Statement u/s. 108 stands irrelevant as procedure contemplated u/s. 138B not followed

Kamal Sehgal Vs Commissioner of Customs (CESTAT Delhi)

CESTAT Delhi held that statement recorded u/s. 108 of the Customs Act cannot be considered as relevant since procedure contemplated u/s. 138B of the Customs Act not followed. Accordingly, penalties-imposed u/s. 112(a)(i) and 112(a)(ii) cannot be sustained.

Facts- This appeal has been filed by Kamal Sehgal to assail that portion of the order dated 31.03.2013 passed by the Commissioner ICD, TKD, New Delhi that imposes a penalty of Rs. 10 crores on the appellant u/s. 112(a)(i) of the Customs Act, 1962 and a penalty of Rs. 10 lakhs u/s. 112(a)(ii) of the Customs Act.

The first penalty of Rs. 10 crores has been imposed upon the appellant for acts of omission and commission which rendered the goods seized from the 68 containers liable for absolute confiscation as they were prohibited goods.

The second penalty u/s. 112(a)(ii) under Customs Act has been levied upon the appellant in respect of the goods seized from three containers which were liable for confiscation as the appellant in collusion with Lokesh Garg and other persons willfully and intentionally involved himself in smuggling activities and attempted to import huge quantity to mis-declare/ undeclare/ concealed goods in the names of bogus/non-existing firms with an intention to evade payment of appropriate duty.

Conclusion- In Additional Director General (Adjudication) vs. Its My Name Pvt. Ltd. decided on 01.06.2020, the Delhi High Court examined the provisions of sections 108 and 138B of the Customs Act. The department placed reliance upon the statements recorded under section 108 of the Customs Act. The Delhi High Court held that the procedure contemplated under section 138B(1)(b) has to be followed before the statements recorded under section 108 of the Customs Act can be considered as relevant.

Held that as seen from the show cause notice and the order impugned, penalty upon the appellant has been imposed only on the basis of the statement made by the appellant under section 108 of the Customs Act. A statement made under section 108 of the Customs Act cannot be considered as relevant as the procedure contemplated under section 138B of the Customs Act was not followed. Thus, since penalties have been imposed upon the appellant solely on the basis of statements made by the appellant and Lokesh Garg under section 108 of the Customs Act, the imposition of penalties upon the appellant under sections 112(a)(i) and 112(a)(ii) of the Customs Act cannot be sustained and are set aside. The appeal, insofar as it imposes penalties upon the appellant, is accordingly, allowed.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal has been filed by Kamal Sehgal¹ to assail that portion of the order dated 31.03.2013 passed by the Commissioner ICD, TKD, New Delhi² that imposes a penalty of Rs. 10 crores on the appellant under section 112(a)(i) of the Customs Act, 1962³ and a penalty of Rs. 10 lakhs under section 112(a)(ii) of the Customs Act.

2. The first penalty of Rs. 10 crores has been imposed upon the appellant for acts of omission and commission which rendered the goods seized from the 68 containers liable for absolute confiscation as they were prohibited goods.

3. The second penalty under section 112(a)(ii) under Customs Act has been levied upon the appellant in respect of the goods seized from three containers which were liable for confiscation as the appellant in collusion with Lokesh Garg and other persons willfully and intentionally involved himself in smuggling activities and attempted to import huge quantity to mis-declare/ undeclare/ concealed goods in the names of bogus/non-existing firms with an intention to evade payment of appropriate duty.

4. It would be useful to first examine the relevant portion of the show cause notice that relates to the allegations made against the appellant and such paragraph numbers 73, 74 and 75 of the show cause notice are reproduced below:

“Role of Shri Kamal Sehgal:

