Denial of Cross-Examination Under Section 138B of Customs Act Violates Natural Justice: Delhi High Court - 2025-02-04

Fairness in Focus: Delhi High Court Reaffirms Right to Cross-Examination in Customs Disputes

In a significant ruling addressing the boundaries of administrative discretion, the Delhi High Court has held that the denial of the right to cross-examine witnesses—whose statements serve as the foundation for penal action under the Customs Act, 1962—constitutes a violation of the principles of natural justice. The judgment, delivered by a Division Bench comprising Justice Prathiba M. Singh and Justice Dharmesh Sharma, brings clarity to the often-debated scope of Section 138B of the Customs Act.

Tracing the Dispute: A Case of Contradictory Adjudication

The matter arose from a series of appeals challenging a CESTAT order from April 2024. The underlying investigation, initiated by the Principal Commissioner of Customs, targeted five business entities regarding the alleged import of prohibited goods, including a significant quantity of fireworks.

The core of the legal controversy lay in the conflicting treatment of two appellants: Mr. Sushil Aggarwal and Mr. Sunil Aidasani. While both were implicated by the statements of an informant, Mr. Bhalla, the CESTAT had taken a bifurcated approach. It upheld the penalties against Mr. Aggarwal while denying his plea for cross-examination, yet simultaneously set aside the penalties against Mr. Aidasani on the grounds that the denial of cross-examination in his case violated Section 138B.

The Legal Conflict

The appellants challenged the consistency of this approach. While the Department argued that Section 138B compliance is not an "unfettered right," the Court examined whether it was permissible to rely on the statements of a co-accused without subjecting the witness to the rigors of cross-examination during the adjudication process.

The Court leaned on the precedent set in Shri Krishan Kishor Aggarwal vs Additional Commissioner of Customs , which clarified that informants involved in adjudicating proceedings cannot be shielded from cross-examination if their statements are used as material evidence against third parties.

Key Observations

The judgment underscores that procedural fairness remains a cornerstone of the Indian customs regime:

• On the Necessity of Cross-Examination : "This Court notices in the present case that the statements of the co-accused, recorded under Section 108 of the Act, ultimately became the basis of the impugned order. The denial of the right of cross examination of such witnesses, was plainly in violation of the principles of natural justice."
• On Balancing Rights and Process : "The Court is of the opinion that it would not be appropriate to relegate the appellant to the remedy of cross examination in the course of an appeal, which would in effect amount to denial of an appellate forum."
• On Judicial Consistency : "Such discrimination between two similarly placed persons would not be possible."

The Verdict: A Pathway to Procedural Integrity

The High Court ordered a uniform application of procedural justice. It directed that both Mr. Aggarwal and Mr. Aidasani be granted a specific opportunity to cross-examine the witness, Mr. Bhalla. To ensure efficiency, the Court mandated that these proceedings take place on a single, fixed date to avoid perpetual adjournments.

Importantly, the Court ruled that if, following this cross-examination, the adjudicating authority decides to re-impose penalties, the standard pre-deposit requirements—usually a hurdle for appellants—shall stand waived, as this represents a second round of litigation for the parties involved.

This decision serves as a stern reminder to adjudicating authorities that while investigation expediency is important, it cannot override the fundamental requirement of giving an accused party the chance to test the veracity of evidence brought against them. Future customs investigations will now need to ensure that the reliance on Section 108 statements is tempered by the readiness to comply with the cross-examination mandates of Section 138B.