Kerala HC: Section 108 Customs Act Statements Inadmissible Without Mandatory Section 138B Procedural Filtering - 2025-12-19

Filtering the Evidence: Kerala HC Restricts Use of Statements in Customs Adjudication

In a major pronouncement regarding the evidentiary standards of the Customs Act, 1962, the Kerala High Court has ruled that statements recorded under Section 108 cannot be treated as evidence in adjudication proceedings without strict compliance with the procedural mandates of Section 138B. The judgment serves as a vital check on the investigative powers of the revenue authorities , ensuring that administrative actions remain tethered to the principles of fair play.

The Backdrop: A Airport Smuggling Saga

The case originated from a 2013 incident at the Cochin International Airport, where two passengers were intercepted carrying 10 kilograms of gold concealed in specially designed jackets. The subsequent investigation spanned 33 witness statements and allegations of large-scale smuggling involving multiple individuals, including the respondents—Subair Kallungal, Thondandavida Kaniyan Kandi Faizal, Ashraf Kallungal, and T.K. Faiz.

The Customs Department had sought to impose heavy penalties based largely on these recorded statements. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set these penalties aside, noting a lack of corroborative evidence and procedural lapses. The Revenue appealed this decision to the High Court.

The Legal Tug-of-War

The Revenue argued that statements under Section 108 are obtained during a "judicial proceeding" and are not subject to the same rigors as the Evidence Act. They further contended that the respondents’ failure to record their own statements under Section 108 should be treated as an admission of guilt.

Conversely, the respondents successfully argued that the Revenue failed to meet the requirements of Section 138B. They maintained that a statement is not "relevant" for proving the truth of its contents until it is admitted into evidence by an adjudicating authority following a mandatory, filtered procedure that allows for the testing of evidence—often via cross-examination.

The Ruling: When ‘Inquiry’ Meets ‘Due Process’

The Kerala High Court bench, led by Justice Harisankar V. Menon, dismantled the Revenue's broad reliance on Section 108 . The Court held that while Section 108 grants the power to summon individuals, Section 138B acts as a "processual filter" that must be applied before such statements can be used to penalize an individual.

The Court emphasized that unless a witness is examined before the adjudicator and a written finding is made that the statement qualifies for admission in the interest of justice, the statement remains outside the scope of admissible evidence.

Key Observations

• On the necessity of Section 138B: "The evidentiary value of a statement recorded under Section 108 of the Act is subject to the compliance of the provisions of Section 138B of the Act. Here, the provisions of [Section 138B] have not been shown to have been complied with."
• On the nature of Administrative Inquiry: "It is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry... unless and until he can legitimately invoke clause (a) of section 9D(1) [in pari materia with S.138B]."
• On the rights of the accused: "In the light of the afore [Section 124 of the Act], merely for the reason that no statement has been recorded under Section 108 , the respondents cannot be prevented from objecting to the proceedings... the statute does not provide for any adverse inference."

A Procedural Victory for Fairness

By dismissing the appeals, the High Court reaffirmed that administrative efficiency cannot bypass the foundational right to a fair hearing. The decision effectively prevents the Revenue from creating a "paper case" based solely on untested statements. For legal professionals, this judgment clarifies that in customs adjudication, the path to establishing culpability must traverse the statutory requirements of Section 138B. For the public, it stands as a reminder that the State’s power to penalize is fundamentally limited by the rules of evidence and natural justice.