Section 108 statements need section 138B compliance before penalties can rest on their contents in customs adjudication.

Statements recorded under section 108 of the Customs Act, 1962 are not automatically admissible to prove their contents in adjudication. Where the exceptions in section 138B(1)(a) do not apply, the maker must be examined as a witness before the adjudicating authority, and the authority must admit the statement in evidence in the interests of justice; this procedure is mandatory. Because the penalties under sections 112(a)(i) and 112(a)(ii) were founded only on such statements without compliance with section 138B, the adverse findings could not stand and the penalties were set aside.

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Issues: Whether penalties imposed solely on the basis of statements recorded under section 108 of the Customs Act, 1962 could be sustained without following the procedure under section 138B of that Act.

Analysis: Statements recorded under section 108 of the Customs Act, 1962, like statements recorded under section 14 of the Central Excise Act, 1944, do not become relevant for proving the truth of their contents merely because they are on record. Where the exceptions in clause (a) are not attracted, section 138B(1)(b) requires the person making the statement to be examined as a witness before the adjudicating authority and the authority to form an opinion, having regard to the circumstances, that the statement should be admitted in evidence in the interests of justice. That procedure is mandatory. Without compliance, the statement cannot be treated as relevant evidence and no adverse finding or penalty can be founded on it.

Conclusion: The penalties imposed under sections 112(a)(i) and 112(a)(ii) of the Customs Act, 1962, having been founded only on statements recorded under section 108 without compliance with section 138B, were not sustainable and were set aside in favour of the assessee.

Ratio Decidendi: A statement recorded under section 108 of the Customs Act, 1962 is not admissible for proving its contents in adjudication unless the mandatory requirements of section 138B are satisfied, including examination of the maker as a witness and admission of the statement in evidence by the adjudicating authority.

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