73. From the statement of Shri Lokesh Garg recorded under Section 108 of Customs Act, 1962 dated 09.03.2010, it appears that he knew Shri Lokesh Garg since 2006; that he used M/s Kamal Sehgal, M/s Jenita Cargo, M/s Continental Cargo and M/s Cargo Placement CHAs for the import in bogus firms and that the IEC of one M/s Krishna Enterprises has been provided to him by Shri Kamal, Sehgal, CHA which was also bogus though the same was not used till date. Further from the statement of Shri Lokesh Garg it appears that the plan to smuggle goods of Chinese origin was discussed and made out at the time of visit of Shri Kamal Sehgal, CHA and Shri Tejpal Singh employee of Sh. Kamal Sehgal and one person named Manish in the month of September or October, 2009 when the strategy was also discussed. Shri Kamal Sehgal helped out in arranging the IECs of bogus firms as he was in the business of CHA and was well aware of the formalities and procedures of examination and clearance of imported goods minutely. It also appears that since Shri Kamal Sehgal was aware about the facts of smuggling of foreign origin concealed in the rear portion of container and keeping himself away, he willfully not filed the Bill of Entry but arranged to get the Bill of Entry filed through other person i.e. Shri Krishan Kumar, G Card holder of M/s Cargo Placement Agency through Shri N.K. Singh. This fact is corroborated with statement of Shri Lokesh Garg where he stated that “that he provided copies of these two documents to one Shri N.K. Singh at ICD, TKD to hand it over to G Card holder of M/s Cargo Placement & Shipping Agencies, CHA, as per arrangement made before as Shri N.K. Singh was a G Cardholder of M/s Continental Cargo and was known to him since earlier; that he was getting clearance made through Continental Cargo at ICD, TKD; that the role of Shri N.K. Singh was to hand over the paper (import documents) of the said 5 containers to a G Cardholder of Cargo Placement CHA whom he did not know, that Shri N.K. Singh did not have any knowledge of the contents of these containers and he had only to handover the papers to the said G Cardholder and help him in case there was any difficulty in filing of the Bill of Entry; that the clearance and examination in these containers as to be done by Shri Kamal Sehgal, CHA.” Shri Lokesh Garg in his statement further stated as under:

“On being further asked about the role of M/s Kamal Sehgal, CHA, in the above mentioned act of attempted smuggling; that he state that his role was to get these containers cleared from ICD, TKD without using the name of his own firm; that he had to pay Rs. Eight Lakhs per container to M/s Kamal Sehgal, CHA, for clearance of these containers; that M/s Kamal Sehgal, CHA, had the knowledge of mis-declaration of goods in these 40 containers; that he had the knowledge regarding this however Sh. Kamal Sehgal has not invested any money for these import.”

74. Shri Kamal Sehgal in his statement dated 26.03.2010 that he has been handling the clearance work of the companies of Sh. Lokesh Garg since 2006 and visited China two times once in April 2009 and in September, 2009 along with Sh. Tejpal and Sh. Manish; that during his visit to China in September, 2009, Shri Lokesh Garg in his office in Guangzhou discussed the plan for door to door delivery in India from China; that he would get the container cleared from the ICD, TKD; that he agreed that the firms mentioned by him were bogus as they were all being controlled by Sh. Lokesh Garg to import his goods in firms which were not in his name and as such he was mis-using these IEC; that as stated above, M/s Ornam Overseas existed at the address given in IEC when his office staff went to collect authorization letter and import documents to their office; that none of the other addresses were verified by them, they knew that these firms actually belongs to Sh. Lokesh Garg who was their old client.

75. From the above it appears that Shri Kamal Sehgal meticulously planned to abet in the act of smuggling of foreign origin goods in collusion with Shri Lokesh Garg and Shri Manish Jalhotra. Since Shri Kamal Sehgal was a CHA, he was thoroughly aware of the repercussions of the violations of the provisions of Customs Act, 1962, he became the silent partner in all the activities and knowingly and intentionally engaged other persons viz. Shri Krishan Kumar, Shri N.K. Singh and so on to get the import documents signed from them to escape from the clutches of law. Thus Shri Kamal Sehgal appears to have abetted in the act of smuggling and therefore, is liable for penal action in terms of Section 112 of Customs Act, 1962.”

