Customs penalty and admissibility of departmental statements - penalties set aside where no knowledge and mandatory witness procedure not followed.

Penalty under Section 112(a) for abetment requires proof of intentional aiding or knowledge; absent such knowledge, penalty cannot be sustained, favouring the assessee. Statements recorded under Section 108 are inadmissible for adjudication unless the maker is examined as a witness before the adjudicating authority and the authority records an opinion admitting the statement in the interests of justice per the mandatory procedure; sole reliance on such statements is impermissible, again favouring the assessee.

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Issues: (i) Whether penalty under Section 112(a) of the Customs Act, 1962 could be imposed on the appellant for abetting imports in the absence of knowledge of mis-declaration; (ii) Whether the adjudicating authority could place sole reliance on statements recorded under Section 108 of the Customs Act, 1962 without following the procedure mandated by Section 138B(1)(b) of the Customs Act, 1962 (and similarly Section 9D(1)(b) of the Central Excise Act, 1944).

Issue (i): Whether penalty under Section 112(a) of the Customs Act, 1962 could be imposed on the appellant for abetting in absence of knowledge of mis-declaration.

Analysis: Section 112(a) contemplates liability for abetment which, as interpreted by higher courts, requires intentional aiding or knowledge beyond mere facilitation. Precedents establish that mere facilitation without knowledge does not constitute abetment attracting penalty under Section 112(a).

Conclusion: Penalty under Section 112(a) could not be sustained against the appellant where there is no allegation or proof of knowledge of mis-declaration; decision on this issue is in favour of the assessee.

Issue (ii): Whether statements recorded under Section 108 of the Customs Act, 1962 could be treated as relevant evidence without complying with Section 138B(1)(b) of the Customs Act, 1962 (and Section 9D(1)(b) Central Excise Act, 1944).

Analysis: Sections 138B(1)(b) and 9D(1)(b) impose a two-step mandatory procedure where clause (a) is inapplicable: (1) the person who made the statement must be examined as a witness before the adjudicating authority; and (2) the adjudicating authority must record an opinion that, having regard to the circumstances, the statement should be admitted in evidence in the interests of justice. Authorities consistently hold this procedure to be mandatory to guard against statements recorded under coercion and to secure the affected party's right to test the statement by cross-examination. Where this procedure is not followed, statements recorded under Section 108 are not relevant or admissible for adjudication.

Conclusion: Reliance solely on statements recorded under Section 108, absent compliance with Section 138B(1)(b) of the Customs Act, 1962 (and Section 9D(1)(b) of the Central Excise Act, 1944), is impermissible; the adjudicatory reliance on such statements is rejected and this conclusion is in favour of the assessee.

Final Conclusion: The penalties imposed under Section 112(a) of the Customs Act, 1962 on the appellant and its director are set aside because (a) there is no proved knowledge required for abetment under Section 112(a), and (b) the impugned order improperly relied solely on statements recorded under Section 108 without complying with the mandatory procedure in Section 138B(1)(b) (and Section 9D(1)(b) of the Central Excise Act, 1944); accordingly the appeals are allowed.

Ratio Decidendi: Where statements recorded during departmental inquiry are relied upon in adjudication, the person who made the statement must be examined as a witness before the adjudicating authority and the authority must record an opinion admitting the statement in evidence in the interests of justice; absent this mandatory process such statements are not relevant or admissible.

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