2025 (4) TMI 1415 - AT - Customs

Reasonable belief to seize 3998.83 grams of gold or not - evidences available on record prove that the seized gold bars were smuggled into India from Bangladesh without any legal documents - discharge of burden of presumption under section 123 of Customs Act 1962 - failure to follow the procedure prescribed under section 138B vitiated the proceedings in the impugned case - reliability of statements of Manoj Kumar Nishad Shri Rajan Kumar Sahni later retracted. Whether Department could establish the Reasonable belief to seize 3998.83 grams of gold valued at Rs 2, 12, 79, 096 from Shri Manoj Kumar Nishad Shri Rajan Kumar Sahni travelling by Bus No UP-22AT-0568 on 04-05/09/2020 from Gorakhpur to Delhi? - Whether evidences available on record prove that the seized gold bars were smuggled into India from Bangladesh without any legal documents? - HELD THAT - The power bestowed in Section 110 of the Customs Act 1962 places a pre-condition for such seizure. The essential pre-condition being that the proper officer should have reasons to believe that that such goods are liable to confiscation under the Act; once such seizure is done Section 123 of the Customs Act 1962 shifts the burden of proof to prove that goods are not smuggled on the person from whom the goods are seized - he impugned Gold was seized from Shri Manoj Kumar Nishad Shri Rajan Kumar Sahni travelling by Bus No UP-22AT-0568 on 04-05/09/2020 from Gorakhpur to Delhi. Understandably seizure took place at a place far away from Customs Station Air or Sea port in an area not specified under a Section 111(H) as notified under Section 6 of the Customs Act, 1962; there were no foreign markings on the gold pieces seized; the purity was found to be 99.92 97.81, 99.26 and 89.34 and not 99.99 % by weight. It was not established that the persons apprehended were coming to India form as place outside India. Hon ble Delhi High Court in the case of Shanti Lal Mehta v. UOI and Others 1982 (11) TMI 56 - HIGH COURT OF DELHI . The Hon ble High Court reviewed the jurisprudence on the matter till then and set aside the confiscation and penalty on the ground that there was lack of reasonable belief on part of the proper officer before the seizure was affected and section 123 was not to be invoked. There is no document available on record to establish that gold bars/pieces were smuggled into India from a place outside India. The analysis of CDR only indicates that Shri Sharad Chandra Agrahari was in touch with Shri Manoj Kumar Nishad Shri Rajan Kumar Sahni at various places and on various dates in India - The impugned order has concluded that the said gold bars/pieces were smuggled into India only on the basis of retracted statements without any concrete evidence to substantiate this claim. Hence we hold that material evidence available on record that establishes that the officers had reasonable belief to seize the goods. Whether the appellants Shri Sharad Chand Agrahari of M/s Bajrang Billion Traders in the facts and circumstances of this case discharged the burden of presumption under section 123 of Customs Act 1962? - HELD THAT - No critical details about the persons who carried the gold from across the border what was place of crossing the international borders what was the mode of transport and how the finances were arranged etc. were neither asked by officers nor stated by the accused. The facts claimed to have been confessed regarding the alleged smuggling of the impugned Gold are very general in nature. It would be very na ve to expect that the accused would confess the most minute details even if they actually smuggled the impugned goods. What is intriguing is that the officers did not even put the relevant and pertinent questions to unearth or establish the act of smuggling. As such it is not open for the department to draw conclusions from a general statement to particularize the details about the impugned goods. As admittedly the gold having no foreign markings the onus would be on department to prove the smuggled nature of the same. This onus was not discharged. Moreover the provisions of Section 138B of the Customs Act have not been complied with and therefore the sanctity of the statement recorded under section 108 has been lost and consequently they cannot be conclusively relied upon. Whether not-following the procedure prescribed under section 138B vitiated the proceedings in the impugned case? - HELD THAT - In the instant case the Adjudicating Authority did not follow the procedure laid down under Section 138B in order that he could rely on the statements of Shri Manoj Kumar Nishad Shri Rajan Kumar Sahni who are co-accused to conclude that the impugned gold was liable for confiscation. The mandate not having been followed statements of the Shri Sharad Agrahari etc. cannot be held to be voluntary in nature and hence reliable. The provisions of Section 123 are not invited. Even assuming that the same are attracted the appellants have discharged the burden which is not negated by the department. The proceedings were vitiated for not following the procedure laid down under Section 138B of the Customs Act, 1962. Principles of Natural Justice have been violated in not examining the witnesses as per Section 138B. Whether the statements of Manoj Kumar Nishad Shri Rajan Kumar Sahni later retracted can be relied upon to establish that the goods are liable for confiscation and the persons are liable to pay penalty Section 112(b) of the Customs Act, 1962? - HELD THAT - No case has been made by Revenue for seizure or confiscation of the impugned gold Pithu Bag and packing material. Consequently no case has been made for imposition of penalties. Conclusion - i) The Department failed to establish reasonable belief at the time of seizure; hence the seizure was not sustainable and Section 123 could not be invoked. ii) The appellants discharged their burden of proof under Section 123 by producing credible documentary evidence which was not effectively negated by the Department. iii) Non-compliance with Section 138B vitiated the reliance on statements recorded during investigation. iv) The retracted confessional statements of co-accused cannot be relied upon for confiscation or penalty. Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this matter are:

(i) Whether the Department had established a 'reasonable belief' to seize 3998.83 grams of gold valued at Rs 2,12,79,096 from the appellants traveling by bus on 04-05/09/2020, and whether the evidence on record proves that the seized gold bars were smuggled into India from Bangladesh without legal documentation;

(ii) Whether the appellants discharged the burden of proof under Section 123 of the Customs Act, 1962, regarding the presumption of smuggling;

(iii) Whether the failure to follow the procedure prescribed under Section 138B of the Customs Act vitiated the proceedings;

(iv) Whether the statements of the co-accused, which were later retracted, can be relied upon to establish liability for confiscation and penalty under Section 112(b) of the Customs Act, 1962.

Issue-wise Detailed Analysis:

Issue (i): Reasonable belief for seizure and proof of smuggling

The legal framework mandates under Section 110 of the Customs Act that seizure of goods can only be effected if the proper officer has a reasonable belief that the goods are liable to confiscation, i.e., smuggled goods. Section 123 shifts the burden of proof to the person from whom the goods were seized to prove that the goods are not smuggled, but only after the existence of reasonable belief is established.

Precedents emphasize that reasonable belief is a prerequisite for seizure and must be based on definite information or material, not mere suspicion or presumption. The belief must exist at the time of seizure, not formed subsequently. The Supreme Court and various High Courts have held that without reasonable belief, Section 123 cannot be invoked, and the onus remains on the Department to prove smuggling.

In the present case, the seized gold was found in transit far from any Customs port or notified area, with no foreign markings and purity levels below 99.99%. The appellants produced vouchers and invoices claiming licit purchase from registered traders. Investigations revealed that while the signatures on some invoices were disputed by the sellers, the sellers did not deny business transactions with the appellants. No conclusive evidence was gathered to establish foreign origin or illegal importation.

The Tribunal relied on authoritative rulings, including a detailed judgment of the Delhi High Court, which held that vague information and absence of foreign markings or other indicia do not constitute reasonable belief. The Tribunal also referred to the Bombay High Court's ruling clarifying that possession of gold without proper account does not ipso facto render it smuggled. The Supreme Court's interpretation of "reason to believe" as requiring honest, reasonable grounds based on objective material was also followed.

Applying these principles, the Tribunal concluded that the Department failed to establish reasonable belief at the time of seizure. The reliance on confessional statements alone, which were later retracted, was insufficient. The Department's failure to pursue further investigation to verify disputed signatures or financial transactions further weakened its case. Thus, the seizure was not legally sustainable.

