Admissibility of investigation statements requires examination and cross-examination safeguards; penalties founded solely on untested statements were set aside.

Statements recorded under Section 108 acquire evidentiary value in adjudication only when the statutory procedure under Section 138B is followed: the maker must be examined before the adjudicating authority, admission must be justified in the interests of justice, and the affected person must have an opportunity to cross-examine. As these mandatory safeguards were not observed, the statements of the appellant and exporters had no evidentiary relevance. Penalties under Sections 114(iii) and 114AA founded solely on those inadmissible statements could not be sustained and were set aside.

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Issues: Whether penalties based solely on statements recorded during investigation could be sustained without compliance with the statutory procedure for admitting those statements in evidence.

Analysis: Statements recorded under Section 108 can prove their contents in adjudication only after the maker is examined before the adjudicating authority, the authority determines that admission is warranted in the interests of justice, and the affected person is afforded an opportunity to cross-examine the witness. The prescribed procedure under Section 138B is mandatory. As that procedure was not followed, the statements of the appellant and exporters had no evidentiary relevance. The contrary authority relied upon by the department was inapplicable because it had not considered the binding Supreme Court position.

Conclusion: The penalties under Sections 114(iii) and 114AA, being founded on inadmissible statements, could not be sustained and were set aside in favour of the assessee.

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