2018 (7) TMI 280 - AT - Customs

Absolute Confiscation - Smuggling - Diamonds - non-notified goods - Baggage Rules - Burden to prove - Held that - The goods in question are diamonds which are not notified goods in terms of Section 123 of the Customs Act. In these circumstances the onus to establish the smuggled nature of goods is on the Revenue. The Revenue is seeking to discharge the burden of proof regarding placed on it under Section 123 of Customs Act. The entire evidence is in the nature of appellant s failure to explain Licit possession of diamonds recovered during the investigation. The appellant s defense that the diamonds found in their custody were part of the diamonds imported earlier by them has been found to be deficient on account of the fact that income tax return shown nil balance as on 31/03/2011. Moreover the appellant s claim regarding the paper sale made to M/s Aakash diamond was also found to be incorrect as the proprietor of m/s Aakash admitted to have receiving diamonds, in these circumstances the appellant s defense that the diamonds recovered from the stock of the diamonds imported earlier totally false by relying on aforesaid evidence - It is seen that the entire investigation is in the nature where the appellants have been asked to explain the legal possession or source of the diamonds. The appellants have primarily failed to produce the necessary evidence. Similarly the Revenue has also failed to establish it s case. While Revenue has created a doubt regarding the Licit acquisition of diamonds seized, no evidence of the same being smuggled has been produced. Section 123 of the Customs Acts puts the onus of establishing smuggled nature of goods on the Revenue, except for the notified goods. Diamonds are not notified under Section 123. In these circumstances by mere failure to explain Licit acquisition of diamonds the burden of proof under Section 123 is not discharged - It is also a fact that diamonds are freely traded in the open market. A person may acquire legally or illegally from the market. Failure to explain legal acquisition does not automatically imply that the goods are smuggled. There are no sufficient evidence has been placed to conclude that the diamonds were smuggled. The case of revenue has not been substantiated by positive evidence and hence cannot be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Imposition of penalty on the appellants for alleged smuggling of diamonds.
2. Absolute confiscation of diamonds.
3. Burden of proof regarding the smuggled nature of goods.

Issue-wise Detailed Analysis:

1. Imposition of Penalty on the Appellants for Alleged Smuggling of Diamonds:
The appeals were filed against the imposition of penalties on the appellants for their involvement in the alleged smuggling of rough diamonds. The SCN alleged that Mr. Tshimanga Mukadi Jean smuggled rough diamonds into the country without proper import documents, including the Kimberley Process Certificate (KPC). Mr. Jean admitted in his statements that he brought the diamonds from Congo and handed them over to Shri Pravin Ajudiya for sale in the local market. It was alleged that both Mr. Jean and Shri Pravin Ajudiya committed offenses punishable under Section 135(1) of the Customs Act, 1962, for smuggling rough diamonds in violation of the provisions of Section 11 read with Section 77 of the Customs Act and FTDR Act, 1992.

2. Absolute Confiscation of Diamonds:
The matter was initially decided with absolute confiscation of the diamonds and imposition of penalties. The Tribunal remanded the matter to the Commissioner, who again ordered absolute confiscation of the seized diamonds and imposed penalties on the appellants. The appellants contended that the diamonds were not notified goods under Section 123 of the Customs Act, and thus, the onus to establish smuggling was on the Revenue. They argued that the diamonds found in their custody were from the remaining stock of diamonds imported earlier. The appellants also pointed out discrepancies in the valuation of the diamonds and the lack of recovery of diamonds from the hotel rooms during the search.

3. Burden of Proof Regarding the Smuggled Nature of Goods:
The Tribunal noted that diamonds are not notified goods under Section 123 of the Customs Act, and therefore, the burden of proof regarding the smuggled nature of the goods lies with the Revenue. The evidence presented included the recovery of diamonds from a hotel room and a locker, and the statements of Mr. Jean and others. The Tribunal found that the Revenue's case was based on circumstantial evidence and the statements of Mr. Jean, which were later retracted. The Tribunal also noted that there was no positive evidence of the act of smuggling, and the retraction of statements raised doubts about the credibility of the evidence. The Tribunal referred to various legal precedents, including the decision in the case of Mamta Marketing, which emphasized that the burden of proof lies with the Revenue in cases of non-notified goods.

Conclusion:
The Tribunal concluded that the Revenue failed to provide sufficient evidence to establish the smuggled nature of the diamonds. The appeals were allowed, and the penalties and confiscation orders were set aside. The Tribunal emphasized the need for positive evidence to support allegations of smuggling and reiterated that the burden of proof lies with the Revenue in cases involving non-notified goods. The decision was pronounced in the open court on 02.07.2018.