5. A perusal of the aforesaid show cause notice would indicate that the allegations made against the appellant are based on the statement made by Lokesh Garg under section 108 of the Customs Act and the statement of the appellant made on 26.03.2010 under section 108 of the Customs Act. It is from the aforesaid two statements that an inference has been drawn that the appellant meticulously planned to abet the act of smuggling of foreign goods in collusion of Lokesh Garg and Manish Jalhotra. A conclusion has, therefore, been drawn that the appellant, as a Customs House Agent, was aware of the repercussions of violations of the provisions of the Customs Act and he became a silent partner in all the activities and knowingly and intentionally engaged other persons to get the import documents signed from them to escape from the clutches of law. It is for this reason that penalties under sections 112(a)(i) and 112(a)(ii) were proposed to be imposed upon the appellant.

6. The Commissioner has dealt with the matter of the appellant in paragraph 158 of the order. The Commissioner has placed reliance upon the statements made under section 108 of the Customs Act made by the appellant and Lokesh Garg and the relevant portions of the order is reproduced below:

“158X. The provisions of Section 108 of the Customs Act, 1962 under which the statements were recorded in the instant case are at par with Section 14 of the Central Excise Act, 1944 and hence the ratio of the above mentioned judgement of the Hon’ble Supreme Court is equally and squarely applicable to customs cases also. Therefore, I so reason why the statements of the notice himself and other co-noticees made by them under Section 108 of the Customs Act, 1962, should not be relied upon. I also see no reason to disbelieve the statements which were recorded under Section 108 of the Customs Act, 1962.

From the statements of Shri Kamal Sehgal discussed above it is clear that Kamal Sehgal was involved with the clearance of import consignments on the names of fictitious firms floated by Shri Lokesh Garg and as such was complicit with Shri Lokesh Garg in the illegal imports made by Lokesh Garg. Shri Kamal Sehgal has also admitted that he stopped the clearances of Shri Lokesh Garg after he felt that he (Lokesh) was planning to import mis-declared goods. Further, I see from the statement of Shri Manish Malhotra that Kamal Sehgal had gone to China and had enjoyed the hospitality of Lokesh Garg. Shri Manish Malhotra had also admitted that the hotel that they were put up in was an expensive hotel and that they had gone to office of Lokesh Garg in China. It is clear to me that Kamal Sehgal and Lokesh Garg enjoy good relations. On seeing the statement of Shri Krishan Kumar it is abundantly clear that Shri Kamal Sehgal was attending to and facilitating the clearances of the fictitious firm M/s D. P. Enterprises of Lokesh Garg even after claiming to have stopped clearances of Lokesh Garg since September 2009.

ZZZ. In the show cause notice Shli Kamal Sehgal was called upon to show cause as to why penalty should not be imposed upon him under Section 112 of the Customs Act, 1962 since he meticulously planned to abet in the act of smuggling of goods of foreign origin in collusion with Shri Lokesh Garg and Shri Manish Jalhotra. It is proved beyond doubt that Shri Kamal Schgal abetted in the act of smuggling of foreign origin goods in collusion with Shri Lokesh Garg and Manish Jalhotra and thereby rendered himself liable for penal action under Section 112 of the Customs Act, 1962. Shri Kamal Sehgal is also liable for penal action under section 112 of the Customs Act, 1962 for his illegal activities in the name of the firms i.e noticees numbers 1,2, and 4 and for his acts of omission and commission which rendered the seized goods liable for confiscation.”

(emphasis supplied)

7. Shri, B.K. Singh, learned counsel for the appellant assisted by Ms. Vandana Singh submitted that the order passed against the appellant is solely based on the statements made by the appellant and Lokesh Garg under section 108 of the Customs Act and so the impugned order imposing penalties upon the appellant under sections 112(a)(i) and 112(a)(ii) of the Customs Act should be set aside. In support of this contention, learned counsel placed reliance upon the decision of the Tribunal in M/s Surya Wires vs. Principal Commissioner, CGST, Raipur⁴.

8. Shri Mukesh Kumar Shukla, learned authorized representative appearing for the department, however, supported the impugned order and submitted that the statements made under section 108 of the Customs Act clearly establish that the appellant acted as a link between the importer and the CHA facilitating out of charge and delivery of goods and, therefore, penalty has been correctly imposed upon the appellant.

9. The submissions advanced by the learned counsel for the appellant and the learned authorized representative appearing for the department have been considered.

