2025 (1) TMI 1046 - AT - Customs

Absolute Confiscation of gold - levy of penalty u/s 112(b) of the Customs Act 1962 - seizure on the reasonable belief that the said gold was contraband in nature and was smuggled from Bangladesh - burden of proof - Gold was procured legally from domestic sources. Reasonable belief - HELD THAT - The seizure was effected by a team of officers comprising of the Superintendent (Prev.) Circle Kishanganj and Preventive Officers assisted by SSB officials and G.R.P./R.P.F. personnel on the reasonable belief that the said gold was contraband in nature and was smuggled from Bangladesh. However in the present case we observe that no reasonable belief has been formed by the officers that the gold is of smuggled in nature. No evidence has been brought on record by the Revenue to substantiate the allegation that the gold is of foreign origin and smuggled in nature. The seizure of the gold without following the reasonable belief that the gold is of smuggled in nature is not sustainable. Applicability of Burden of Proof as envisaged under Section 123 of Customs Act, 1962 - HELD THAT - Section 123 of the Customs Act clearly stipulates that a reasonable belief that the gold is of smuggled in nature is mandatory for invocation of the said provision. However in the present case no reasonable belief has been formed by the officers that the gold is of smuggled in nature and hence the provisions of Section 123 are not applicable in this case and the burden lies on the department to prove that seized gold is of smuggled in nature. However no evidence has been brought on record by the Revenue to substantiate the allegation that the gold is of foreign origin and smuggled in nature - the provisions of Section 123 are not applicable to indigenously procured gold. Reliance placed upon the decision in the case of BALANAGU NAGA VENKATA RAGHAVENDRA AND BALANAGU VENKATA SIVA KANAKA RATNAM VERSUS COMMISSIONER OF CUSTOMS VIJAYAWADA 2021 (2) TMI 612 - CESTAT HYDERABAD wherein it has been held that the burden under section 123 will not shift on the Appellants when the seizure of gold without foreign markings are seized from city. Gold was procured legally from domestic sources - HELD THAT - The failure to produce documents in respect of the goods carried by a person does not ipso facto prove that the goods are contraband in nature. The allegation of smuggling needs to be proved with cogent reasoning and corroborative evidence thereof. Subsequently if the appellant could produce documents for its legal purchase the same cannot be ignored to conclude that the gold is of smuggled in nature. The evidence provided by M/s. Akshay Kripa Jewellers (Pvt.) Ltd. and M/s. Supreme Gold Delhi in the course of follow up action indicate that both jewellers purchased and sold gold with the markings Rand Refinery and Credit Swisse which they had acquired from M/s. Atma Ram Amar Nath and M/s. Lawat Jewellers Delhi who had acquired the same from the HDFC Bank Delhi. This fact has been confirmed by HDFC bank vide their letter s dated 3.12.2013 and 18.01.2014 with annexures which indicate that the imported gold which was indeed sold with the marking Rand Refinery and Credit Swisse during the said period when the appellant dealt with the jewellers viz. M/s. Akshay Kripa Jewellers (Pvt.) Ltd. and Ms. Supreme Gold of Delhi. Conclusion - The burden under Section 123 of Customs Act to prove that the gold is not smuggled one does not lie on the appellant in this case. The onus is on the departmental officers that the gold is of smuggled in nature. However the officers of the Department could not establish that the gold is of smuggled in nature. Accordingly the confiscation of the gold is not sustainable. Since the confiscation of the gold is not sustainable the penalties imposed on the appellant are also not sustainable. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the confiscation of gold weighing 2513.40 grams and valued at Rs. 76,65,870/- was justified under the Customs Act, 1962.
• Whether the penalty of Rs. 10,00,000/- imposed on the appellant under Section 112(b) of the Customs Act, 1962, was legally sustainable.
• Whether the Department met the burden of proof to establish that the seized gold was smuggled in nature.
• Whether the provisions of Section 123 of the Customs Act, 1962, regarding the burden of proof were applicable in this case.
• Whether the appellant successfully demonstrated that the gold was procured legally from domestic sources.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Confiscation of Gold

