Customs penalty cannot rest on uncorroborated third-party records or an unproved statement under section 108

CESTAT New Delhi held that a statement recorded under section 108 of the Customs Act could not be relied on without compliance with section 138B, so it was not admissible as reliable evidence against the appellant. It further held that penalty under section 112(b) could not stand on third-party ledger entries and computer print-outs alone, because no incriminating material was recovered from the appellant, no independent corroboration supported the alleged dealings, and the required proof of conscious dealing with goods liable to confiscation, together with knowledge or belief of that liability, was absent. The penalty order was therefore unsustainable and the appeal was allowed.

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Issues: (i) Whether the statement recorded under section 108 of the Customs Act, 1962 could be relied upon without following the procedure under section 138B of the Customs Act, 1962; (ii) Whether penalty under section 112(b) of the Customs Act, 1962 could be sustained on the basis of third-party ledger entries and computer print-outs without independent corroboration and without proof of knowledge or belief that the goods were liable to confiscation.

Issue (i): Whether the statement recorded under section 108 of the Customs Act, 1962 could be relied upon without following the procedure under section 138B of the Customs Act, 1962.

Analysis: The record did not show compliance with the procedure contemplated by section 138B. In the absence of such compliance, the statement recorded under section 108 could not be treated as reliable evidence for the purpose for which it was used.

Conclusion: The statement under section 108 of the Customs Act, 1962 could not be relied upon against the appellant.

Issue (ii): Whether penalty under section 112(b) of the Customs Act, 1962 could be sustained on the basis of third-party ledger entries and computer print-outs without independent corroboration and without proof of knowledge or belief that the goods were liable to confiscation.

Analysis: The material relied upon consisted of records belonging to a third party and not to the appellant. No incriminating document was recovered from the appellant, and no independent corroboration supported the alleged dealings. For penalty under section 112(b), the relevant requirements are concerned dealing with goods liable to confiscation and knowledge or belief regarding such liability. Those requirements were not satisfied on the material on record, nor was there a basis to infer liability under section 111 of the Customs Act, 1962.

Conclusion: Penalty under section 112(b) of the Customs Act, 1962 was not sustainable against the appellant.

Final Conclusion: The penalty order against the appellant could not be sustained in law and was set aside, resulting in allowance of the appeal.

Ratio Decidendi: Penalty under section 112(b) of the Customs Act, 1962 can be imposed only where there is proof of conscious dealing with goods liable to confiscation and knowledge or belief of their confiscable character, and uncorroborated third-party records or a statement not proved in accordance with section 138B cannot by themselves sustain such penalty.

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