Customs Act | Cross-Examination Mandatory For Witness Statements Under Section 138B: Gujarat High Court Quashes Customs Penalty Order
Sanchayita Lahkar
The High Court of Gujarat Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi, in a judgment delivered on November 25, 2025, quashed a customs penalty order against a manufacturer and related persons and remitted the matter to the adjudicating authority for fresh adjudication within 12 weeks. The dispute concerned penalties imposed on the basis of witness statements recorded during customs proceedings, where the authority relied on statements of three witnesses who did not appear for cross-examination, while disregarding the evidence of three witnesses who did appear and supported the assessee after cross-examination. The Bench found that using untested statements while ignoring tested evidence breached natural justice and clarified that Section 138B—particularly clauses (a) and (b)—conditions admissibility on providing an effective opportunity to cross-examine or otherwise rebut the material proposed to be used against the assessee.
The dispute arose from a show cause notice issued to an assessee engaged in manufacturing excisable goods, alleging contravention of provisions of the Customs Act and proposing imposition of penalties. The adjudicating authority initially relied on statements of six witnesses recorded during inquiry. The assessee sought cross-examination of these witnesses, which was not granted at the first stage.
On appeal, the appellate tribunal set aside the original order and remanded the matter for fresh adjudication with a direction to provide an opportunity of cross-examination. After remand, the adjudicating authority granted multiple opportunities. Three witnesses appeared and were cross-examined, deposing in favour of the assessee, while three others failed to appear despite repeated summons.
The adjudicating authority nevertheless relied upon the statements of the non-appearing witnesses and disregarded the testimony of those who were cross-examined, leading to the passing of a fresh adverse order. This order was challenged before the High Court on the ground that the procedure adopted was contrary to the mandate of Section 138B of the Customs Act.
The Court examined the scope of Section 138B of the Customs Act and recorded that the provision governs the relevancy and admissibility of statements made before customs officers. It observed that “clause (b) envisages and introduces the element of cross-examination of the witness who has given the statement before the officer during the course of inquiry or proceedings.” The Court stated observed: “Unless an opportunity of cross-examination is given to the person (assessee) against whom the statement of such witness is proposed to be used, the same is inadmissible in evidence, since the denial or absence of cross-examination of the witness, and the admissibility of such statement in evidence will be in violation of the principles of natural justice and also against fair play and equity.”
With respect to clause (a), the Court noted that it applies where the witness is unavailable, but even then, “the quintessential feature is that the statement of such witness can be treated as relevant only when the circumstances…regarding the non-availability…are established and a finding is recorded.” The Court further recorded that reasonable efforts must be made to secure the presence of the witness and that the assessee must be confronted with the statement and given an opportunity to respond.
In the facts of the case, the Court observed that the adjudicating authority relied on statements of three witnesses who never appeared for cross-examination while “ignoring the evidence of three witnesses, who deposed in favour of the petitioner.” It recorded that such an approach was inconsistent with the statutory scheme, as the authority was required to weigh the evidence of all witnesses together, along with corroborative material and the defence of the assessee.
The Court ordered that “the impugned order…is quashed and set aside. The matter is remanded back to the adjudicating authority…for fresh adjudication in light of the foregoing observations.” An appropriate order shall be passed within a period of twelve weeks from the date of receipt of the judgment. It clarified that “nothing is expressed…on merits” and that all rights and contentions of the parties were kept open.
Advocates Representing the Parties
For the Petitioners: Mr. Paresh Dave, Advocate; Mr. Paresh V. Sheth, Advocate
For the Respondents: Mr. Pradip D. Bhate, Advocate; Mr. Utkarsh R. Sharma, Advocate
Case Title: M/s Mitesh Impex & Ors. v. Union of India & Anr.
Neutral Citation: 2025: GUJHC:67233-DB
Case Number: Special Civil Application No. 11791 of 2025
Bench: Justice A.S. Supehia, Justice Pranav Trivedi
