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CESTAT, Delhi ruled that the statements made u/s 108 of the Customs Act can’t be relied upon if Sec 138B procedure is not followed.

In a recent ruling Hon'ble  Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi  has held that statements made under Section 108 of Customs Act cannot be relied upon if procedure under Section 138B is not followed.

The bench: Justice Dilip Gupta (President) and Sh. P.V. Subba Rao (Technical Member) 

The Bench has observed that a person who makes a statement during the course of an inquiry has to be first examined as a witness before the adjudicating authority and thereafter the adjudicating authority has to form an opinion whether having regard to the circumstances of the case the statement should be admitted in evidence, in the interests of justice. Once this determination regarding admissibility of the statement of a witness is made by the adjudicating authority, the statement will be admitted as evidence and an opportunity of cross-examination of the witness is then required to be given to the person against whom such statement has been made. It is only when this procedure is followed that the statements of the persons making them would be of relevance for the purpose of proving the facts which they contain.

In this case, the appellant, Ashfaq Baig has challenged the order passed by the Commissioner of Customs, ICD, Tughlakabad, New Delhi in so far as it imposes penalty of Rs. 5 lakhs upon him under section 114 of the Customs Act, 1962. Case of the  department is that M/s. Sundram Export Pvt. Ltd. and M/s. Netcompware Pvt. Ltd. had exported CD-ROMs under Duty Entitlement Pass Book Scheme by grossly overvaluing it with an intention to wrongly avail DEPB scrips and evaded customs duty. Investigation was  initiated by the Directorate of Revenue Intelligence. Statement of various persons, including the appellant, were recorded and ultimately a show cause notice dated 04.12.2000 was issued to 26 persons including the appellant. Deptt. said that Sundram Export exported 96,800 pieces of CD-ROMs at highly inflated Freight on Board value of US 19$ per piece. Another exporter, by name of Netcompware, also exported a consignment of 40,000 pieces of CD- ROMs at overvalued price of US 19$ per piece. The 5 shipping bills covering the above exports were filed under the DEPB Scheme. It was alleged that  the overvalued export was used by the exporter to fraudulently procure DEPB scrips from the DGFT  and subsequently these DEPB scrips were sold in the open market and were thereafter used by companies to import goods without payment of duty. The appellant pleaded that the order is based on the statements made by Pankaj Soni under section 108 of the Customs Act. Such a statement cannot be relied upon in view of the provisions of section 138B of the Customs Act. The appellant is not at all connected with the day to day affair of Netcompware and the finding to the contrary has been recorded by the Commissioner only on the basis of statements made under section 108 of the Customs Act.

The tribunal noted that except for the statement made by Pankaj Soni under section 108 of the Customs Act, there is no other evidence which has been considered by the Commissioner in the impugned order for imposing penalty upon the appellant under section 114 of the Customs Act. As this statement cannot be relied upon, the imposition of penalty upon the appellant under section 114 of the Customs Act cannot be sustained and is set aside.

In the case of:  Mr. Ashfaq Baig Versus Commissioner of Customs

Case No.: Customs Appeal No. 329 Of 2006.  Order date: 06.06.2025