Customs s.108 statement evidence and cross-examination rights u/s138B/s.122A, leading to dismissal of revenue appeals.

Statements recorded under s.108 of the Customs Act are admissible only on compliance with s.138B(1)(b), including examining the maker as a witness; absent such examination, the statements cannot be relied on to initiate or sustain adjudication or penalty proceedings. Read with s.122A, once the maker is examined, the noticee is entitled to cross-examine the maker of any statement sought to be used in evidence; hence refusal to permit cross-examination vitiated reliance on the statements, and the revenue's case failed. Further, absence of an s.108 statement does not bar the noticee from challenging the proceedings, as no statutory adverse inference applies; this issue was decided against the revenue, and the appeals were dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether statements recorded under Section 108 of the Customs Act, 1962 could be relied on to sustain penalties when the requirements of Section 138B (as to admission and evidentiary use of such statements in adjudication) were not complied with.

2. Whether the absence of a statement recorded from the noticees under Section 108 disentitled them from contesting adjudication proceedings, or warranted an adverse consequence, in light of the statutory hearing safeguards.

3. Whether, given the Court's conclusions on admissibility and reliance on Section 108 statements, any further determination was required on the questions raised regarding the Tribunal's appreciation of such statements, and on imposition of penalty under Section 112(b) without actual seizure.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Reliance on Section 108 statements without compliance with Section 138B

Legal framework: The Court examined Section 108 (power to summon and record statements) together with Section 138B, holding that statements recorded under Section 108 must be tested for relevancy/admissibility through the statutory mechanism in Section 138B, and that the rigour of Section 138B(1) applies to adjudication proceedings as well by virtue of Section 138B(2).

Interpretation and reasoning: The Court held that where the revenue does not establish that the makers of the statements were examined as witnesses, the condition in Section 138B(1)(b) is not met. The Court found the revenue had no case that the statement-makers were examined as witnesses in the proceedings; therefore, the statements could not be admitted in evidence as contemplated by Section 138B. The Court treated Section 138B as a procedural safeguard controlling when Section 108 statements can be acted upon in adjudication. It further reasoned that, read with the statutory hearing guarantee, once a statement-maker is examined, the noticee is entitled to cross-examine, and the Tribunal's view that requests for cross-examination ought to have been allowed gained significance.

Conclusions: The Court conclusively held that the revenue was not entitled to rely on the Section 108 statements because Section 138B compliance was not shown; consequently, proceedings based on such statements could not be sustained.

Issue 2: Effect of non-recording of a noticee's statement under Section 108 on the right to contest proceedings

Legal framework: The Court relied on Sections 122A and 124, which mandate opportunity of representation and a reasonable opportunity of being heard before penalty/confiscation orders, embedding audi alteram partem within adjudication procedure.

Interpretation and reasoning: The Court rejected the contention that failure of the noticees to have their statements recorded under Section 108 renders them "evaders" or precludes objections. It reasoned that the Act expressly provides hearing and representation rights, and does not prescribe any adverse inference or forfeiture of defence merely because a statement under Section 108 was not recorded from the noticee.

Conclusions: The Court answered this issue against the revenue, holding that non-recording of a Section 108 statement does not disentitle a noticee from contesting proceedings and no adverse consequence can be imported absent statutory provision.

Issue 3: Whether further answers were required on (i) Tribunal's appreciation of Section 108 statements and (ii) penalty under Section 112(b) without seizure

Interpretation and reasoning: Having held that the Section 108 statements could not be relied upon due to non-compliance with Section 138B, the Court found that the question regarding the Tribunal's appreciation of evidentiary value of such statements did not survive for decision. For the same reason, and because the proceedings against the noticees were taken solely on the basis of those statements, the Court held that the question whether Section 112(b) penalty can be imposed without actual seizure did not require an answer in the present case.

Conclusions: The Court declined to adjudicate these questions on merits, holding they did not arise / did not require answers after the finding that the foundational statements were inadmissible for want of Section 138B compliance; consequently, no interference with the Tribunal's setting aside of penalties was warranted.

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