2025 (10) TMI 1085 - AT - Customs

Statements under s.108 Customs Act inadmissible without witness examination, admissibility ruling, and cross-examination; s.114 penalty annulled

CESTAT NEW DELHI - AT held that statements recorded under s.108 Customs Act are not admissible evidence unless the maker is first examined as a witness, ... Relevancy of statements recorded u/s 108 of the Customs Act - relevant evidence u/s 138B or not - levy of penalty on Managing Director u/s 114 of the Customs Act, 1962 - fraudulent availment of duty drawback - inflating the actual value two to three times - HELD THAT:- Reference can be made to the decision 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 '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.' Thus, the statements recorded under section 108 of the Customs Act cannot be considered as relevant. As these statements were made the basis for imposition of penalty upon the appellant, the imposition of penalty cannot be sustained. The impugned order, in so far as it imposes penalty upon the appellant cannot, therefore, be sustained and is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether statements recorded under section 108 of the Customs Act during inquiry/investigation are admissible as evidence for proving truth of facts in adjudication proceedings without compliance with section 138B. 2. Whether a penalty under section 114 of the Customs Act can be sustained where the only basis for liability is statements recorded under section 108 and the procedure of section 138B has not been followed. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of statements recorded under section 108 without following section 138B Legal framework: Section 108 empowers officers to summon persons and record statements during inquiry. Section 138B(1)(b) provides that statements recorded under section 108 shall be relevant for proving their contents only when the person who made the statement is examined as a witness before the adjudicating authority and the adjudicating authority, having regard to the circumstances, forms an opinion that the statement should be admitted in evidence (subject to exceptions where the person is dead or cannot be found); further, once so admitted an opportunity for cross-examination must be afforded. Section 9D(1)(b) of the Central Excise Act supplies an analogous procedural safeguard. Precedent Treatment: The Tribunal's recent analysis of sections 108 and 138B (with reference to equivalent central excise provisions) was followed. That analysis held the procedural requirements of section 138B(1)(b) to be mandatory: statements recorded under inquiry/officer-recorded statements are not admissible for proving their truth unless the maker is examined before the adjudicating authority and the adjudicating authority determines admissibility in the interests of justice, after which cross-examination must be provided. Interpretation and reasoning: The Court/Tribunal reasoned that officer-recorded statements have a risk of being recorded under coercion or compulsion; the safeguards in section 138B neutralize this risk by requiring in-adjudication examination and an express admissibility determination. A plain reading of section 138B(1)(b) and its statutory parallelism with central excise law mandate that officer-recorded statements cannot be relied upon for truth unless the statutory procedure is followed. The decision relied on previous authorities interpreting similar provisions, concluding that the provisions are mandatory not directory. Ratio vs. Obiter: Ratio - Section 138B's procedure is mandatory, and statements under section 108 are inadmissible for proving their truth unless the maker is examined before the adjudicating authority and the adjudicating authority admits the statement in evidence with opportunity for cross-examination. Obiter - Observations on the rationale (risk of coercion) and on parallels with section 9D of the Central Excise Act, while explanatory, support the primary ratio. Conclusions: Statements recorded under section 108, not subjected to the section 138B(1)(b) procedure (examination before adjudicating authority, opinion on admissibility, and opportunity for cross-examination), are not relevant evidence for proving the facts contained therein. Issue 2 - Validity of penalty under section 114 when based solely on section 108 statements not admitted under section 138B Legal framework: Section 114 prescribes penalty for persons who do or omit acts rendering goods liable to confiscation under section 113 or who abet such acts; in cases of drawback claims the penalty may be up to five times the amount of drawback claimed. Adjudicatory findings imposing penalty must rest on admissible evidence. Precedent Treatment: The Tribunal's holding (as applied by the Court) that section 138B is mandatory directly impacts reliance on statements under section 108 for imposing penalties. Prior authorities interpreting analogous provisions were accepted to the extent that non-compliance with the protective procedure precludes reliance on officer-recorded statements. Interpretation and reasoning: The impugned penalty was imposed solely on the basis of statements recorded under section 108 (by an accountant and co-noticees). Because section 138B's procedural safeguards were not complied with, those statements could not be treated as relevant evidence to prove the appellant's acts of omission/commission. Without admissible evidence proving the alleged involvement, the statutory prerequisite for imposing penalty under section 114 was lacking. The Tribunal's reasoning that procedural non-compliance renders such statements inadmissible was applied to conclude that the penalty cannot stand. Cross-reference: See Issue 1 for the mandatory nature of section 138B and the inadmissibility consequence. Ratio vs. Obiter: Ratio - A penalty under section 114 cannot be sustained if it is founded solely on statements recorded under section 108 which were not admitted in evidence in accordance with section 138B(1)(b) (examination before adjudicating authority, adjudicatory opinion on admissibility, and opportunity for cross-examination). Obiter - Remarks concerning the relative roles of other investigative material or independent evidence that might sustain penalty if available were not necessary to the decision. Conclusions: The imposition of penalty under section 114, insofar as it is based exclusively on officer-recorded statements not admitted under section 138B, is unsustainable and must be set aside. Disposition The adjudicatory order insofar as it imposes penalty under section 114 based solely on statements recorded under section 108 without compliance with section 138B is quashed; the appeal is allowed to that extent.