Section 108 Customs Act | Statements Require Section 138B Admissibility Procedure Before Reliance : CESTAT

The Customs, Excise & Service Tax Appellate Tribunal has delivered a pivotal ruling affirming that statements recorded under Section 108 of the Customs Act cannot form the basis for rejecting transaction value or imposing penalties unless strictly compliant with the mandatory admissibility procedure under Section 138B. This decision reinforces procedural safeguards against reliance on investigatory statements in adjudication proceedings.

Background & Facts

The Dispute

The dispute arose from the Commissioner of Central Excise (Adjudication) rejecting the declared transaction value of imported PU leather fabric by M/s Baba Leather Impex Pvt. Ltd. and four other importers, alleging deliberate under-declaration to evade customs duty. The Commissioner re-determined value under Rules 5 and 6 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, and imposed differential duty, interest, and penalties under Sections 112 and 114A of the Customs Act, 1962. The appeals were filed by the importers and Raj Kumar Anand, Managing Director of Baba Leather, challenging the order dated 05.09.2007.

Key Facts

• The Directorate of Revenue Intelligence (DRI) conducted searches on 27.05.2005 at multiple premises including office and residential addresses of Raj Kumar Anand and godowns of M/s Baba Leather Impex Pvt. Ltd.
• On 27.05.2005, a laptop computer was seized from the office premises at 5328/67, Hardhian Singh Road, Karol Bagh, New Delhi, as per the panchnama.
• Cash amounting to Rs. 83,00,000 was recovered during the search.
• Raj Kumar Anand was taken into custody by DRI from 27.05.2005 to 29.05.2005 and statements were recorded under Section 108 of the Customs Act on 27.05.2005, 28.05.2005, and 29.05.2005.
• He was formally arrested on 29.05.2005 and produced before the Duty Magistrate, Patiala House Court.
• On 30.05.2005, Raj Kumar Anand submitted a handwritten letter to the Court through the Jail Superintendent retracting his statements, alleging physical beating, mental torture, and coercion to sign documents and deposit drafts totaling Rs. 36,25,969/-.
• The DRI retrieved documents from the laptop on an unspecified date after seizure, without sealing the device or ensuring Raj Kumar Anand’s presence.
• Commercial invoices, emails, and hawala transaction records were recovered from the laptop.
• The appellants submitted RTI-obtained data from multiple ports (JNPT, Patparganj, Kolkata, Cochin, New Delhi Air Cargo) showing that 404 Bills of Entry had been cleared after physical examination and duty discharge.
• The show cause notice incorrectly stated the laptop was seized from the residential premises, while the panchnama recorded the office premises.

Procedural History

• 27.05.2005: DRI searches conducted; laptop seized from office premises; Raj Kumar Anand taken into custody.
• 27.05.2005 to 29.05.2005: Statements recorded under Section 108 of the Customs Act.
• 29.05.2005: Raj Kumar Anand arrested and produced before Magistrate.
• 30.05.2005: Retraction letter submitted to Court via Jail Superintendent.
• 29.11.2005: Show cause notice issued alleging under-declaration of value and thickness of PU leather.
• 06.08.2007: Written reply filed by appellants, including RTI responses and retraction letter.
• 18.07.2007: Personal hearing held before Commissioner.
• 05.09.2007: Commissioner’s order passed rejecting transaction value, re-determining value under Rules 5 and 6, and imposing penalties.
• 04.02.2008: Customs Appeal No. 49 of 2008 filed by M/s Baba Leather Impex Pvt. Ltd.
• 04.02.2008: Customs Appeals Nos. 50 - 54 of 2008 filed by other importers and Raj Kumar Anand.
• 27.04.2026: Hearing before CESTAT.
• 12.05.2026: Final order pronounced.

The Parties' Positions

Appellants (Importers and Raj Kumar Anand):

• Contended that statements under Section 108 were obtained under duress and coercion.
• Argued that laptop documents were retrieved without their presence and without sealing the device.
• Asserted that Section 138B procedure was not followed for admissibility of statements.
• Submitted that RTI data from ports established that goods were examined and cleared as declared.
• Challenged the rejection of contemporaneous import data on speculative grounds.
• Denied any mis-declaration of thickness or payment of differential value via hawala.

Respondent (Department):

• Relied on statements of Raj Kumar Anand as voluntary and corroborated by emails and invoices.
• Argued that the laptop was owned by Raj Kumar Anand and documents were retrieved in his presence.
• Claimed that the discrepancy in seizure location (residential vs. office) was a clerical error.
• Contended that RTI data was selectively obtained and unreliable.
• Maintained that Section 138B was not mandatory for adjudication proceedings.

Relief Sought

The appellants sought:

• Quashing of the Commissioner’s order dated 05.09.2007.
• Setting aside of the re-determined value and differential duty demand.
• Cancellation of penalties imposed under Sections 112(a), 112(b), and 114A.
• Restoration of the declared transaction value.
• Costs of litigation.

