Gold Smuggling Operations | Statements Recorded Can’t Be Relied Upon Without Satisfying Mandatory Requirements U/S 138B Of Customs Act: Kerala HC

The Kerala High Court has held that in the cases of gold smuggling operations, the statements recorded under Section 108 of the Customs Act cannot be relied upon mechanically and must satisfy the mandatory requirements of Section 138B of the Customs Act. The bench of Justice A. Muhamed Mustaque and Justice Harisankar V. Menon has observed that statements acquire evidentiary value only if the person making the statement is examined as a witness and the adjudicating authority records reasons for admitting the statement in the interest of justice. The case traces its origin to September 19, 2013, when customs officials intercepted two women passengers along with a minor near the car park area outside Cochin International Airport. Upon search, the authorities recovered ten gold bars, each weighing one kilogram, concealed inside specially designed jackets worn by the women. An LG television allegedly brought by one of the passengers was also seized. Based on subsequent investigations, the customs department claimed that similar undeclared gold consignments had been smuggled on three earlier occasions in August and September 2013, allegedly involving 36 kilograms of gold. Statements under Section 108 of the Customs Act were recorded from as many as 33 persons, and show cause notices were issued proposing confiscation and penalties against multiple individuals. Heavy penalties were imposed by the adjudicating authority, including penalties of ₹15 crore and ₹5 crore on two alleged key conspirators, and penalties of ₹20 lakh each on others for alleged transportation, abetment, and financing of smuggling activities. On appeal, the CESTAT examined the evidence in detail and set aside all the penalties. The Tribunal held that penalties under Sections 112(a) and 112(b) of the Customs Act could not be imposed simultaneously, as the statute uses the word “or” and contemplates alternative, not cumulative, penalties. More significantly, the Tribunal found that the alleged smuggling of 36 kilograms of gold on earlier occasions was based solely on statements of carriers, without any corroborative evidence or follow-up investigation. The Tribunal noted contradictions in the statements relied upon by the department and observed that no gold, cash, or incriminating material was recovered linking the appellants to the alleged earlier smuggling. In several cases, the Tribunal held that the essential ingredients of Section 112(b) were not satisfied and that the penalties were founded only on retracted or uncorroborated statements. Aggrieved by the CESTAT order, the department approached the Kerala High Court, arguing that statements recorded under Section 108 of the Customs Act have high evidentiary value and that the Tribunal erred in disregarding them. The department also contended that penalties under Section 112(b) could be imposed even without actual seizure of smuggled goods, and that the failure of certain noticees to give statements under Section 108 should be treated adversely. The Court noted that none of the persons whose statements were relied upon had been examined as witnesses. Consequently, the statements could not be treated as admissible evidence. The Court relied on precedents of the Supreme Court and High Courts, reiterating that compliance with Section 138B is a statutory safeguard and not a mere procedural formality. The Bench held that the Customs Act does not permit drawing an adverse inference merely because a person did not give a statement under Section 108. The principles of natural justice, embodied in Sections 122A and 124 of the Act, guarantee every noticee the right to contest proceedings and to be heard. On the issue of penalties without seizure, the Court observed that since the entire case of the department rested on inadmissible statements, the question itself did not survive for consideration. The High Court dismissed all four customs appeals filed by the revenue. The judgment reinforces the strict evidentiary standards required in customs adjudication and underscores that penalties, especially of a severe nature, cannot be sustained on the basis of untested or procedurally defective evidence. Case Details Case Title: The Commissioner Of Customs Versus Thondandavida Kaniyan Kandi Faizal Case No.: CUS.APPEAL NO.2 OF 2023 Date: 19/12/2025 Counsel For Petitioner: Thomas Mathew Nellimoottil Counsel For Respondent: P.Jeril Babu Click Here To Read Order Read More: HC Initiates Criminal Contempt Against SGST Officer For Filing “Misleading” Affidavit in Refund Case

Gold Smuggling Operations | Statements Recorded Can’t Be Relied Upon Without Satisfying Mandatory Requirements U/S 138B Of Customs Act: Kerala HC

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Gold Smuggling Operations | Statements Recorded Can’t Be Relied Upon Without Satisfying Mandatory Requirements U/S 138B Of Customs Act: Kerala HC

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