2026 (2) TMI 404 - AT - Customs

Admissibility of customs inquiry statements and burden of proof in gold seizure: penalties quashed after procedural and evidentiary failings

Statements recorded before gazetted customs officers are admissible only if the maker is examined as a witness and the adjudicating authority, after ... Relevancy of statements recorded before gazetted customs officers - Mandatory procedure u/s 138B for admissibility of statements recorded during inquiry - Burden of proof where goods are seized and Section 123 - Admissibility of documents produced after seizure - Liability for penalty u/s 112(b)(i) and 114AA - HELD THAT:- A bare perusal of sub-section (1) of section 138B makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of sub-section (2) of section 138B of the Customs Act, the provisions of sub-section (1) of the Customs Act shall apply to any proceedings under the Customs Act as they apply in relation to proceedings before a Court. 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. Section 123 of the Customs Act, on which reliance has been placed by the Commissioner (Appeals), provides that where any goods to which the section applies are seized under the Customs Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be in a case where such seizure is made from possession of any person be on the person from whose possession the goods were seized and if any person, other than the person from whose possession the goods were seized, claims to be the owner, also on such other person. In Om Prakash Shah, Director of M/s. Quilon Trade Commerce Pvt. Ltd. vs. Commissioner of Customs (Preventive), Kolkata [2025 (5) TMI 1623 - CESTAT KOLKATA] the Tribunal held that as it was a case of town seizure and there was no foreign marking on the gold and the purity was less than 99.9%, the burden under section 123 of the Customs Act would not be on the appellant but on the Revenue to show that they had a reasonable belief why the gold was of foreign origin. The Commissioner (Appeals) should have appreciated that the provisions of section 123 of the Customs Act could not have been applied in the present case considering the fact that the gold bars did not contain foreign marking and did not have the requisite purity of gold. In this view of the matter and more particularly when the gold bars were neither seized from the possession of the appellant nor the appellant claimed to be the owner of the gold bars, penalties under section 112(b)(i) of the Customs Act or section 114AA of the Customs Act could not have imposed upon the appellant. The impugned order dated 11.10.2023 passed by the Commissioner (Appeals) in so far as it imposes penalties upon the appellant, therefore, deserves to be set aside and is set aside. The appeal is, accordingly, allowed. Issues: Whether penalties under Section 112(b)(i) and Section 114AA of the Customs Act, 1962 could be validly imposed upon the appellant in view of (i) reliance on statements recorded under Section 108 without following the procedure mandated by Section 138B and (ii) application of Section 123 given the facts of seizure, absence of foreign marking and purity of the gold bars.Analysis: The statutory scheme makes statements recorded under Section 108 relevant in adjudication only if the procedure in Section 138B(1)(b) is complied with: the maker of the statement must be examined as a witness before the adjudicating authority and the adjudicating authority must record an opinion that, in the interests of justice, the statement should be admitted. Where those steps are not taken the statements are not admissible evidence. Section 123 places the burden of proving that seized goods are not smuggled on the person from whose possession the goods were seized or on a claimant, but its application depends on the circumstances of seizure including whether the goods bear foreign markings or have purity indicating foreign origin. Town seizures without foreign marking and where purity is below the threshold shift the onus to the revenue to show reasonable belief of foreign origin. The adjudicating authority rejected invoices produced after seizure solely because they were not produced at the time of search; however, later-produced purchase documents are permissible and non-production at seizure time does not automatically render them fabricated. Applying these principles to the case facts, statements relied upon were not admitted in accordance with Section 138B, Section 123 was inapt given absence of foreign marking and purity findings, and the appellant produced documentary evidence of purchase.Conclusion: Penalties under Section 112(b)(i) and Section 114AA of the Customs Act, 1962 could not be sustained against the appellant; the impugned penalty order is set aside and the appeal is allowed in favour of the appellant.