The Legal Issue

The central question was whether statements recorded under Section 108 of the Customs Act can be relied upon to reject transaction value and impose penalties in adjudication proceedings without compliance with the mandatory admissibility procedure under Section 138B, and whether documents retrieved from a laptop without the owner’s presence and without sealing constitute admissible evidence.

Arguments Presented

For the Appellant

The appellants contended that Section 138B of the Customs Act mandates a two-step procedure for admissibility of statements recorded under Section 108: (i) the person must be examined as a witness before the adjudicating authority, and (ii) the authority must record a reasoned opinion that the statement should be admitted in the interests of justice. They cited M/s Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur, Ambika International v. Union of India, Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur, and Additional Director General v. Its My Name Pvt. Ltd. to establish that this procedure is mandatory and non-negotiable. They argued that since Raj Kumar Anand was never examined before the Commissioner and no opinion was recorded, the statements were inadmissible. Further, they contended that the laptop documents were retrieved without his presence, the device was not sealed, and no certificate under Section 138C was produced, rendering the digital evidence unreliable. The RTI data from ports, showing clearance after physical examination, was wrongly rejected on speculative grounds.

For the Respondent

The Department argued that the statements were voluntary and corroborated by emails and invoices recovered from the laptop. It contended that the discrepancy in the seizure location was a minor clerical error that did not vitiate the proceedings. It asserted that the Commissioner’s inference that Raj Kumar Anand was given an opportunity to be present during document retrieval was valid since he did not contradict the DRI officer’s statement during the personal hearing. The Department maintained that Section 138B was directory, not mandatory, and that the Tribunal had previously accepted such statements in similar cases. It further argued that the RTI data was cherry-picked and could not be accepted as representative of all imports.

The Court's Analysis

The Tribunal undertook a rigorous analysis of Section 138B and its interaction with Section 108 of the Customs Act. It emphasized that Section 138B(1)(b) is not a mere procedural formality but a substantive safeguard against coerced or unreliable investigatory statements. The Court observed:

"A statement made and signed by a person before any Gazetted Officer of customs during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, -- (b) when the person who made the statement is examined as a witness in the case before the court and the court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice."

The Tribunal held that the phrase "shall be relevant" in Section 138B(1)(b) is mandatory, not directory. It noted that multiple High Courts and the Tribunal itself have consistently held that failure to examine the witness and record a reasoned opinion renders the statement inadmissible. The Commissioner’s reliance on the statements of Raj Kumar Anand without compliance with Section 138B was therefore legally unsustainable.

Regarding the laptop evidence, the Tribunal found that the absence of sealing and the lack of proof that Raj Kumar Anand was present during document retrieval rendered the evidence suspect. The Commissioner’s inference that the appellant did not contradict the DRI officer’s claim during the hearing was insufficient to establish actual notice or opportunity. The Tribunal further noted that Section 138C requires a certificate for retrieval of electronic data, which was not produced.

The rejection of RTI data was held to be arbitrary. The Commissioner’s speculation that the appellant may have requested only favorable data was not a valid ground to discard all such evidence. The Tribunal held that if even one contemporaneous import of identical goods with a similar declared value was verified by the port authorities, it should have been accepted under Rule 10 of the Valuation Rules.

The Tribunal concluded that without admissible evidence of under-declaration or mis-declaration of thickness, the imposition of penalties under Sections 112 and 114A was unsustainable.

The Verdict

The appellants succeeded. The Tribunal set aside the Commissioner’s order dated 05.09.2007 in its entirety. The re-determination of value under Rules 5 and 6 of the 1988 Valuation Rules was quashed. The differential duty demand, interest, and penalties imposed under Sections 112(a), 112(b), and 114A were cancelled. The declared transaction value was restored. No monetary relief was awarded as the appeal was for quashing, but the Tribunal directed that no further proceedings be initiated on the same facts without compliance with Section 138B and Section 138C.

What This Means For Similar Cases

Statements Under Section 108 Are Inadmissible Without Section 138B Compliance

• Practitioners must now insist on a written record of witness examination and a reasoned opinion by the adjudicating authority before any Section 108 statement is relied upon.
• Any order based on unexamined investigatory statements is liable to be set aside.
• The burden shifts to the Department to prove compliance with Section 138B(1)(b); failure to do so results in automatic exclusion of the statement.

Digital Evidence Requires Strict Chain of Custody

• Electronic devices seized during raids must be sealed immediately and documented in the panchnama.
• Retrieval of digital data must occur in the presence of the accused or with prior notice and opportunity to be present.
• A certificate under Section 138C must be produced; absence renders digital evidence inadmissible.
• Courts will not accept speculative inferences about presence or consent.

RTI Data Cannot Be Dismissed on Speculation

• Information obtained under RTI Act must be evaluated on its merits.

• The Department cannot reject such data merely by alleging selective requests without producing contrary evidence.

• If RTI data shows clearance after physical examination, it must be considered under Rule 10 for transaction value validation.

• The Tribunal’s ruling reinforces that procedural compliance is not optional in customs adjudication. Failure to follow statutory safeguards invalidates even otherwise strong factual allegations.