2026 (2) TMI 615 - AT - Customs

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 ... Relevancy of statements recorded during inquiry and admissibility u/s 138B/9D - Mandatory procedure under clause (b) for admitting investigation statements in adjudication proceedings - Abetment and mens rea for imposition of penalty u/s 112(a) - Prohibition on reliance upon statements recorded u/s 108 without examination and judicial opinion - Whether the appellant abetted the doing or omission of an act resulting in imposition of penalty under section 112(a)(i) of the Customs Act - HELD THAT:- A Division Bench of this Tribunal in Surya Wires [2025 (4) TMI 441 - CESTAT NEW DELHI], held that the statements made under section 108 of the Customs Act during the course of an inquiry under the Customs Act shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. Both section 138B(1)(b) of the Customs Act and section 9D(1)(b) of the Central Excise Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 138B(1)(b) of the Customs Act and section 9D of the Central Excise Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 108 of the Customs Act or under section 14D of the Central Excise Act. The Courts have also explained the rationale behind the precautions contained in the two sections. It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence. As seen from the show cause notice and the order impugned, penalty upon the appellants has been imposed only on the basis of the statement made by the appellants under section 108 of the Customs Act. A statement made under section 108 of the Customs Act cannot be considered as relevant as the procedure contemplated under section 138B of the Customs Act was not followed. Thus, for all the reasons stated above, the impugned order dated 31.03.2013 passed by the Commissioner insofar as it imposes penalty upon the appellant and Vikas Chaudhary under section 112(a)(ii) of the Customs Act cannot be sustained and is set aside and both the appeals are allowed. 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.