Statements of Absent Witnesses Cannot Override Cross‑Examined Testimony u/s 138‑B of Customs Act: Gujarat HC Quashes Penalty Order [Read Order]

The Gujarat High Court quashed penalty orders against the petitioner, holding that statements of witnesses who fail to appear for cross‑examination cannot be mechanically relied upon under Section 138‑B of the Customs Act without recording findings on their non‑availability and without confronting the assessee.

The dispute originated from a show cause notice issued in 2012 proposing penalties under Sections 112(a) and 114(iii) of the Act. The adjudicating authority passed an order in 2014 relying on statements of six witnesses, none of whom had been cross‑examined despite the petitioners’ M/s Mitesh Impex and its partners' request.

On appeal, the CESTAT set aside the order and remanded the matter with a clear direction to grant the petitioners an opportunity to cross‑examine all six witnesses before fresh adjudication.

Upon remand, three witnesses appeared, were cross‑examined, and deposed in favour of the petitioners. The remaining three witnesses failed to appear despite being granted four opportunities.

Nevertheless, the adjudicating authority relied heavily on the earlier statements of the non‑appearing witnesses while disregarding the testimony of those who had appeared and supported the petitioners’ case. This selective reliance formed the core grievance before the High Court.

The Court examined Section 138‑B in detail, noting that the provision allows statements recorded before a gazetted customs officer to be treated as relevant only under specific circumstances. Clause (b) applies when the witness appears and is cross‑examined, enabling the statement to be admitted in the interests of justice.

Clause (a), however, permits reliance on statements of unavailable witnesses, but only when the adjudicating authority records a clear finding that the witness cannot be produced due to death, incapacity, being kept out of the way, or unreasonable delay or expense.

The Court stressed that clause (a) is akin to Section 32 of theEvidence Act and cannot be invoked casually. Before treating a statement as relevant under clause (a), the authority must make reasonable efforts to secure the witness’s presence, record a finding of impossibility, confront the assessee with the statement, and ensure corroboration. The statement cannot be used blindly or in isolation.

Applying these principles, the Division Bench of Justice AS Supehia and Justice Pranav Trivedi held that the adjudicating authority had failed to follow the statutory safeguards. Although three witnesses did not appear, the authority did not record any finding that their presence could not be secured within a reasonable time, nor did it follow the procedural steps required under clause (a).

Instead, it relied on their untested statements while ignoring the cross‑examined testimony of the other three witnesses, which was favourable to the petitioners. This approach, the Court held, was contrary to the Tribunal’s remand directions, the statutory scheme of Section 138‑B, and the principles of natural justice.

The Court clarified that the Tribunal’s directions were not violated per se, since opportunities for cross‑examination were indeed granted. However, the adjudicating authority failed to evaluate the evidence in the manner required by law. Consequently, the impugned order was quashed and the matter remanded for fresh adjudication within 12 weeks, with all rights and contention

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates