2025 (4) TMI 1074 - AT - Customs

Absolute Confiscation - seizure of 10 kg silver granules bearing foreign markings - levy of penalty - valid basis to seize the silver which is less than 100 kg or not - opportunity to cross-examine - violation of principles of natural justice - HELD THAT - Whereas the silver granules involved in the case are 10 kg and thus the seizure is unwarranted. In any case the seizure in this case was affected by a Superintendent who is not competent to seize the silver less than 100 kg and thereby the seizure is vitiated. In this regard Department relies on Co-ordinate Bench order in the case of Bula Ghosh Vs Commissioner of Customs Kolkata 2003 (7) TMI 147 - CESTAT KOLKATA in which it was held that Board Circular No. 394/233/88-Cus-As dated 11.06-1990 that the provision of Section 123 of the Customs Act 1962 should not be invoked normally against the person who are found in possession of silver bullion of less than 100 kg. The expression used is normal and it does not debar the Revenue Officer to seize the silver in case they have believe and there is evidence to show that the same as of smuggled character. Therefore Revenue Officers may seize the silver in special circumstances. But in this matter no any special circumstances to seize the silver bullion as Board Circular. There is no any evidence of the silver is smuggled otherwise appellant proved that he purchased under invoice which was onus on him. Conclusion - The Adjudicating Authority as well as Commissioner (Appeals) fail to consider appellant documents and also illegally denied the opportunity of cross-examination and believed one person statement and denied other without any judicious reason. Therefore confiscation of silver granules as well as imposing penalty is not sustainable. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the seizure of 10 kg silver granules bearing foreign markings was lawful and justified under the Customs Act, 1962 and allied provisions.

- Whether the appellant had satisfactorily discharged the burden of proof to establish lawful possession and purchase of the seized silver.

- Whether the adjudicating authorities violated principles of natural justice by denying the appellant the opportunity to cross-examine the key witness whose statement was relied upon for confiscation.

- Whether the seizure of silver bullion less than 100 kg without involvement of an officer not lower than Assistant Collector was valid under the Board Circular dated 11.06.1990 and the Customs Act.

- The legal effect and admissibility of statements recorded under Section 108 of the Customs Act without cross-examination as mandated under Section 138B.

- The applicability and interpretation of relevant case law and statutory provisions concerning confiscation, burden of proof, and procedural fairness in customs adjudications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Lawfulness of seizure of 10 kg silver granules bearing foreign markings

The seized silver was in a 10 kg PP gunny bag marked as "Fine Silver Granules LMPT.IMK DO2 Refined and Produced by PT.ANTAM Tbk Unit BISNIS PP LOGAM MULIA JI.Pemuda.JI.Raya Bekasi Km 18, Pulogadung PO Box 1079 Jakarta 13010, Indonesia" with purity 99.95%. The appellant claimed lawful purchase from M/s D.P. Gold Pvt Ltd., Vijayawada, supported by an invoice. However, the Manager of M/s D.P. Gold denied selling silver in 10 kg packaging, stating only 20 kg packs were sold.

The Department relied on the denial by M/s D.P. Gold's Manager and the foreign markings on the silver to contend smuggling. The appellant's claim was rejected by the adjudicating authority and Commissioner (Appeals), resulting in confiscation and penalty.

The Court examined the invoice, which did not specify packaging size, and noted that the statement of the Manager was recorded approximately five months after seizure and seven months after purchase. The Court observed that the Department accepted the Manager's statement without verifying documentary evidence regarding packaging size or cross-examining the witness, while discarding the appellant's consistent statement recorded under Section 108 of the Customs Act.

The Court found no cogent or reasonable basis for disbelieving the appellant's purchase claim, especially given the absence of any direct evidence that the silver was smuggled. The seized silver bore foreign markings, but the appellant had produced an invoice for purchase, and no evidence was presented to show that the markings did not relate to the silver contained.

Issue 2: Burden of proof and appellant's discharge thereof

Section 123 of the Customs Act places the burden on the person in possession of silver bullion to prove lawful possession if seized. The appellant produced an invoice and stated purchase of 160 kg silver, out of which 150 kg was sold and 10 kg remained and was seized.

