S. 108 Statements Can’t Be Sole Basis Without Following Section 138B Procedure: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a penalty of Rs. 50 lakh imposed on Purshottam Jajodia under Section 112 of the Customs Act, holding that a statement recorded under Section 108 of the Customs Act cannot be treated as relevant evidence unless the mandatory procedure under Section 138B is followed. The Bench of Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member), ruled that reliance solely on statements recorded during investigation, without subsequent examination and admission into evidence as mandated by law, is impermissible. The Tribunal pronounced its decision on May 21, 2026. The case arose out of proceedings initiated against Pushpak Lakhani, an employee of Johnson Watch Co. Pvt. Ltd., who was alleged to be involved in a network for smuggling and supplying high-end wristwatches through illegal channels including Hong Kong, Nepal and Dubai. Investigations led authorities to conduct searches at multiple premises, including that of Purshottam Jajodia. The department alleged that the smuggled watches were being routed through various individuals associated with Johnson Watch Co. and that all concerned persons, including Purshottam Jajodia, were aware of the illicit nature of the transactions. Five watches valued at ₹38,000 and cash of ₹10 lakh were seized from the appellant's residential premises. The Tribunal noted that an earlier show cause notice had already been issued in 2013 seeking confiscation of the seized watches and currency and demanding customs duty of ₹9,041 along with penalties. However, Purshottam Jajodia had challenged that notice before the Delhi High Court, which in July 2014 allowed his writ petition and directed unconditional release of the seized articles and cash. Subsequently, another show cause notice issued in October 2017 relied substantially on a statement recorded from the appellant in 2012 under Section 108 of the Customs Act. The Principal Commissioner ultimately imposed a ₹50 lakh penalty based solely upon that statement. Before the Tribunal, the appellant argued that the proceedings involved allegations regarding 3,364 wristwatches, but there was no material linking him to those watches. He further contended that no evidence existed establishing any deliberate violation of customs law and that the sole reliance on his earlier statement was legally untenable. The Tribunal framed the principal legal issue as whether a statement recorded under Section 108 of the Customs Act can be relied upon without compliance with Section 138B of the Act. The Tribunal observed that Section 138B prescribes a mandatory process before such statements can be treated as relevant evidence. According to the Tribunal, where exceptions under Section 138B(1)(a) do not apply, the person who made the statement must first be examined as a witness before the adjudicating authority. The authority must thereafter independently form an opinion that admitting such statement into evidence is necessary in the interest of justice. Only after this stage can cross-examination be offered. The Bench relied on a series of judicial precedents, including Surya Wires Pvt. Ltd., Ambika International, Hi Tech Abrasives Ltd., Its My Name Pvt. Ltd., and Drolia Electrosteel Pvt. Ltd., all of which consistently held that statutory provisions such as Section 138B of the Customs Act and Section 9D of the Central Excise Act are mandatory in nature. The decisions stressed that statements recorded during investigations may potentially be influenced by coercion or compulsion and therefore cannot be accepted automatically as evidence. Applying these principles, the Tribunal found that the statement recorded from Purshottam Jajodia under Section 108 was the only basis for imposing the penalty and that the department had failed to follow the mandatory procedure under Section 138B. Consequently, the statement lost evidentiary value. Holding that the penalty lacked a legally sustainable foundation, the Tribunal set aside the Principal Commissioner’s order and allowed the appeal. Case Details Case Title: Purshottam Jajodia Versus Pr. Commissioner of Customs (Preventive) Citation: JURISHOUR-1325-CES-2026(DEL) Case No.: CUSTOMS APPEAL NO. 50497 of 2021 Date: 21.05.2026 Counsel For Appellant: Dr. G.K. Sarkar, advocate Counsel For Respondent: Nikhil Mohan Goyal, authorized representative Click Here To Read Order Read More: Modi–Meloni Chemistry and Trade Relations of India and Italy

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