Customs Duty | Statements U/s 108 Can’t Be Relied Upon Without Mandatory Procedure U/s 138B: CESTAT

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a major customs duty demand, confiscation order and penalties imposed on multiple importers and their director in an alleged undervaluation and misdeclaration case involving PU leather fabric imports. The Bench comprising Justice Dilip Gupta, President and P. Anjani Kumar, Member (Technical), held that statements recorded under Section 108 of the Customs Act cannot be relied upon unless the mandatory procedure prescribed under Section 138B is followed. The Tribunal also found serious procedural defects in the reliance placed on electronic evidence allegedly retrieved from a laptop seized during the investigation. The dispute arose after the Directorate of Revenue Intelligence (DRI) conducted searches at the office, residence and multiple godown premises linked to M/s Baba Leather Impex Pvt. Ltd. and related entities. During the searches, import documents, cash allegedly amounting to ₹83 lakh and a laptop were recovered. According to the department, the importers had misdeclared both the thickness and value of PU leather fabric imported through 404 Bills of Entry in order to evade customs duty. The department alleged that while the declared value ranged between 0.6 to 0.8 US dollars, the actual purchase price was significantly higher. The case was primarily built on statements recorded from Raj Kumar Anand under Section 108 of the Customs Act, alleged parallel invoices recovered from the laptop and communications purportedly indicating hawala remittances to overseas suppliers. The Commissioner had rejected the declared transaction value under Rule 10 of the Customs Valuation Rules, re-determined the value under Rules 5 and 6, confirmed differential customs duty with interest and imposed penalties under Sections 112 and 114A of the Customs Act. Before the Tribunal, the appellants argued that the statements relied upon by the department were obtained under duress when Raj Kumar Anand was allegedly kept in illegal custody by DRI officers from 27 May to 29 May 2005. They pointed out that immediately after being produced before the Magistrate, a handwritten retraction letter was submitted through the Jail Superintendent alleging physical assault, coercion and threats against his wife. The Tribunal, however, observed that it was not even necessary to enter into the controversy regarding coercion because the statutory safeguards under Section 138B had admittedly not been complied with. The Bench extensively examined Section 138B of the Customs Act and reiterated that statements recorded during investigation become relevant only after the person making the statement is examined as a witness before the adjudicating authority and the authority records satisfaction that the statement should be admitted in evidence in the interest of justice. Relying upon several judicial precedents including Surya Wires Pvt. Ltd., Ambika International, Hi Tech Abrasives and Its My Name Pvt. Ltd., the Tribunal held that compliance with Section 138B is mandatory and not merely procedural. The Tribunal emphasized that statements recorded during investigation have every possibility of being extracted under coercion or compulsion, which is precisely why Parliament incorporated safeguards requiring examination before the adjudicating authority. The CESTAT further ruled that the electronic evidence retrieved from the laptop also could not be relied upon. The Bench noted significant inconsistencies regarding the place from where the laptop was allegedly seized. While the show cause notice stated that the laptop was recovered from the residential premises, the panchnama recorded that it was seized from the business premises. The Tribunal also found that the laptop was never sealed after seizure and remained in unsealed custody of investigating officers before retrieval of documents. Further, no evidence was produced to establish that Raj Kumar Anand was given notice or opportunity to remain present during retrieval of electronic records. Importantly, the Tribunal held that the mandatory requirements under Section 138C of the Customs Act governing admissibility of electronic evidence were also not complied with because the required certificate for computer-generated evidence was never produced. On the allegation regarding misdeclaration of thickness of the imported PU leather fabric, the Tribunal observed that the panchnamas did not record any physical measurement of thickness, no samples were sent for laboratory testing and no laboratory reports were relied upon in the show cause notice. The Tribunal also took note of the fact that the imported consignments had been physically examined at the time of clearance at various ports and “out of charge” orders had been issued by customs authorities after examination. The importers had also produced information obtained under the Right to Information Act showing that the consignments were examined before clearance. Criticising the adjudicating authority’s approach, the Tribunal observed that the Commissioner wrongly discarded contemporaneous import data merely on suspicion that the appellants may have selectively sought information under the RTI Act. The Bench held that if the department had doubts, it could have independently verified other Bills of Entry rather than rejecting official RTI information furnished by customs authorities themselves. The Tribunal ultimately concluded that there was no legally admissible evidence to establish that the importers had paid any amount over and above the invoice value to overseas suppliers. Since the statements and electronic evidence could not be relied upon, the rejection of transaction value and re-determination of value under the Customs Valuation Rules was held unsustainable. The CESTAT set aside the entire adjudication order, including differential customs duty demands, confiscation of goods and penalties imposed upon the importing entities and the managing director. All six customs appeals were allowed. Case Details Case Title: M/s Baba Leather Impex Pvt. Ltd. Versus The Commissioner of Central Excise (Adj.) Citation: JURISHOUR-1228-CES-2026(DEL) Case No.: Customs Appeal No. 49 Of 2008 Date: 12.05.2026 Counsel For Appellant: Piyush Kumar, Shri Sharad Srivastava, Ms. Reena Rawat and Ms. Gunjan Tanwar, Advocates Counsel For Respondent: Shiv Shankar, Authorised Representative Click Here To Read Order Read More: E-Way Bill, Weighment Slip Irregularities: Chhattisgarh HC Grants Anticipatory Bail In Sponge Iron Transportation Case

Customs Duty | Statements U/s 108 Can’t Be Relied Upon Without Mandatory Procedure U/s 138B: CESTAT

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