The Court noted that the appellant discharged the burden by producing the invoice and consistent statements. The Department failed to produce evidence to rebut the appellant's claim adequately. The Court also noted that other seized items were released after satisfaction of lawful possession, indicating the appellant's general credibility.

Issue 3: Violation of principles of natural justice-denial of cross-examination

The appellant requested cross-examination of Mr. Dinesh Kumar Jain, Manager of M/s D.P. Gold, whose statement was relied upon to reject the appellant's claim. The Department refused this opportunity.

The Court relied on binding precedents including the Supreme Court decision in M/s Andaman Timber Industries Vs CCE, Kolkata, which held that denial of cross-examination of a witness whose statement is relied upon violates principles of natural justice and renders the order null and void.

The Court further referred to the Delhi High Court ruling in M/s J.K. Cigarettes Ltd., which upheld the mandatory nature of cross-examination under Section 138B of the Customs Act for statements recorded under Section 108 to be admissible.

Since the Department admitted the statement of the Manager without permitting cross-examination and rejected the appellant's statement, the Court found this to be a serious procedural flaw and violation of natural justice.

Issue 4: Competency of officer to seize silver less than 100 kg and applicability of Board Circular

The Board Circular dated 11.06.1990 states that normally silver bullion less than 100 kg should not be seized to prevent harassment of law-abiding persons, except in special circumstances such as smuggling of bars weighing approximately 30 kg or silver bearing foreign markings. Further, seizure of silver less than 100 kg requires an officer not below the rank of Assistant Collector.

In the present case, the seized silver was 10 kg, and seizure was made by a Superintendent, a rank below Assistant Collector. No special circumstances justifying seizure of less than 100 kg silver were established by the Department.

The Court relied on the co-ordinate bench decision in Bula Ghosh Vs Commissioner of Customs, Kolkata, which emphasized that while the Board Circular uses the term "normally," seizure of silver less than 100 kg is permissible only in special circumstances, which were absent here.

Therefore, the Court found the seizure to be vitiated due to lack of competent authority and absence of special circumstances.

Issue 5: Admissibility and evidentiary value of statements recorded under Section 108 without cross-examination

Statements under Section 108 of the Customs Act are not automatically admissible as evidence unless the witness is made available for cross-examination as per Section 138B. The appellant argued that the statement of the Manager of M/s D.P. Gold was inadmissible as evidence since cross-examination was denied.

The Court agreed with the appellant's submission, citing the Supreme Court and Delhi High Court rulings, holding that the failure to provide cross-examination opportunity renders such statements inadmissible and violates natural justice.

Issue 6: Treatment of competing evidence and application of law to facts

The Court observed that the adjudicating authorities accepted the Manager's statement without verification or supporting documents, while discarding the appellant's invoice and explanations without cogent reasons.

The Court emphasized that in the presence of contradictory statements from two key witnesses, natural justice requires cross-examination to resolve the dispute. The failure to do so led to an unfair and unsustainable order.

3. SIGNIFICANT HOLDINGS

"Serious flaw by adjudicating authority in denying cross-examination of witness. Appellant wanting to discredit testimony of witness by contesting truthfulness of statements - If testimony of witness is discredit, there is no other material with Revenue to justify its action - Principles of natural justice violated making order nullity."

The Court established the principle that when statements of two key witnesses are contradictory, the opportunity for cross-examination is mandatory before relying upon such statements for confiscation or penalty.

The Court held that seizure of silver bullion less than 100 kg requires involvement of an officer not lower than Assistant Collector and special circumstances must exist to justify seizure, as per Board Circular dated 11.06.1990.

It was held that the burden of proof under Section 123 of the Customs Act shifts to the person in possession of silver bullion, who must prove lawful possession. The appellant discharged this burden by producing an invoice and consistent statements.

The Court concluded that denial of cross-examination and acceptance of unverified statements without cogent reasons violated principles of natural justice, rendering the confiscation and penalty unsustainable.

Accordingly, the appeal was allowed, the confiscation and penalty were set aside, and consequential reliefs granted as per law.