequential orders based solely on the unadmitted section 108 statement Legal framework: Rule 12 and rule 5 of the 2007 Valuation Rules permit reassessment and redetermination of assessable value of imported goods, using appropriate valuation bases (including contemporary import data). However, any reassessment must be based on admissible evidence and in accordance with statutory procedural safeguards. Sections 108 and 138B interplay with adjudicatory evidence rules because statements recorded in inquiries may be used only per the conditions of section 138B. Precedent Treatment: The Tribunal's decision (Surya Wires) was treated as authoritative by the Court for the proposition that inadmissible section 108 statements cannot form the sole basis for valuation reassessment or for imposition of penalties/redemption fines. The Court distinguished no conflicting authority in the judgment; it treated the Tribunal's holding as binding for present purposes. Interpretation and reasoning: The impugned redetermination under rule 5 and the consequential recovery/penalty/confiscation rested exclusively on the appellant's voluntary statement under section 108. Because that statement is inadmissible without the section 138B procedure, the foundation for rejecting the declared value and reassessing it is legally unsupported. The Court observed that the Commissioner (Appeals) relied exclusively on the section 108 statement and did not demonstrate that the section 138B steps (examination as witness before adjudicating authority, opinion formation on admissibility, and opportunity for cross-examination) had been undertaken. Ratio vs. Obiter: Ratio - an order redetermining value and imposing duties/penalties cannot be sustained if it is founded solely on a section 108 statement that has not been admitted in evidence pursuant to section 138B; such reliance nullifies the evidentiary basis of the adjudication. Obiter - procedural remarks on voluntary waiver of show-cause notice/hearing and on the appellate reliance on the statement are explanatory rather than independently determinative because the core legal infirmity is the omission of the statutory procedure. Conclusion: The redetermination of value under rule 5, and consequent recovery/penalty/confiscation based solely on the unadmitted section 108 statement, is unsustainable. The appellate order upholding such reliance cannot stand and must be set aside. Cross-reference between issues The analysis of Issue 1 is dispositive of Issue 2: inadmissibility of the section 108 statement (Issue 1) removes the evidentiary basis for redetermination and consequent penal/recovery measures (Issue 2). The Court applied the Tribunal's interpretation of sections 108 and 138B and did not consider any alternate admissible evidence supporting the redetermination. Final disposition (limited to conclusions flowing from issues) Because the Commissioner (Appeals) and the adjudicating authority relied solely on a statement recorded under section 108 without complying with section 138B, the appellate order could not be sustained; the Court set aside the impugned order and allowed the appeal with consequential reliefs.