Issue (ii): Discharge of burden under Section 123 by appellants

Once reasonable belief is established, Section 123 casts the burden on the person from whom goods are seized to prove that the goods are not smuggled. However, the Tribunal recognized that this burden is not absolute and that the Department must conduct a thorough investigation to negate claims of licit purchase.

In this case, appellants produced invoices, stock registers, and purchase records. The Department did not conclusively disprove these documents nor verify disputed signatures or financial transactions. The Tribunal noted that the appellants discharged their burden by producing credible documentary evidence, and the Department failed to negate it effectively.

Therefore, even if Section 123 were attracted, the appellants met their evidentiary burden, which was not overcome by the Department.

Issue (iii): Non-compliance with Section 138B and its effect on proceedings

Section 138B of the Customs Act mandates that statements recorded under Section 108 during investigation can only be relied upon if the person making the statement is examined during adjudication to ensure voluntariness and reliability. The Tribunal noted that the adjudicating authority relied heavily on statements of co-accused, which were retracted, without examining those persons as required under Section 138B.

Precedents cited by the Tribunal, including rulings of the Punjab and Haryana High Court and the Supreme Court, emphasize that statements recorded under coercion or without adherence to procedural safeguards cannot be used as substantive evidence. The failure to follow Section 138B renders such statements inadmissible and vitiates the proceedings.

The Tribunal found that since the procedure was not followed, the statements of the co-accused could not be considered voluntary or reliable, and reliance on them to establish guilt or confiscation was impermissible.

Issue (iv): Reliance on retracted confessional statements for confiscation and penalty

The Department's case primarily rested on confessional statements of the two persons from whom the gold was seized. However, these statements were retracted at the earliest opportunity. The Tribunal examined legal principles that confessional statements must be corroborated by independent evidence to form the basis of conviction or confiscation.

Supreme Court rulings were cited to the effect that confessions obtained under duress or coercion are inadmissible, and that confessions of co-accused cannot be used as substantive evidence against others without corroboration. The Tribunal found no independent corroborative evidence to support the confessions, and the statements were not subjected to the safeguards under Section 138B.

Consequently, the Tribunal held that the retracted confessional statements cannot be relied upon to justify confiscation or penalty.

Significant Holdings:

"Reasonable belief is a pre-requisite for seizure; the proper officer should have reasons to believe that the goods are smuggled goods before seizing them under Section 110; the reasonable belief cannot be based on presumption; a case of suspicion or speculation is not one of reasonable belief."

"Section 123 kicks in only when Section 110 is satisfied and that 'reasonable belief' exists and can be explained before the adjudicating authority or tribunal or court, as the case may be."

"If Revenue fails to prove reasonable belief, then the goods would not be liable to be seized in the first place; if there was no reasonable belief, then the onus cannot be shifted on the person from whom the goods were seized."

"Confessional statements recorded under Section 108 of the Customs Act must be corroborated by independent evidence and must be recorded following the procedure prescribed under Section 138B; failure to comply with this procedure renders such statements inadmissible."

"The burden envisaged in Section 123 is not absolute; once persons from whom gold was seized claim licit purchase, it is incumbent upon the Department to disprove the same with evidence after taking enquiries to a logical conclusion."

"The mere absence of foreign markings or labels on gold bars and the purity being below 99.99% do not constitute sufficient grounds for reasonable belief that the gold is smuggled."

"Statements of co-accused, especially when retracted and not subjected to examination under Section 138B, cannot be relied upon to establish guilt or justify confiscation and penalty."

The Tribunal's final determinations were:

(i) The Department failed to establish reasonable belief at the time of seizure; hence, the seizure was not sustainable and Section 123 could not be invoked;

(ii) The appellants discharged their burden of proof under Section 123 by producing credible documentary evidence, which was not effectively negated by the Department;

(iii) Non-compliance with Section 138B vitiated the reliance on statements recorded during investigation;

(iv) The retracted confessional statements of co-accused cannot be relied upon for confiscation or penalty;

Accordingly, the impugned order of confiscation and penalty was set aside and all appeals were allowed.