2001 (2) TMI 242 - AT - Customs

Summary

Issues Involved:
1. Legality of the confiscation of currency seized from various accounts and individuals.
2. Liability of banks and their employees for penalties under Sections 112 and 114 of the Customs Act.
3. Liability of moneychangers for penalties under Sections 112 and 114 of the Customs Act.

Detailed Analysis:

1. Legality of the Confiscation of Currency Seized:
The primary issue was whether the seized currency represented the sale proceeds of smuggled gold and was thus liable to confiscation under Section 121 of the Customs Act. The evidence against Ambalal Soni included statements from five individuals from whom the currency was seized, indicating that the money was the sale proceeds of smuggled goods. Statements from Ambalal Soni, Hussein Secretary, and Firoz Batliwala corroborated the involvement in dealing with gold brought by NRI passengers, which was sold in the market. Despite the lack of direct evidence proving the smuggled nature of the gold, the circumstantial evidence and the conduct of the involved parties led to the conclusion that the currency was indeed the proceeds of smuggled gold. Thus, the money seized from the bank amounting to Rs. 1,00,78,000/- was liable to confiscation under Section 121, and Ambalal Soni was liable for penalties under Section 112.

However, there was no evidence to show that the amount of Rs. 81,000/- seized from Ambalal Soni's residence represented such sale proceeds, and it was ordered to be released.

2. Liability of Banks and Their Employees:
The banks and their employees were penalized for allegedly abetting the acts of Ambalal Soni by allowing the opening and operation of accounts in fictitious names, which facilitated the transactions involving smuggled gold proceeds. The Commissioner found that the banks did not follow the Reserve Bank of India's guidelines and should have been suspicious of the large cash deposits and immediate withdrawals. However, the Tribunal held that it is not the legitimate function of banks to inquire into the source of funds unless required by law. There was no evidence that the bank officials knew or had reason to believe that the funds were proceeds of smuggled goods. The Tribunal concluded that negligence or carelessness in following banking regulations did not establish liability under Section 112, which requires a specific state of mind. Therefore, penalties on the banks and their employees under Sections 112 and 114 were not sustainable.

3. Liability of Moneychangers:
The moneychangers were penalized under Sections 112 and 114 for allegedly abetting the smuggling of foreign exchange by not adhering to the Reserve Bank of India's guidelines when issuing foreign exchange. The Commissioner cited instances where moneychangers extended credit facilities or released foreign exchange without proper verification. However, the Tribunal emphasized that negligence in following guidelines does not equate to conscious abetment of smuggling. There was no evidence to show that moneychangers knew or had reason to believe that the traveller's cheques would be used for purposes other than stated. The Tribunal concluded that penalties under Sections 112 and 114 were not justified as there was no conscious involvement in smuggling activities.

Conclusion:
- The appeal of Ambalal Soni was partially allowed, with the currency seized from his residence ordered to be released.
- Penalties imposed on the banks, their employees, and the moneychangers were set aside, as there was no evidence of conscious abetment of smuggling activities. The Tribunal underscored the need for clear evidence of intent and knowledge in imposing penalties under Sections 112 and 114 of the Customs Act.