Customs Act | Penalty Cannot Be Sustained Solely On S. 108 Statements Without Compliance Of S. 138B: Kerala High Court

The Kerala High Court held that statements recorded under S. 108 of the Customs Act cannot form the basis for imposing penalties unless the mandatory procedural safeguards under Section 138B are complied with.

Justices A. Muhamed Mustaque and Harisankar V. Menon opined that Section 138B is essentially in the form of a procedural safeguard regarding the admission of statements under Section 108 in evidence. When the safeguards under Section 138B have not been complied with, no question of proceeding under the provisions of the statute arises.

In the case at hand, 10 kg of gold was seized from two women passengers. Based on the statements recorded under Section 108 of the Customs Act 1962, common show cause notices were issued to various persons, including the respondents/accused.

It was alleged that the respondent/accused had transported the smuggled gold to the premises of Shanavas. A penalty of Rs.20,00,000/- is imposed upon him under Section 112(b) of the Act.

The respondent filed an appeal before the CESTAT, Bangalore. The Tribunal found that there cannot be any simultaneous levy of penalty under Section 112 (a) and (b) of the Act since the statute provides for the levy of either of the penalties.

The CESTAT set aside the penalties, holding that there was no direct evidence, and the allegation was made purely on the basis of the statements of the carriers, specifically noticing that no follow-up action was taken by the revenue.

The CBIC argued that the statements under Section 108 are recorded during the course of an “inquiry,” which is different from an investigation, and the statements are to be taken as obtained during a judicial proceeding. Furthermore, the statement obtained under Section 108 is not subject to the rigour of Section 25 of the Evidence Act, 1872, and the same is not taken as inadmissible under Section 24 of the Evidence Act.

The respondents submitted that none of the statements obtained under Section 108 of the Act can be relied upon with reference to the provisions of Section 138B of the Act.

The bench stated that the provisions of Section 122A of the Act under which the adjudicating authority has an obligation to provide “an opportunity of being heard” to the noticee. When the opportunity of hearing laid down under Section 122A is read along with the provisions of Section 138B of the Act, once the person who gave the statement is examined as a witness, the noticee who is proceeded against under the statute is also entitled for cross examining the person who gave the statement which is sought to be admitted in evidence.

The bench held that the statements relied on by the revenue would not fall within the ambit of Section 138B of the Act, and therefore, no proceedings would lie on that basis.

The bench referred to Section 122A and 124 and stated that the principle of audi alteram partem is embedded under the statute during the course of the adjudication proceedings. In the light of this, merely for the reason that no statement has been recorded under Section 108, the respondents cannot be prevented from objecting to the proceedings taken against them. This is especially so, since the statute does not provide for any adverse inference in a situation where the statement is not recorded under Section 108 of the Act.

The bench stated that the statements elicited under Section 108 could not be made use of as a reliable piece of evidence with reference to the provisions of Section 138B(2) of the Act.

In view of the above, the bench dismissed the petition.

Case Title: Central Board of Indirect Taxes and Customs v. Subair Kallungal Town Apartment

Case Number: CUS.APPEAL NO. 1 OF 2023

Citation: 2025 LiveLaw (Ker) 840

Counsel for Appellant/department: Thomas Mathew Nellimoottil and R. Harishankar

Counsel for Respondent/accused: K.M. Firoz and Mohammed Zahir

Click Here To Read/Download Order