
Statements Made U/s 108 Of Customs Act Can’t Be Relied Upon If Procedure U/s 138B Is Not Followed: CESTAT
- Post By 24law
- June 9, 2025
Pranav B Prem
The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), consisting of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), has held that a statement recorded under Section 108 of the Customs Act, 1962, cannot be relied upon to impose penalties unless the procedure prescribed under Section 138B is duly followed. The Tribunal observed that in the absence of compliance with the mandatory safeguards under Section 138B, such statements cannot be treated as admissible evidence.
The appeal was filed by Ashfaq Baig challenging the penalty of ₹5,00,000 imposed on him under Section 114 of the Customs Act, as per the order dated 31.01.2006 passed by the Commissioner of Customs, ICD, Tughlakabad, New Delhi. The penalty was imposed in connection with the alleged fraudulent overvaluation of exports of CD-ROMs under the Duty Entitlement Pass Book (DEPB) Scheme by M/s. Sundram Export Pvt. Ltd. and M/s. Netcompware Pvt. Ltd.
According to the case set up by the department, Sundram Export exported 96,800 CD-ROMs and Netcompware exported another 40,000 CD-ROMs, each at an inflated FOB value of US $19 per piece. These transactions were allegedly made with the intention of obtaining DEPB scrips fraudulently from the Directorate General of Foreign Trade (DGFT), which were then sold and used to import goods without paying customs duty. The CD-ROMs exported by Netcompware were later re-imported and cleared by M/s. Arvind International under a Bill of Entry dated 08.09.1998.
The Commissioner had imposed the penalty based primarily on the statement of Pankaj Soni recorded under Section 108 of the Customs Act. Soni alleged that he had been approached by Ashfaq Baig and Anil Sethi, directors of Netcompware, to encash pay orders received from the sale of DEPB scrips through firms M/s. Harkishan Overseas and M/s. Arvind International. He claimed that he deposited pay orders amounting to over ₹1.59 crores in a bank account, withdrew the cash, and handed it over to Baig and Sethi. Soni also stated that he was paid ₹500–₹1000 per withdrawal.
The Commissioner held that Ashfaq Baig’s denial of involvement in the day-to-day affairs of Netcompware was false and concluded that his role was clear from the statements of Soni and another individual, Ratinder Pal Singh Bhatia. The Commissioner also drew adverse inference from Baig's failure to appear before the Directorate of Revenue Intelligence (DRI) despite multiple summons, concluding that Baig intentionally avoided investigation to escape implication.
However, before CESTAT, Baig’s counsel argued that there was no evidence apart from the Section 108 statement, and such a statement could not be relied upon without following the procedure laid down in Section 138B. It was emphasized that Baig was not involved in the daily operations of Netcompware and that the findings against him were solely based on inadmissible evidence. Reference was made to the Tribunal’s decision in Drolia Electrosteel Pvt. Ltd. v. Commissioner, Customs, Central Excise & Service Tax, Raipur, and Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur, which stressed the mandatory nature of Section 138B and its similarity to Section 9D of the Central Excise Act.
The Tribunal examined the statutory framework and judicial precedents and reiterated that a statement recorded under Section 108 becomes admissible evidence only if the person who made it is examined as a witness before the adjudicating authority. The authority must then form an opinion, having regard to the facts and circumstances of the case, that the statement should be admitted in evidence. Following this, an opportunity for cross-examination must be granted to the person against whom the statement is made. Unless this procedure is followed, the statement cannot be used to establish guilt or liability.
CESTAT found that in Baig’s case, the only evidence relied upon by the Commissioner was the statement of Pankaj Soni, recorded under Section 108, without complying with the procedural requirements under Section 138B. The Tribunal emphasized that courts have consistently held such procedural safeguards to be mandatory, especially in light of the possibility of coercion or compulsion during investigation. The Tribunal, quoting extensively from past rulings, observed that the statement in question was inadmissible and thus insufficient to sustain the penalty.
Further, the Tribunal noted that the penalty imposed under Section 114 of the Act was contingent upon the goods being liable to confiscation under Section 113. In this case, since the goods were already exported, they did not qualify as “export goods” under Section 2(19) of the Customs Act and could not be confiscated under Section 113(d). Thus, the condition precedent for penalty under Section 114 did not exist.
The Tribunal held that in the absence of compliance with Section 138B, the statement recorded under Section 108 could not be relied upon. As there was no other evidence against Ashfaq Baig, the penalty imposed under Section 114 of the Customs Act was unsustainable. Consequently, the CESTAT set aside the impugned order dated 31.01.2006 to the extent it imposed the ₹5 lakh penalty on the appellant and allowed the appeal.
Appearance
Alekshendra Sharma, Advocate for the Appellant
Shri Rajesh Singh, Authorized Representative for the Respondent
Cause Title: Mr. Ashfaq Baig V. Commissioner of Customs
Case No: Customs Appeal No. 329 Of 2006
Coram: Hon'ble Mr. Justice Dilip Gupta [President], Hon'ble Mr. P.V. Subba Rao [Member (Technical)]
[Read/Download order]