2026 (2) TMI 746 - AT - Customs

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 ... Abetment - Penalty u/s 112(a)(i) - Admissibility of statements recorded u/s 108 - Section 138B(1)(b) - requirement of examination before the adjudicating authority and formation of opinion for admission in evidence - Irrelevance of statements not admitted in accordance with statutory procedure - Whether the appellant abetted the doing or omission of an act resulting in imposition of penalty u/s 112(a)(i) of the Customs Act - HELD THAT:- In the instant case, there is no allegation against the appellant that he had knowledge of mis-declaration. Penalty under section 112(a)(i) could not have been imposed upon the appellant under the Customs Act. Section 108 of the Customs Act deals with power to summon persons to give evidence and produce documents. It provides that any Gazetted Officer of customs shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under the Customs Act. A Division Bench of this Tribunal in Surya Wires [2025 (4) TMI 441 - CESTAT NEW DELHI] after examining the aforesaid decisions of the High Court 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, the impugned order dated 31.03.2013 passed by the Commissioner insofar as it imposes penalty upon the appellant under section 112(a)(i) of the Customs Act cannot be sustained and is set aside and the appeal is allowed. 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.