Natural Justice Violated: HC Sets Aside Customs Penalty for Ignoring Cross-Examined Witnesses

M/s Mitesh Impex and its partners challenged an order dated 18.03.2025 passed by the adjudicating authority under the Customs Act. The proceedings stemmed from a 2012 show cause notice proposing penalties under Sections 112(a) and 114(iii), culminating in an order-in-original in 2014. That order was set aside by the CESTAT in 2023, which remanded the matter with clear directions to allow cross-examination of six witnesses whose earlier statements had been relied upon without such opportunity. Upon remand, only three witnesses appeared and were cross-examined, and all three supported the petitioners.

The Department invoked Section 138B to justify reliance on the absent witnesses’ statements, but could not dispute that the impugned order lacked a proper, balanced evaluation of all evidence.

Main Issue: Whether the adjudicating authority could rely on statements of witnesses who did not appear for cross-examination without satisfying the statutory safeguards under Section 138B of the Customs Act, particularly when other witnesses had appeared and given contrary testimony.

HC’s Ruling: The Court held that Section 138B lays down specific preconditions for treating statements of non-appearing witnesses as relevant; such statements cannot be used mechanically against an assessee. If a witness does not appear, the authority must record findings under clause (a) on the reasons for non-availability and must still confront the assessee with the statement alongside any corroborative material. At the same time, clause (b) requires due evaluation of the statements of witnesses who do appear, after cross-examination, to assess their evidentiary value. The adjudicating authority failed on both counts, ignoring the testimony of the three cross-examined witnesses and relying solely on the absent witnesses’ statements.

The Court found that the adjudicating authority had misapplied Section 138B and had not evaluated the evidence in accordance with natural justice. The impugned order was quashed, and the matter remanded for fresh adjudication. The authority was directed to reassess the evidence of all six witnesses in line with the Court’s interpretation of Section 138B and issue a fresh order within 12 weeks.

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