10. The main issue that arises for consideration in this appeal is whether the Commissioner committed an error in solely placing reliance upon the statements made by the appellant and Lokesh Garg under section 108 of the Customs Act for the purpose of imposing penalties upon the appellant.

11. The statement of witnesses are recorded under section 108 of the Customs Act and section 138B of the Customs Act deals with relevancy of statements under certain circumstances.

12. The statement of witnesses are recorded under section 14 of the Central Excise Act, 1944⁵ and section 9D of the Central Excise Act deals with relevancy of these statements under certain circumstances.

Customs Act

13. Section 108 of the Customs Act deals with power to summon persons to give evidence and produce documents. It provides that any Gazetted Officer of customs shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under the Customs Act.

14. Section 138B of the Customs Act deals with relevancy of statements under certain circumstances and it is reproduced below:

“138B. Relevancy of statements under certain circumstances.

(1) 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, —

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or

(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.

(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.”

Central Excise Act

15. Section 14 of the Central Excise Act deals with power to summon persons to give evidence and produce documents in inquiries under the Central Excise Act. Any Central Excise Officer duly empowered by the Central Government in this behalf has the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document in any inquiry which such Officer is making for any of the purposes of the Central Excise Act.

16. Section 9D of the Central Excise Act deals with relevancy of statements under certain circumstances and it is reproduced below:

“9D. Relevancy of statements under certain circumstances

(1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank 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,—

(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or

(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.

(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a court, as they apply in relation to a proceeding before a court.”

17. It would be seen section 108 of the Customs Act and section 14 of the Central Excise Act enable the concerned Officers to summon any person whose attendance they consider necessary to give evidence in any inquiry which such Officers are making. The statements of the persons so summoned are then recorded under these provisions. It is these statements which are referred to either in section 138B of the Customs Act or in section 9D of the Central Excise Act. A bare perusal of sub-section (1) of these two sections makes it evident that the statement recorded before the concerned Officer during the course of any inquiry or proceeding shall be relevant for the purpose of proving the truth of the facts which it contains only when the person who made the statement is examined as a witness before the Court and such Court is of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence, in the interests of justice, except where the person who tendered the statement is dead or cannot be found. In view of the provisions of sub-section (2) of section 9D of the Central Excise Act or sub-section (2) of section 138B of the Customs Act, the provisions of sub-section (1) of these two Acts shall apply to any proceedings under the Central Excise Act or the Customs Act as they apply in relation to proceedings before a Court. What, therefore, follows is 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 an 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.

18. It would now be appropriate to examine certain decisions interpretating section 138B of the Customs Act and section 9D of the Central Excise Act.

19. In Ambika International Union of India⁶ decided on 17.06.2016, the Punjab and Haryana High Court examined the provisions of section 9D of the Central Excise Act. The show cause notices that had been issued primarily relied upon statements made under section 14 of the Central Excise Act. It was sought to be contended by the Writ Petitioners that the demand had been confirmed in flagrant violation of the mandatory provisions of section 9D of the Central Excise Act. The High Court held that if none of the circumstances contemplated by clause (a) of section 9D(1) exist, then clause (b) of section 9D(1) comes into operation and this provides for two steps to be followed. The first is that the person who made the statement has to be examined as a witness before the adjudicating authority. In the second stage, the adjudicating authority has to form an opinion, having regard to the circumstances of the case, whether the statement should be admitted in evidence in the interests of justice. The judgment further holds that in adjudication proceedings, the stage of relevance of a statement recorded before Officers would arise only after the statement is admitted in evidence by the adjudicating authority in accordance with the procedure contemplated in section 9D(1)(b) of the Central Excise Act. The judgment also highlights the reason why such an elaborative procedure has been provided in section 9D(1) of the Central Excise Act. It notes that a statement recorded during inquiry/investigation by an Officer of the department has a possibility of having been recorded under coercion or compulsion and it is in order to neutralize this possibility that the statement of the witness has to be recorded before the adjudicating authority. The relevant portions of the judgment are reproduced below:

“15. A plain reading of sub-section (1) of Section 9D of the Act makes it clear that clauses (a) and (b) of the said sub-section set out the circumstances in which a statement, made and signed by a person before the Central Excise Officer of a gazetted rank, during the course of inquiry or proceeding under the Act, shall be relevant, for the purpose of proving the truth of the facts contained therein.

