Statements u/s 108 of Customs Act Not Admissible Evidence Without S. 138B Compliance: Kerala HC Sets Aside Penalties in Gold Smuggling Case [Read Order]

The Kerala High Court has refused to interfere with the decision of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) arising from the alleged smuggling of gold through Cochin International Airport in September 2013, holding that statements u/s 108 of the Customs Act are not admissible as evidence without compliance with Section 138B of the Act

The appeals were filed by the Commissioner of Customs, Cochin, challenging a common order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore, which had set aside penalties imposed on several individuals accused of financing, transporting, or abetting the smuggling.

On 19 September 2013, two women passengers, Arifa Haris and Asifa Veerappoyil, accompanied by a child, were intercepted near the airport car park. Searches revealed 10 gold bars of one kilogram each concealed in jackets and an LG television.

Statements recorded under Section 108 of the Customs Act alleged that on three earlier occasions,20 August, 27 August, and 12 September 2013,36 kilograms of gold had been smuggled in a similar fashion.

Based on these statements, penalties were imposed, Subair Kallungal – ₹20 lakh under Section 112(b), T.K. Faizal – ₹20 lakh under Section 112(b), Ashraf Kallungal – ₹15 crore under Sections 112(a) and (b) and T.K. Faiz – ₹5 crore under Sections 112(a) and (b) of the Act.

The CESTAT, however, set aside the penalties in March 2022, holding that the evidence was contradictory, unsupported by seizures, and based solely on untested statements.

The Revenue argued that statements under Section 108 are judicial in nature and admissible without further corroboration. The Court disagreed, emphasising that Section 138B of the Customs Act governs the evidentiary value of such statements.

Under clause (b) of Section 138B(1), a statement can only be admitted if the person who made it is examined as a witness and subjected to cross‑examination.

The Division Bench of A Muhammed Mustaque and Justice Harisankar V Menon noted that none of the individuals whose statements were relied upon were examined in proceedings, nor was cross‑examination permitted.

Without compliance with Section 138B, the statements could not be treated as admissible evidence. The Court cited precedents including Suresh Kumar & Co. Impex Pvt. Ltd. (Supreme Court, 2025) and Jindal Drugs Pvt. Ltd. (P&H High Court, 2016), which reinforced that statutory safeguards must be followed before relying on investigative statements.

On the second issue, the Court held that failure of the respondents to record statements under Section 108 does not bar them from contesting proceedings. The Customs Act, through Sections 122A and 124, embeds the principle of audi alteram partem, requiring reasonable opportunity of hearing and representation.

Finally, the Court addressed whether penalties under Section 112(b) could be imposed without actual seizure of gold. Since the allegations of earlier smuggling were based solely on untested statements, and no gold was seized in those instances, the Court concluded that penalties could not be sustained.

The High Court dismissed all four appeals filed by the Revenue, affirming the CESTAT’s order. As a result, penalties aggregating ₹20 crore against Subair Kallungal, T.K. Faizal, Ashraf Kallungal, and T.K. Faiz stand set aside. 

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