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by sayum
07 July 2026 10:48 AM
"Statements Under Section 108 Must Meet Section 138B Criteria To Be Admissible In Adjudication", Kerala High Court, in a significant decision impacting customs enforcement, dismissed a batch of revenue appeals filed by the Central Board of Indirect Taxes and Customs (CBIC), which challenged a CESTAT order setting aside penalties up to ₹15 crores imposed for alleged gold smuggling. In Central Board of Indirect Taxes and Customs v. Subair Kallungal & Others, the Division Bench of Justice A. Muhamed Mustaque and Justice Harisankar V. Menon ruled that "untested statements recorded under Section 108 of the Customs Act, 1962, are inadmissible in evidence unless they comply with Section 138B", firmly rejecting the Revenue’s case which relied solely on such statements to impose harsh penalties under Sections 112(a) and 112(b) of the Customs Act.
The Court observed, “The evidentiary value of a statement recorded under Section 108 of the Act is subject to the compliance of the provisions of Section 138B of the Act. Here, the provisions of Section 138B have not been shown to have been complied with.” The judgment is poised to significantly influence how customs enforcement authorities approach adjudication, especially in high-stakes smuggling cases.
Gold Smuggling Allegations and Penalties Imposed Without Seizure or Direct Evidence
The case arose from a 2013 seizure at Cochin International Airport, where two lady passengers—Arifa Haris and Asifa Veerappoyil—were caught smuggling 10 kg of gold bars concealed in jackets. Their statements led to wider proceedings implicating Subair Kallungal, T.K.K. Faizal, and Ashraf Kallungal, among others, in an alleged smuggling racket involving 36 kg of gold on earlier occasions where no seizures were effected.
Based entirely on statements under Section 108 of the Customs Act, the department issued common show-cause notices proposing confiscation and penalties. Penalties of up to ₹15 crores were imposed by the adjudicating authority under Sections 112(a) and 112(b), including ₹20 lakhs against Subair, ₹5 crores and ₹20 lakhs against T.K.K. Faizal in separate appeals, and ₹15 crores against Ashraf Kallungal.
These penalties were set aside by CESTAT Bangalore on March 29, 2022, on grounds of lack of direct evidence, contradictions in statements, and non-compliance with procedural safeguards under the Act, leading to the Revenue’s appeals before the High Court.
Three substantial questions of law were framed by the High Court:
Whether the Tribunal erred in appreciating the evidentiary value of statements under Section 108?
Whether non-recording of a statement by the respondent bars them from contesting proceedings?
Whether penalty under Section 112(b) can be imposed without actual seizure of gold?
Statements Recorded Under Section 108 Must Pass Through Section 138B Filter
The Court categorically held that statements made under Section 108 are not automatically admissible in adjudicatory proceedings. They must comply with Section 138B, which requires either:
The witness to be dead or unavailable (Section 138B(1)(a)), or
The witness to be examined in the proceeding and allowed to be cross-examined (Section 138B(1)(b)).
As no such examination or cross-examination had occurred, the Court ruled:
“Unless and until the persons who gave the statements are examined, the statute does not permit the authority to conclude that the statements are admissible in evidence.”
The Court referred extensively to Suresh Kumar & Co. Impex Pvt. Ltd. [2025 KHC Online 6762], Jindal Drugs Pvt. Ltd. [(2016) 340 ELT 67], and Its My Name Pvt. Ltd. [(2021) 375 ELT 545], reiterating that "reliance on untested statements violates the principles of natural justice".
Right to Cross-Examination is a Core Procedural Safeguard
The judgment emphasized the conjoined reading of Sections 122A and 138B, holding that the noticee has a statutory right to cross-examine witnesses whose statements are relied upon. The denial of such right rendered the proceedings procedurally defective.
“The prayer made by some of the respondents herein for cross-examining the persons who gave the statements ought to have been allowed. Therefore, we hold that the statements relied on by the revenue would not fall within the ambit of Section 138B of the Act.”
Non-Giving of Statement Not Equivalent to Evasion or Guilt
Rejecting the Revenue’s argument that respondents who did not give statements under Section 108 should be presumed guilty, the Court clarified:“Statute does not provide for any adverse inference in a situation where the statement is not recorded under Section 108. Therefore, the respondents cannot be prevented from objecting to the proceedings.”
This affirms the principle of audi alteram partem and protects due process rights of individuals facing customs proceedings.
Penalty Under Section 112(b) Requires Tangible Evidence
The Court also held that penalty under Section 112(b), which penalizes abetment of smuggling, cannot be sustained without seizure or direct evidence. The entire case rested on alleged prior smuggling instances where no recovery or corroboration existed.
The Tribunal had rightly concluded that:“There cannot be any simultaneous levy of penalty under Section 112(a) and 112(b),” and that mere speculative linkages through inconsistent statements cannot justify severe penalties.
The gold and cash seized from co-accused Shanavas had already been released, undermining the Revenue’s case of a smuggling nexus with Subair or Ashraf Kallungal.
Tribunal Order Upheld, Revenue Appeals Dismissed
Holding that “no substantial question of law arises”, the High Court upheld the CESTAT’s decision in full. It concluded that:
“We find no reason to interfere in the matter. These appeals would stand dismissed.”
This judgment reinforces the requirement of procedural fairness and evidentiary rigor in customs adjudication, particularly where heavy penalties are involved. It also marks a clear judicial warning against the uncritical use of unverified Section 108 statements.
Date of Decision: 19 December 2025