16. Section 9D of the Act came in from detailed consideration and examination, by the Delhi High Court, in J.K. Cigarettes Ltd. v. CCE, 2009 (242) E.L.T. 189 (Del.). Para 12 of the said decision clearly holds that by virtue of sub-section (2) of Section 9D, the provisions of sub-section (1) thereof would extend to adjudication proceedings as well.

*****

22. If none of the circumstances contemplated by clause (a) of Section 9D(1) exists, clause (b) of Section 9D(1) comes into operation. The said clause prescribes a specific procedure to be followed before the statement can be admitted in evidence. Under this procedure, two steps are required to be followed by the adjudicating authority, under clause (b) of Section 9D(1), viz.

(i) the person who made the statement has to first be examined as a witness in the case before the adjudicating authority, and

(ii) the adjudicating authority has, thereafter, to form the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.

23. There is no justification for jettisoning this procedure, statutorily prescribed by plenary parliamentary legislation for admitting, into evidence, a statement recorded before the gazetted Central Excise Officer, which does not suffer from the handicaps contemplated by clause (a) of Section 9D(1) of the Act. The use of the word “shall” in Section 9D(1), makes it clear that, the provisions contemplated in the sub­section are mandatory. Indeed, as they pertain to conferment of admissibility to oral evidence they would, even otherwise, have to be recorded as mandatory.

24. The rationale behind the above precaution contained in clause (b) of Section 9D(1) is obvious. The statement, recorded during inquiry/investigation, by the gazetted Central Excise Officer, has every chance of having been recorded under coercion or compulsion. It is a matter of common knowledge that, on many occasions, the DRI/DGCEI resorts to compulsion in order to extract confessional statements. It is obviously in order to neutralize this possibility that, before admitting such a statement in evidence, clause (b) of Section 9D(1) mandates that the evidence of the witness has to be recorded before the adjudication authority, as, in such an atmosphere, there would be no occasion for any trepidation on the part of the witness concerned.

25. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a gazetted Central Excise Officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the gazetted Central Excise Officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice.

26. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in-chief has to precede cross-examination, and cross- examination has to precede re-examination.

27. It is only, therefore, –

(i) after the person whose statement has already been recorded before a gazetted Central Excise Officer is examined as a witness before the adjudicating authority, and

(ii) the adjudicating authority arrives at a conclusion, for reasons to be recorded in writing, that the statement deserves to be admitted in evidence,

28. that the question of offering the witness to the assessee, for cross-examination, can arise. Clearly, if this procedure, which is statutorily prescribed by plenary parliamentary legislation, is not followed, it has to be regarded, that the Revenue has given up the said witnesses, so that the reliance by the CCE, on the said statements, has to be regarded as misguided, and the said statements have to be eschewed from consideration, as they would not be relevant for proving the truth of the contents thereof.”

(emphasis supplied)

20. The Punjab and Haryana High Court in Jindal Drugs that was decided on 21.06.2016 also held that unless and until one of the circumstances contemplated by clause (a) of section 138B(1) of the Customs Act applies, the adjudicating authority is bound to strictly follow the procedure contained in clause (b) of section 138B(1) of the Customs Act, before treating a statement recorded under section 108 of the Customs Act as relevant.

21. In Hi Tech Abrasives Ltd. Commissioner of C. Ex. & Cus., Raipur⁷ decided on 04.07.2018, the Chhattisgarh High Court also examined the provisions of section 9D of the Central Excise Act. The allegation against the appellant was regarding clandestine removal of goods without payment of duty and for this purpose reliance was placed on the statement of the Director of the Company who is said to have admitted clandestine removal of goods. The contention of the appellant before the High Court was that the statement of the Director could be admitted in evidence only in accordance with the provisions of section 9D of the Central Excise Act. After examining the provisions of sub-sections (1) and (2) of section 9D of the Central Excise Act, and after placing reliance on the judgment of the Punjab and Haryana High Court in Ambika International, the Chhattisgarh High Court held:

“9.3 A conjoint reading of the provisions therefore reveals that a statement made and signed by a person before the Investigation Officer during the course of any inquiry or proceedings under the Act shall be relevant for the purposes of proving the truth of the facts which it contains in case other than those covered in clause (a), only when the person who made the statement is examined as witness in the case before the court (in the present case, Adjudicating Authority) and the court (Adjudicating Authority) forms an opinion that having regard to the circumstances of the case, the statement should be admitted in the evidence, in the interest of justice.

