Penalties under ss.112(a), 114(iii) require cross-examination safeguards and s.138-B compliance; flawed order remanded for fresh adjudication

HC examined penalties imposed under ss.112(a) and 114(iii) of the Customs Act in light of s.138-B. It held that where witnesses are available, their statements are admissible only if the assessee is afforded an opportunity of cross-examination; if witnesses do not present themselves despite opportunity, their prior statements may be considered only with corroborative material and recorded reasons under s.138-B(a). Finding that the adjudicating authority had not properly applied these principles while relying on witness statements, HC quashed the order dated 28.05.2014 and remanded the matter for fresh adjudication by the competent authority.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the adjudicating authority, in the remand proceedings, acted in defiance of the directions of the Tribunal by relying on statements of witnesses who were not cross-examined and by ignoring the depositions of witnesses who were cross-examined.

1.2 How Section 138-B of the Customs Act, 1962 governs the admissibility and relevancy of statements of witnesses in adjudication proceedings, particularly where some witnesses remain unavailable for cross-examination despite opportunities.

1.3 Whether the impugned adjudication order, based on selective reliance on witness statements and without the requisite findings and safeguards under Section 138-B, could be sustained in law.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with the Tribunal's remand directions regarding cross-examination

Interpretation and reasoning

2.1 The Tribunal had set aside the earlier order on the ground that six witness statements had been relied upon without granting cross-examination under Section 138-B, and remanded the matter "for fresh adjudication after granting the appellant due opportunity for cross-examination", keeping all issues open.

2.2 On remand, three witnesses (Prahladbhai Indarmal Jhaver, Suresh Gangdas Patel and Sanjay Notandas Gandhi) appeared, were cross-examined and deposed in favour of the petitioners. Three other witnesses (Ankit Changani, Anand Patel and Dineshbhai Changani) did not appear despite four opportunities.

2.3 The adjudicating authority, in the impugned order, relied on the statements of the non-appearing three witnesses (recorded earlier without cross-examination) and ignored the evidence of the three witnesses who were actually examined and cross-examined in the remand proceedings.

2.4 The Tribunal's directions were to provide the petitioners an opportunity for cross-examination. Since three witnesses did not avail of the opportunity, the Court held that the adjudicating authority was not per se in breach of the remand directions; the question was how their statements could be treated under Section 138-B in such circumstances.

Conclusions

2.5 The Tribunal's remand was complied with to the extent that opportunities for cross-examination were extended to all six witnesses; non-appearance of three witnesses did not by itself constitute violation. However, the manner of using their earlier statements had to conform strictly to Section 138-B and principles of natural justice, which the adjudicating authority failed to observe.

Issue 2: Scope and application of Section 138-B of the Customs Act, 1962

Legal framework as discussed

2.6 The Court reproduced Section 138-B, which deals with relevancy of statements made before a gazetted customs officer, and noted that sub-section (2) extends its application to proceedings other than before a court.

2.7 Clause (b) of sub-section (1) covers situations where the person who made the statement is examined as a witness and the court (or authority) admits the statement in the interests of justice.

2.8 Clause (a) of sub-section (1) covers situations where the person is dead, cannot be found, is incapable of giving evidence, is kept out of the way by the adverse party, or whose presence cannot be obtained without unreasonable delay or expense.

Interpretation and reasoning

2.9 The Court held that clause (b) necessarily envisages that the witness is available during the inquiry or proceedings and offers herself/himself for cross-examination; only then can the statement be admitted in evidence in the interests of justice. Without cross-examination, such statements are inadmissible, as denial of cross-examination violates principles of natural justice and fair play.

2.10 Clause (a) was construed as analogous to Section 32 of the Indian Evidence Act, 1872 (now Section 26 of the Bharatiya Sakshya Adhiniyam, 2023), dealing with statements of persons not available to testify. However, the Court underscored that such unavailability must be affirmatively established.

2.11 The Court held that under clause (a), the authority may treat the statement as relevant only when it records a clear finding that the circumstances prescribed in clause (a) are satisfied and that it is impossible, despite reasonable efforts, to secure the presence of the witness.

2.12 Reasonable attempts must be made within a reasonable time to secure the presence of the witness, and the process should not be unduly delayed. During this process, an opportunity should also be provided to the assessee to secure the presence of the witness at the assessee's own expense.

2.13 Even when a witness is unavailable and clause (a) is invoked, the assessee must be confronted with the statement and given full opportunity to respond to and rebut it. The bare statement cannot be relied upon blindly; corroborative material must be present, and reasons based on the material must be recorded for treating the statement as reliable and relevant.

2.14 The Court concluded that, whether under clause (a) or clause (b), the evidence must satisfy the "test of admissibility in the interest of justice", which includes observance of natural justice, consideration of corroboration, and reasoned findings.

Conclusions

2.15 Statements of witnesses available for examination can be relied upon only after affording cross-examination under clause (b).

2.16 Statements of witnesses not produced for cross-examination may be treated as relevant under clause (a) only if the conditions of unavailability are specifically established, a clear finding is recorded, attempts to secure presence (including with the assessee's assistance) have failed within a reasonable time, and the assessee is duly confronted with such statements and allowed to rebut them. Corroboration and reasoned evaluation are mandatory.

Issue 3: Validity of the impugned order in light of Section 138-B and the evidentiary record

Interpretation and reasoning

2.17 The adjudicating authority relied on statements of three witnesses who did not appear on remand and were never cross-examined, and simultaneously ignored the testimonies of three witnesses who did appear and deposed in favour of the petitioners after cross-examination.

2.18 The respondents did not dispute that the impugned order selectively relied on non-cross-examined statements and disregarded the cross-examined evidence favourable to the petitioners.

2.19 The Court held that, in the remand proceedings, the adjudicating authority was required to consider: (i) the evidence of the three witnesses who were examined and cross-examined; and (ii) the statements of the three witnesses who did not appear, by applying the structured approach required under Section 138-B, particularly clause (a), as elaborated by the Court.

2.20 The adjudicating authority failed to undertake the required exercise: it did not properly weigh statements of all six witnesses with corroborative material and the assessee's defence, nor did it record the necessary findings on unavailability, attempts to secure presence, or provide a proper opportunity for the petitioners to meet the statements of the non-appearing witnesses in the manner mandated.

Conclusions

2.21 The impugned order did not conform to the requirements of Section 138-B and principles of natural justice, as it was based on selective and improper reliance on untested statements and exclusion of cross-examined evidence favourable to the petitioners.

2.22 The writ petition was allowed; the impugned order was quashed and set aside, and the matter remanded to the adjudicating authority for fresh adjudication in accordance with the Court's interpretation of Section 138-B, to be completed within a stipulated time, with all rights and contentions kept open and no opinion expressed on merits.

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