Admissibility of Inquiry Statements requires witness examination and adjudicator's opinion before such statements can sustain customs penalties.

Statements recorded during departmental inquiry under Section 108 cannot be treated as admissible evidence in adjudication unless the maker is examined as a witness before the adjudicating authority and the adjudicating authority records an opinion that the statement should be admitted in the interests of justice under Section 138B(1)(b); absent this mandatory two-step procedure, reliance on such statements is impermissible. Applying the mens rea requirement for abetment under Section 112(a)(i), the record contains no finding of knowledge or intentional aiding, so the penalty under Section 112(a)(i) was held unsustainable and the appeal allowed.

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Issues: (i) Whether the appellant abetted the doing or omission of an act attracting penalty under Section 112(a)(i) of the Customs Act, 1962; (ii) Whether the Commissioner erred in placing sole reliance on statements recorded under Section 108 of the Customs Act, 1962 without following the procedure in Section 138B(1)(b) of the Customs Act, 1962.

Issue (i): Whether the appellant abetted the doing or omission of an act attracting penalty under Section 112(a)(i) of the Customs Act, 1962.

Analysis: Section 112(a)(i) penalises abetment which requires knowledge/intentional aiding and active complicity; mere facilitation without knowledge is insufficient. The impugned order records no allegation of mis-declaration knowledge against the appellant and relies on statements recorded under inquiry.

Conclusion: The finding of abetment under Section 112(a)(i) cannot be sustained; conclusion in favour of the assessee.

Issue (ii): Whether the Commissioner erred in placing sole reliance on statements recorded under Section 108 of the Customs Act, 1962 without following the procedure in Section 138B(1)(b) of the Customs Act, 1962.

Analysis: Sections 108 and 138B of the Customs Act (and the analogous provisions in the Central Excise Act) require that statements recorded during inquiry acquire relevance in adjudication only after the person is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion that the statement should be admitted in evidence in the interests of justice; otherwise such statements are not admissible. The adjudicating authority must follow this mandatory two-step procedure before placing reliance on inquiry statements; absent compliance, the statements cannot be treated as relevant evidence to sustain penalty.

Conclusion: The Commissioner erred in relying solely on statements recorded under Section 108 without complying with Section 138B(1)(b); conclusion in favour of the assessee.

Final Conclusion: The impugned penalty order insofar as it imposes penalty under Section 112(a)(i) of the Customs Act, 1962 is unsustainable and the appeal is allowed.

Ratio Decidendi: Statements recorded during departmental inquiry under Section 108 of the Customs Act, 1962 are relevant in adjudication proceedings only after the person who made the statement is examined as a witness before the adjudicating authority and the adjudicating authority records an opinion that the statement should be admitted in evidence in the interests of justice as mandated by Section 138B(1)(b) of the Customs Act, 1962; absent such compliance, reliance on such statements is impermissible.

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