CESTAT Delhi Quashes Rs. 50 Lakh Customs Penalty: Strict Enforcement of Section 138B Evidentiary Safeguards

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 22.05.2026

CESTAT Delhi Quashes Rs. 50 Lakh Customs Penalty: Strict Enforcement of Section 138B Evidentiary Safeguards

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Delhi recently delivered a significant order in the case of Purshottam Jajodia, addressing the legality of penalties imposed in customs smuggling cases and the evidentiary standards required for such penalties. This article provides a detailed overview of the case, the legal issues involved, and the broader implications for customs law enforcement and adjudication in India.

Background of the Case

• Parties Involved:
  • Appellant: Purshottam Jajodia
  • Respondent: Principal Commissioner of Customs (Preventive), New Delhi
• Context:
  • Proceedings were initiated against Pushpak Lakhani, an employee of Johnson Watch Co. Pvt. Ltd. (JWCPL), for alleged smuggling and supply of high-end wrist watches.
  • Searches in October 2021 led to the seizure of five watches and Rs. 10 lakhs from Jajodia’s residence.
  • A show cause notice was issued, alleging Jajodia’s involvement in the smuggling racket and proposing penalties under the Customs Act, 1962.

Key Legal Issues

1. Basis for Penalty Imposition

• The penalty of Rs. 50 lakhs was imposed solely on the basis of Jajodia’s statement recorded under section 108 of the Customs Act.
• The show cause notice and order did not establish Jajodia’s direct involvement with the 3364 watches at the center of the main smuggling allegations.

2. Admissibility of Statements under Section 108 and 138B

• Section 108: Grants customs officers the power to summon individuals and record statements during inquiries.
• Section 138B: Specifies that such statements are only relevant as evidence if:
  • The person is dead, cannot be found, or is otherwise unavailable, or
  • The person is examined as a witness before the adjudicating authority, which must then decide if the statement should be admitted in the interests of justice.
• The Tribunal emphasized that the procedure under section 138B is mandatory. Statements cannot be used as evidence unless the person is examined and cross-examined before the adjudicating authority, except in the exceptional circumstances listed.

Judicial Precedents Cited

The Tribunal referenced several key judgments reinforcing the mandatory nature of these evidentiary safeguards:

• Surya Wires Pvt. Ltd. v. Principal Commissioner, CGST, Raipur: Both section 9D of the Central Excise Act and section 138B of the Customs Act require examination of the person before admitting statements as evidence.
• Ambika International v. Union of India: The Punjab and Haryana High Court held that statements recorded during investigation must be admitted through a two-step process: examination as a witness and a reasoned decision by the adjudicating authority.
• Hi Tech Abrasives Ltd. v. Commissioner of C. Ex. & Cus., Raipur: The Chhattisgarh High Court reiterated that statements recorded during investigation are not admissible unless the statutory procedure is strictly followed.
• Additional Director General (Adjudication) v. Its My Name Pvt. Ltd.: The Delhi High Court confirmed that statements under section 108 are only relevant after being admitted in evidence and tested by cross-examination.

Tribunal’s Findings and Decision

• The Tribunal found that the only basis for the penalty was Jajodia’s statement under section 108, and the mandatory procedure under section 138B was not followed.
• As a result, the statement could not be considered relevant evidence.
• The penalty order was set aside, and the appeal was allowed in favor of Jajodia.

Implications for Customs Law and Practice

1. Strict Compliance with Evidentiary Procedures:
   • Authorities must strictly follow the procedures for admitting statements as evidence, ensuring fairness and preventing reliance on potentially coerced confessions.
2. Protection of Rights:
   • The decision reinforces the rights of individuals against arbitrary penalties based solely on untested statements.
3. Guidance for Adjudicating Authorities:
   • Adjudicating authorities must provide opportunities for examination and cross-examination before relying on statements for penal action.

Conclusion

The CESTAT Delhi’s decision in the Purshottam Jajodia case underscores the importance of procedural safeguards in customs adjudication. It serves as a reminder that penalties must be based on properly admitted and tested evidence, upholding the principles of natural justice and statutory compliance in customs law enforcement.

Source: CESTAT Delhi

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