Recorded Statement u/s 108 of Customs Act Not Admissible if Witnesses Not Cross-Examined before AA: CESTAT [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that statements recorded under Section 108 of the Customs Act are not admissible as evidence if witnesses are not examined and cross-examined before the adjudicating authority.

Shanti Swaroop Sharma and Sangeeta Tuteja, the appellants, are directors of New Era Trading Pvt. Ltd., an exporter of readymade garments. The department alleged that the appellants, in collusion with a freight forwarder, diverted goods to Dubai while falsely declaring exports to Focus Market Scheme (FMS) countries to claim undue export benefits.

The department issued a show cause notice proposing penalties under Sections 114(iii) and 114AA of the Customs Act, which the Principal Commissioner confirmed by imposing penalties, arguing that the appellants knowingly provided false export information and arranged fake documents to claim FMS benefits.

Aggrieved by the order, the appellants approached the CESTAT. The appellants' counsel argued that the penalties were based solely on statements recorded under Section 108 of the Customs Act without following the mandatory procedure under Section 138B, which requires examination and cross-examination before the adjudicating authority for such statements to be admitted as evidence.

The revenue counsel argued that the appellants had knowingly misdeclared the destination of goods and submitted false documents to customs to fraudulently avail benefits, justifying the imposition of penalties.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the statements recorded under Section 108 could not be relied upon without complying with the procedure under Section 138B, which mandates that such statements are only admissible when the witnesses are examined and cross-examined before the adjudicating authority, which was not done in this case. The tribunal also observed that as the confiscation of goods had been set aside, the penalty under Section 114(iii) was not sustainable.

The tribunal explained that reliance on statements recorded during investigations without following the procedure under Section 138B defeats the safeguard intended to prevent misuse of such statements. The tribunal held that the penalties imposed under Sections 114(iii) and 114AA could not be sustained in the absence of admissible evidence. The appellants' appeals were allowed, and the penalties were set aside.

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