No Cross-Examination, No Conviction: Gujarat High Court Quashes Customs Penalty for Violating Principles of Natural Justice

“Statement of a witness is inadmissible without cross-examination unless rigorous statutory safeguards are followed” – Gujarat High Court set aside a penalty order passed under the Customs Act, 1962, against M/s Mitesh Impex and Others, holding that the adjudicating authority acted in violation of natural justice and the express directions of the appellate tribunal by relying on witness statements without providing an opportunity for cross-examination. The decision in M/s Mitesh Impex v. Union of India, Special Civil Application No. 11791 of 2025, came from a Division Bench comprising Hon’ble Mr. Justice A.S. Supehia and Hon’ble Mr. Justice Pranav Trivedi.

The Court held that the impugned order dated 18.03.2025, passed after remand, failed the legal test of fairness under Section 138B of the Customs Act, 1962. The adjudicating authority selectively relied upon statements of witnesses who were never subjected to cross-examination, while ignoring those who appeared and deposed in favour of the petitioners.

“The officer cannot blindly rely on the bare statement of the witness unless some corroborative material is produced to support such statement, and the assessee is offered an opportunity to rebut the same”.

“Section 138B Requires Not Just Absence, But Recorded Findings of Non-Availability Before Using Uncrossed Testimony” – Court Clarifies Standard for Admissibility

The controversy arose from a Customs penalty proceeding where the Tribunal had previously allowed the petitioners’ appeal, noting that six witness statements had been relied upon without offering cross-examination. The Tribunal remanded the matter specifically for fresh adjudication with an opportunity for cross-examination, invoking the mandate under Section 138B of the Customs Act, 1962, and judicial precedents like J&K Cigarettes Ltd. and Jindal Drugs Pvt. Ltd..

In the fresh round, three witnesses failed to appear despite four opportunities, and three others appeared and supported the petitioners' case. However, the adjudicating officer ignored the favourable depositions and once again relied solely on the untested statements of the non-appearing witnesses.

The Court declared that this violated both the letter and spirit of Section 138B:

“Clause (b) envisages and introduces the element of cross-examination... Unless an opportunity of cross-examination is given... the statement is inadmissible... The denial of cross-examination will be in violation of the principles of natural justice and also against fair play and equity”.

While clause (a) of Section 138B allows admissibility of statements of absent witnesses, the Court held this cannot be mechanically invoked:

“The quintessential feature is that the statement of such witness can be treated as relevant only when the circumstances mentioned in clause (a) regarding the non-availability of the person/witness are established and a finding is recorded... The process of securing the witness should not be delayed... and effort should be made for a reasonable time”.

The adjudicating officer in this case had failed to record any such findings or even offer the petitioners an opportunity to respond to those statements. The High Court, therefore, found the approach legally unsustainable.

“Selective Acceptance of Evidence Post-Remand Defeats Tribunal’s Directions” – Court Pulls Up Adjudicating Authority

The Court was categorical that ignoring the testimony of cross-examined witnesses while relying on those who did not appear violates fair adjudication:

“The respondent No.2... placed reliance on the evidence of three witnesses who did not appear... while ignoring the evidence of three witnesses who deposed in favour of the petitioner... This fact is not disputed by the respondents before us”.

Importantly, the Court emphasized that even after remand, the adjudicating authority must assess all available material objectively and cannot bypass favourable evidence or continue relying on previously tainted statements.

Fresh Adjudication Directed with Adherence to Section 138B

Concluding that the impugned order could not be sustained, the Division Bench quashed the penalty order dated 18.03.2025 and directed a fresh adjudication within 12 weeks. The High Court preserved all rights and contentions for both parties, clarifying that no observations were made on merits.

“The matter is remanded back... Appropriate order shall be passed within a period of 12 weeks... All the rights and contentions of the respective parties are left open”.

This ruling reinforces that the right to cross-examine is not merely procedural but a constitutional safeguard embedded within the principles of natural justice — especially in penalty proceedings that carry civil consequences.

Date of Decision: 25 November 2025