2025 (3) TMI 786 - AT - Customs

Smuggling - Confiscation of seized consignment of betel nuts of foreign origin - onus to prove - report from the Arecanut Research and Development Foundation (ARDF) is a valid basis to determine the origin of the betel nuts or not - notified item under Section 123 of the Customs Act 1962 or not - Penalty u/s 112(b) of the Customs Act - HELD THAT - There is no evidence brought on record to substantiate this allegation that the goods were of foreign origin and smuggled in nature. It is observed that betel nut is not a notified item under Section 123 of the Customs Act 1962. Thus the onus is on the Department to prove that the goods were smuggled in nature. The lower authorities have relied on the Report received from ARDF to substantiate their allegation that the goods were of foreign origin and smuggled into India. In this regard it is observed that ARDF is not an organization accredited by the Government for issuing the certificate of origin - This view has been expressed by the Hon ble Allahabad High Court in the case of Maa Kamakhya Trader v. Commissioner of Customs (Preventive) 2024 (3) TMI 140 - ALLAHABAD HIGH COURT wherein it has been observed that The report of the ARDF has also been held to be not reliable inasmuch as it could not be shown with any degree of certainty that the origin of the betel nuts could be established by testing in a laboratory as is clear by the answer to the RTI query given by Directorate of Arecanut And Spice Development Ministry of Agriculture and Farmers Welfare Government of Kerala. Therefore by relying on the decision it is held that the ARDF Report alone cannot form the basis for arriving at the conclusion that the goods were of foreign origin and smuggled in nature. The allegation of foreign origin and smuggled nature of the goods must be substantiated with cogent evidence. Confiscation of the goods cannot be done merely on the basis of assumptions and presumptions or a mere suspicion that the goods were of foreign origin. There is no corroborative evidence brought on record by the investigation to substantiate the allegation that the goods were of foreign origin and smuggled in nature. Thus the Department has failed to establish that the goods were of foreign origin and smuggled into the country without payment of customs duties - Since betel nut is not a notified item under Section 123 of the Customs Act 1962 the onus is on the Department to prove that the goods were smuggled in nature. As the Department could not produce any evidence to substantiate the allegation that the betel nuts were of foreign origin except the ARDF report the goods are not liable for confiscation. As the goods are not liable for confiscation the question of imposing redemption fine in lieu of confiscation does not arise. Penalty u/s 112(b) of the Customs Act - HELD THAT - Since the violations alleged by the Department has not been substantiated with evidence the appellants are not liable for penalty. As the confiscation of the goods is not sustained the penalty imposed on the Appellant No. 1 under Section 112(b) of the Customs Act is not sustainable and accordingly the same is set aside. Conclusion - i) The burden of proof lies on the Department to establish the foreign origin and smuggled nature of goods not notified under Section 123 of the Customs Act. ii) Reports from non-accredited organizations cannot be solely relied upon to substantiate such claims. The impugned order is set aside - appeal allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the seized consignment of betel nuts was of foreign origin and smuggled into India, warranting confiscation under Section 111(b) and (d) of the Customs Act, 1962.
Whether the penalties imposed on the appellants under Section 112(b) of the Customs Act, 1962, were justified.
Whether the report from the Arecanut Research and Development Foundation (ARDF) was a valid basis to determine the origin of the betel nuts.
Whether the burden of proof was appropriately placed on the Department to establish the smuggled nature of the goods.

ISSUE-WISE DETAILED ANALYSIS

1. Determination of the Origin and Nature of the Betel Nuts

Relevant legal framework and precedents: The confiscation was proposed under Section 111(b) and (d) of the Customs Act, 1962. The burden of proof lies on the Department to prove that the goods are of foreign origin and smuggled, as betel nuts are not notified under Section 123 of the Customs Act.

Court's interpretation and reasoning: The Tribunal found that the Department failed to provide sufficient evidence to substantiate the claim that the betel nuts were of foreign origin. The reliance on the ARDF report was deemed insufficient as ARDF is not a government-accredited organization for determining the origin of goods.

Key evidence and findings: The Department relied on the ARDF report, which suggested the goods were of foreign origin. However, the Tribunal noted that the report was not definitive and lacked objective testing to ascertain the origin of the goods.

Application of law to facts: The Tribunal emphasized that without definitive evidence, such as objective testing or corroborative evidence, the goods could not be deemed smuggled based solely on the ARDF report.

Treatment of competing arguments: The appellants argued that the ARDF report was merely a trade opinion and not legally valid. The Tribunal agreed, citing precedents where similar reports were not accepted as conclusive evidence.

Conclusions: The Tribunal concluded that the confiscation of the goods based on assumptions and presumptions was not sustainable. The goods were not liable for confiscation as the Department failed to prove their foreign origin.

2. Imposition of Penalties on the Appellants

Relevant legal framework and precedents: Penalties were imposed under Section 112(b) of the Customs Act, 1962, for alleged involvement in smuggling activities.

Court's interpretation and reasoning: The Tribunal found no evidence of the appellants' involvement in smuggling activities. The penalties were imposed based on the assumption of smuggling, which was not substantiated by evidence.

Key evidence and findings: The Tribunal noted the lack of evidence linking the appellants to any illegal importation of the betel nuts. The appellant provided documentation showing legal purchase through domestic sources.

Application of law to facts: The Tribunal held that without evidence of smuggling, penalties could not be justified. The burden of proof was on the Department, which it failed to discharge.

Treatment of competing arguments: The Department reiterated the findings of the lower authorities, while the appellants argued the lack of evidence for smuggling. The Tribunal sided with the appellants, emphasizing the absence of corroborative evidence.

Conclusions: The Tribunal set aside the penalties imposed on both appellants, as the Department did not substantiate the allegations with evidence.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The report of the ARDF though described as one of a neutral third party, it may never be acknowledged as cogent or objective material that may lead to formation of a 'reason to believe' that the goods were of foreign origin."

Core principles established: The burden of proof lies on the Department to establish the foreign origin and smuggled nature of goods not notified under Section 123 of the Customs Act. Reports from non-accredited organizations cannot be solely relied upon to substantiate such claims.

Final determinations on each issue: The Tribunal set aside the confiscation order and penalties, allowing the appeals filed by the appellants. The decision emphasized the necessity of concrete evidence to support allegations of smuggling and foreign origin.

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