9.4 The legislative scheme, therefore, is to ensure that the statement of any person which has been recorded during search and seizure operations would become relevant only when such person is examined by the adjudicating authority followed by the opinion of the adjudicating authority then the statement should be admitted. The said provision in the statute book seems to have been made to serve the statutory purpose of ensuring that the assessee are not subjected to demand, penalty interest on the basis of certain admissions recorded during investigation which may have been obtained under the police power of the Investigating authorities by coercion or undue influence.

9.5 ***** The provisions contained in Section 9D, therefore, has to be construed strictly and held as mandatory and not mere directory. Therefore, unless the substantive provisions contained in Section 9D are complied with, the statement recorded during search and seizure operation by the Investigation Officers cannot be treated to be relevant piece of evidence on which a finding could be based by the adjudicating authority. A rational, logical and fair interpretation of procedure clearly spells out that before the statement is treated relevant and admissible under the law, the person is not only required to be present in the proceedings before the adjudicating authority but the adjudicating authority is obliged under the law to examine him and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice. Therefore, we would say that even mere recording of statement is not enough but it has to be fully conscious application of mind by the adjudicating authority that the statement is required to be admitted in the interest of justice. The rigor of this provision, therefore, could not be done away with by the adjudicating authority, if at all, it was inclined to take into consideration the statement recorded earlier during investigation by the Investigation officers. Indeed, without examination of the person as required under Section 9D and opinion formed as mandated under the law, the statement recorded by the Investigation Officer would not constitute the relevant and admissible evidence/material at all and has to be ignored. We have no hesitation to hold that the adjudicating officer as well as Customs, Excise and Service Tax Appellate Tribunal committed illegality in placing reliance upon the statement of Director Narayan Prasad Tekriwal which was recorded during investigation when his examination before the adjudicating authority in the proceedings instituted upon show cause notice was not recorded nor formation of an opinion that it requires to be admitted in the interest of justice. In taking this view, we find support from the decision in the case of Ambica International v. UOI rendered by the High Court of Punjab and Haryana.”

(emphasis supplied)

22. In Additional Director General (Adjudication) vs. Its My Name Pvt. Ltd.⁸ decided on 01.06.2020, the Delhi High Court examined the provisions of sections 108 and 138B of the Customs Act. The department placed reliance upon the statements recorded under section 108 of the Customs Act. The Delhi High Court held that the procedure contemplated under section 138B(1)(b) has to be followed before the statements recorded under section 108 of the Customs Act can be considered as relevant. The relevant paragraphs of the judgment of the Delhi High Court are reproduced below:

“76. We are not persuaded to change our view, on the basis of the various statements, recorded under Section 108 of the Act, on which the Learned ASG sought to rely. Statements, under Section 108 of the Act, we may note, though admissible in evidence, acquire relevance only when they are, in fact, admitted in evidence, by the adjudicating authority and, if the affected assessee so chooses, tested by cross-examination. We may, in this context, reproduce, for ready reference, Section 138B of the Act, thus : *****

A Division Bench of this Court has, speaking through A.K. Sikri, J. (as he then was) held, in J & K Cigarettes Ltd. v. Collector of Central Excise [2009 (242) E.L.T. 189 (Del.)] that, by virtue of sub-section (2), Section 138B(1) of the Act would apply, with as much force, to adjudication proceedings, as to criminal proceedings.

*****

We express our respectful concurrence with the above elucidation of the law which, in our view, directly flows from Section 138B(1) of the Act – or, for that matter, Section 9D of the Central Excise Act, 1944.