• Relevant Legal Framework and Precedents: The confiscation was based on the Customs Act, 1962, particularly focusing on the provisions related to smuggling and the burden of proof under Section 123.
• Court's Interpretation and Reasoning: The court noted that the confiscation was premised on the 'reasonable belief' that the gold was smuggled. However, the court found that no reasonable belief was formed by the officers, nor was there evidence to substantiate the claim of smuggling.
• Key Evidence and Findings: The appellant provided evidence of legal purchase from M/s. Supreme Gold and M/s. Akshay Kripa Jewellers, supported by invoices and bank statements.
• Application of Law to Facts: The court applied the principles of Section 123, emphasizing the need for a reasonable belief of smuggling, which was absent in this case.
• Treatment of Competing Arguments: The appellant argued the lack of evidence for smuggling, while the Department failed to provide contrary evidence.
• Conclusions: The court concluded that the confiscation was not sustainable due to the lack of evidence of smuggling.

Issue 2: Imposition of Penalty

• Relevant Legal Framework and Precedents: Section 112(b) of the Customs Act, 1962, which deals with penalties for improper importation of goods.
• Court's Interpretation and Reasoning: The penalty was contingent on proving the gold was smuggled, which was not established.
• Key Evidence and Findings: The court relied on the same evidence that negated the smuggling claim.
• Application of Law to Facts: Without evidence of smuggling, the penalty under Section 112(b) was deemed unjustified.
• Treatment of Competing Arguments: The appellant's argument of lawful procurement was upheld due to lack of contrary evidence.
• Conclusions: The penalty was set aside as it was based on an unsustainable claim of smuggling.

Issue 3: Burden of Proof under Section 123

• Relevant Legal Framework and Precedents: Section 123 of the Customs Act, 1962, which shifts the burden of proof to the person from whom goods are seized if they are believed to be smuggled.
• Court's Interpretation and Reasoning: The court emphasized that the initial burden of establishing 'reasonable belief' of smuggling lies with the Department, which was not fulfilled.
• Key Evidence and Findings: The appellant provided sufficient evidence of legal procurement, shifting the burden back to the Department.
• Application of Law to Facts: The court found that the absence of a reasonable belief negated the applicability of Section 123.
• Treatment of Competing Arguments: The Department's failure to establish smuggling meant the burden remained with them.
• Conclusions: The court held that the burden of proof under Section 123 was not applicable to the appellant in this case.

Issue 4: Demonstration of Legal Procurement

• Relevant Legal Framework and Precedents: The appellant relied on documentary evidence to prove legal purchase.
• Court's Interpretation and Reasoning: The court found the evidence credible and consistent with lawful procurement practices.
• Key Evidence and Findings: Invoices, bank statements, and corroborative statements from suppliers supported the appellant's claim.
• Application of Law to Facts: The court accepted the evidence as sufficient to demonstrate legal procurement.
• Treatment of Competing Arguments: The Department's lack of evidence against the appellant's claims was a critical factor.
• Conclusions: The appellant successfully demonstrated that the gold was legally procured.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The burden under Section 123 of Customs Act, to prove that the gold is not smuggled one, does not lie on the appellant, in this case."
• Core Principles Established: The necessity of a 'reasonable belief' for invoking Section 123; the importance of documentary evidence in proving legal procurement; the Department's responsibility to substantiate claims of smuggling.
• Final Determinations on Each Issue: The confiscation of gold and the imposition of penalty were both set aside due to lack of evidence supporting the smuggling claim.

The judgment underscores the importance of adhering to legal standards of proof and the protection of individuals' rights against presumptive legal actions without sufficient evidence. The appeal was allowed, and the appellant was granted relief from the confiscation order and penalty.