The Customs Appellate Tribunal has delivered a pivotal ruling clarifying that penalty proceedings under the Customs Act cannot rest solely on statements recorded under Section 108 without strict compliance with the admissibility framework under Section 138B. This judgment reinforces procedural safeguards against reliance on potentially coerced investigative statements, setting a new benchmark for evidentiary rigor in customs adjudication.
Background & Facts
The Dispute
The dispute arose from the Commissioner of Customs imposing a penalty of Rs. 25 lakhs each on M/s Committed Logistics Pvt. Ltd. and its Director, Vikas Chaudhary, under Section 112(a)(i) of the Customs Act, 1962. The allegation was that they facilitated smuggling by issuing delivery orders for 26 containers to Shri Lokesh Garg, who operated under fictitious firms, including the non-existent M/s Glory Express Logistics Co. Ltd. of China. The goods in these containers were found to be grossly misdeclared, with a value of Rs. 49.31 crore seized.
Procedural History
- 2010: Statements from Vikas Chaudhary and Pramod were recorded under Section 108 of the Customs Act during investigation.
- 2013: Commissioner issued an Order-in-Original imposing penalties based exclusively on these statements.
- 2013: Appeals filed before the Customs Appellate Tribunal challenging the penalty on grounds of procedural illegality and lack of mens rea.
- 2026: Tribunal heard arguments and delivered final order.
Relief Sought
The appellants sought quashing of the penalty order, arguing that it was based solely on inadmissible statements under Section 108, without compliance with the mandatory admissibility conditions under Section 138B. They also contended that no evidence established their knowledge of misdeclaration, which is essential for abetment under Section 112(a)(i).
The Legal Issue
The central question was whether Section 112(a)(i) of the Customs Act permits imposition of penalty for abetment of smuggling based exclusively on statements recorded under Section 108, without following the mandatory admissibility procedure under Section 138B(1)(b).
Arguments Presented
For the Appellant
Shri Prashant Shrivastava, counsel for the appellants, argued that the penalty order was unsustainable because:
- It relied entirely on statements recorded under Section 108, which are not automatically admissible.
- The Commissioner failed to examine Vikas Chaudhary as a witness before the adjudicating authority, as required under Section 138B(1)(b).
- No evidence established mens rea or knowledge of misdeclaration, which the Supreme Court in Shri Ram v. State of U.P. and the Bombay High Court in Amritlakshmi Machine Works held is essential for abetment.
- Reliance on Surya Wires v. Principal Commissioner, CGST supported the proposition that investigative statements cannot substitute for formal evidence.
For the Respondent
Shri Mukesh Kumar Shukla, authorized representative of the department, defended the order by asserting that:
- The statements were voluntary and consistent.
- The Commissioner had sufficient grounds to infer abetment from the pattern of conduct.
- The procedural requirements of Section 138B were either satisfied or immaterial given the gravity of the offense.
- The appellants had admitted to issuing delivery orders to fictitious entities, which inherently implicated them in the smuggling chain.
The Court's Analysis
The Tribunal undertook a meticulous review of statutory provisions and binding precedents to determine the admissibility of statements under Section 108. It emphasized that Section 138B(1) of the Customs Act, which governs the relevance of statements made during inquiry, operates as a mandatory procedural filter.
"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... only 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 noted that none of the exceptions under Section 138B(1)(a) applied - neither was the witness dead, nor unavailable, nor incapacitated. Therefore, Section 138B(1)(b) was the sole applicable provision, requiring two mandatory steps: (1) examination of the witness before the adjudicating authority, and (2) a conscious, recorded opinion that the statement should be admitted in the interests of justice.
The Commissioner had done neither. The Tribunal cited Ambika International v. Union of India, Hi Tech Abrasives v. Commissioner, Additional Director General v. Its My Name Pvt. Ltd., and Drolia Electrosteel to affirm that Section 138B is mandatory, not directory. Failure to comply renders the statement irrelevant and inadmissible.
The Tribunal further held that abetment under Section 112(a)(i) requires intentional aiding with knowledge, as established in Shri Ram v. State of U.P. and Amritlakshmi Machine Works. The show cause notice itself admitted that no allegation of knowledge of misdeclaration was made against the appellants. Thus, even if the statements were admissible, they could not establish the necessary mens rea.
The Tribunal concluded that the penalty order was legally unsustainable on two independent grounds: procedural violation of Section 138B and substantive failure to prove abetment with knowledge.
The Verdict
The appellants prevailed. The Tribunal set aside the penalty order imposed under Section 112(a)(i) of the Customs Act, holding that reliance on statements under Section 108 without compliance with Section 138B(1)(b) renders them inadmissible, and that abetment cannot be established without proof of knowledge of the illegal act.
What This Means For Similar Cases
Statements Recorded Under Section 108 Are Not Self-Executing Evidence
- Practitioners must now challenge penalty orders that rely on Section 108 statements without proof of witness examination and judicial opinion under Section 138B(1)(b).
- Adjudicating authorities must record written reasons for admitting such statements - mere reliance on investigative notes is insufficient.
- Appeals should be framed to highlight procedural non-compliance as a ground for quashing, irrespective of the apparent gravity of the offense.
Knowledge Is Indispensable for Abetment Under Section 112(a)(i)
- The burden of proving mens rea lies squarely on the department; mere facilitation without knowledge does not constitute abetment.
- In cases involving freight forwarders or logistics agents, practitioners should demand specific allegations of knowledge regarding misdeclaration or concealment.
- Absence of such allegations in the show cause notice is a fatal defect that cannot be cured by subsequent inference.
Procedural Compliance Is Non-Negotiable in Customs Adjudication
- This judgment aligns customs law with constitutional principles of natural justice and fair procedure.
- Practitioners should routinely file applications under Section 138B to demand witness examination before any reliance is placed on investigative statements.
- Tribunals and courts will now treat non-compliance with Section 138B as a jurisdictional error, warranting automatic setting aside of orders.