The framers of the law having, thus, subjected statements, recorded under Section 108 of the Act, to such a searching and detailed procedure, before they are treated as relevant in adjudication proceedings, we are of the firm view that such statements, which are yet to suffer such processual filtering, cannot be used, straightaway, to oppose a request for provisional release of seized goods. The reliance, in the appeal before us, on various statements recorded during the course of investigation in the present case cannot, therefore, in our view, invalidate the decision, of the Learned Tribunal, to allow provisional release of the seized 25400.06 grams of gold jewellery, covered by Bill of Entry No. 107190, dated 20th April, 2019.”

(emphasis supplied)

23. In Drolia Electrosteel decided on 30.10.2023, a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs, observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act. The relevant portions of the decision of the Tribunal are reproduced below:

“14. Evidently, the statements will be relevant under certain circumstances and these are given in clauses (a) and (b) of subsection (1). There is no assertion by either side that the circumstances indicated in (a) existed in the case. It leaves us with (b) which requires the court or the adjudicating authority to first examine the person who made the statement and form an opinion that having regard to the circumstances of the case, the statement should be admitted in evidence. Of course, the party adversely affected by the statement will have to be given an opportunity to cross examine the person who made the statement but that comes only after the statement is, in the first place, after examination by the adjudicating authority, admitted in evidence. This has not been done in respect of any of the 35 statements. Therefore, all the statements are not relevant to the proceedings.

15. It has been held in a catena of judgments including Jindal Drugs Pvt. Ltd. versus Union Of India [2016 (340) E.L.T. 67 (P&H)] that section 9D is a mandatory provision and if the procedure prescribed therein is not followed, statements cannot be used as evidence in the proceedings under Central Excise Act. *****

16. Therefore, the 35 statements relied upon in the SCN are not relevant and hence also not admissible.”

(emphasis supplied)

24. A Division Bench of this Tribunal in Surya Wires after examining the aforesaid decisions of the High Court held that the statements made under section 108 of the Customs Act during the course of an inquiry under the Customs Act shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence.

25. It, therefore, transpires from the aforesaid decisions that both section 138B(1)(b) of the Customs Act and section 9D(1)(b) of the Central Excise Act contemplate that when the provisions of clause (a) of these two sections are not applicable, then the statements made under section 14 of the Central Excise Act or under section 108 of the Customs Act during the course of an inquiry under the Acts shall be relevant for the purpose of proving the truth of the facts contained in them only when such persons are examined as witnesses before the adjudicating authority and the adjudicating authority forms an opinion that the statements should be admitted in evidence. It is thereafter that an opportunity has to be provided for cross-examination of such persons. The provisions of section 138B(1)(b) of the Customs Act and section 9D of the Central Excise Act have been held to be mandatory and failure to comply with the procedure would mean that no reliance can be placed on the statements recorded either under section 108 of the Customs Act or under section 14D of the Central Excise Act. The Courts have also explained the rationale behind the precautions contained in the two sections. It has been observed that the statements recorded during inquiry/investigation by officers has every chance of being recorded under coercion or compulsion and it is in order to neutralize this possibility that statements of the witnesses have to be recorded before the adjudicating authority, after which such statements can be admitted in evidence.

26. As seen from the show cause notice and the order impugned, penalty upon the appellant has been imposed only on the basis of the statement made by the appellant under section 108 of the Customs Act. A statement made under section 108 of the Customs Act cannot be considered as relevant as the procedure contemplated under section 138B of the Customs Act was not followed.

27. In view of the aforesaid decisions and the fact that penalties have been imposed upon the appellant solely on the basis of statements made by the appellant and Lokesh Garg under section 108 of the Customs Act, the imposition of penalties upon the appellant under sections 112(a)(i) and 112(a)(ii) of the Customs Act cannot be sustained and are set aside. The appeal, insofar as it imposes penalties upon the appellant, is accordingly, allowed.

(Order pronounced on 12.02.2026)

Notes:

¹the appellant

²the Commissioner

³the Customs Act

⁴Excise Appeal No. 51148 of 2020 decided on 01.04.2025

⁵the Central Excise Act

⁶2018 (361) E.L.T. 90 (P&H)

⁷2018 (362) E.L.T. 961 (Chhattisgarh)

⁸2021 (375) E.L.T. 545 (Del.)