2025 (4) TMI 973 - AT - Customs

Smuggling of Gold of foreign origin - existence of reasonable belief/evidence that the said goods have been smuggled into the country or not - shifting the onus to prove to the person from whose possession the goods were seized - levy of penalty on appellant - HELD THAT - Board vide its Circular No. 01/2017 dated 08.02.2017 has instructed to pass a specific order depicting the reasonable belief of the officer concerned while seizing the goods. Therefore deviation thereof clearly depicts that the seizure so made is illegal and hence the goods are liable to be released and in corollary thereof confiscation under Section 111 of the Customs Act 1962 is not at all warranted. Thus when preliminary seizure of goods is in dispute the SCN proceedings become vitiated in nature thereby making the impugned order liable to be quashed. 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. The Appellants contend that 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. No reasonable belief has been formed by the officers that the gold is of smuggled in nature. It is also found that 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. It is observed that the seizure of the gold without following the reasonable belief that the gold is of smuggled in nature is not sustainable. The only ground in which the gold was seized by the officers was that the appellant was not having any document for licit purchase of the same at the time when they were intercepted. It is observed that 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 burden under Section 123 of Customs Act to prove that the gold is not smuggled in nature does not lie on the Appellants in this case. The onus is on the Departmental officers that the gold is of smuggled in nature. However it is observed that the officers of the Department could not establish that the gold is of smuggled in nature. The documents submitted by the Appellant have not been proved to be false. However despite having found that the documentary evidence submitted by the Appellants was genuine the ld. adjudicating authority has held that the goods are liable for confiscation vide the Order-in-Original dated 30.03.2022. Considering the documentary evidence submitted by the appellants there are no reason to reject the evidence of legal procurement of the gold produced by the Appellants. Consequently the provisions of Section 123 of the Customs Act 1962 are not applicable to this case - the confiscation of the gold under Section 111 of the Customs Act 1962 is not sustainable. Penalties imposed on the Appellants - HELD THAT - The ld. adjudicating authority has imposed the penalties under Section 112 of the Customs Act 1962. As the gold is not liable for confiscation there is no offence committed by the Appellants warranting imposition of penalty under Section 112 ibid. Accordingly the penalties imposed on the Appellants under Section 112 of the Customs Act are set aside. Conclusion - i) The seizure of gold was invalid due to non-formation of reasonable belief. ii) Section 123 was not attracted; burden of proof did not shift to appellants. iii) Documentary evidence of indigenous procurement was accepted negating smuggling allegations. iv) Confiscation order was set aside. v) Penalties imposed under Section 112 were quashed. Appeal allowed.

Summary

The core legal questions considered by the Tribunal are:

1. Whether the seizure of gold under Section 110 of the Customs Act, 1962 was valid, specifically whether the officers had formed a 'reasonable belief' that the gold was smuggled into India without payment of customs duties.

2. Whether the provisions of Section 123 of the Customs Act, 1962, which shift the burden of proof to the person from whose possession the goods were seized, are applicable in the present case.

3. Whether the documentary evidence submitted by the appellants establishing indigenous procurement of the gold negates the allegation of smuggling and invalidates the confiscation order.

4. Whether the penalties imposed under Section 112 of the Customs Act, 1962 on the appellants are sustainable in the absence of proven smuggling or confiscation.

Issue 1: Validity of Seizure under Section 110 of the Customs Act, 1962 - Requirement of 'Reasonable Belief'

Relevant Legal Framework and Precedents:

Section 110 of the Customs Act empowers officers to seize goods if there is a 'reasonable belief' that such goods are smuggled. The Board's Circular No. 01/2017 mandates that seizure orders explicitly state the grounds for such reasonable belief. Precedents such as Om Sai Trading (2020) elucidate that 'reasonable belief' must be an honest and reasonable conclusion based on material evidence and not mere subjective satisfaction.

Court's Interpretation and Reasoning:

The Tribunal observed that the Detention Memo did not record any 'reasonable belief' regarding the smuggled nature of the gold. The gold was found in uneven shapes, lacked foreign markings, and was not of the typical 99.9% purity associated with foreign gold. The absence of explicit reasons for seizure contravened the Board's circular, rendering the seizure illegal.

Key Evidence and Findings:

The gold was seized from the appellant's possession at a railway station without any accompanying documentation. However, no material evidence was presented to establish smuggling or foreign origin. The gold's physical characteristics and the absence of foreign markings were noted.

Application of Law to Facts:

The Tribunal held that seizure without forming a reasonable belief is unsustainable. Since the seizure was illegal, subsequent confiscation under Section 111 could not stand.

Treatment of Competing Arguments:

The Revenue contended that absence of documents justified seizure and confiscation. The Tribunal rejected this, emphasizing that absence of documents alone does not create reasonable belief of smuggling.

Conclusion:

The seizure was invalid due to non-formation of reasonable belief, leading to the conclusion that confiscation was not warranted.

Issue 2: Applicability of Section 123 of the Customs Act, 1962 - Burden of Proof

Relevant Legal Framework and Precedents:

Section 123 applies only when goods are seized under reasonable belief of smuggling, shifting burden of proof to the person from whose possession goods were seized. Decisions such as Sanjeeb Kumar @ Pappu Kumar and Balanagu NagaVenkata Raghavendra emphasize that without reasonable belief, this burden shift does not occur.

Court's Interpretation and Reasoning:

The Tribunal reiterated that since no reasonable belief was formed, Section 123 was not attracted. Therefore, the Department bore the burden to prove smuggling, which it failed to discharge.

Key Evidence and Findings:

No evidence was presented by the Department to establish foreign origin or smuggling. The appellants produced an invoice evidencing domestic procurement.

Application of Law to Facts:

Without reasonable belief, the burden does not shift to appellants. The Department failed to prove smuggling, negating applicability of Section 123.

Treatment of Competing Arguments:

The Department argued that absence of documents at seizure justified burden on appellants. The Tribunal held this insufficient absent reasonable belief.

Conclusion:

Section 123 is not applicable; burden remains on Department, which failed to prove smuggling.

Issue 3: Validity of Documentary Evidence and Its Effect on Confiscation

Relevant Legal Framework and Precedents:

Documentary evidence proving legal procurement negates smuggling allegations. The Tribunal referred to Commissioner of Cus. (Prev.), Shillong v. Sri Sangpuia, which held absence of notification under Chapter IVA or IVB and lack of false documents precludes presumption of smuggling.

Court's Interpretation and Reasoning:

The Tribunal found the invoice and related documents genuine, as confirmed by the Director of the supplier company. Despite this, the adjudicating authority ordered confiscation, which the Tribunal found untenable.

Key Evidence and Findings:

Invoice No. KJ/WB/19-20/1042 dated 31.05.2019 showed purchase of 700 grams of gold domestically, part of which was in appellants' possession. The Test Memo indicated gold purity below 99.9%, inconsistent with foreign gold.

Application of Law to Facts:

Genuine documentary evidence of domestic purchase and lack of contrary evidence by Revenue negated smuggling allegations, invalidating confiscation.

Treatment of Competing Arguments:

The Revenue questioned the documents' validity but failed to prove falsity. The Tribunal accepted the documents as genuine.

Conclusion:

Confiscation was not sustainable given genuine evidence of legal procurement.

Issue 4: Sustainability of Penalties under Section 112 of the Customs Act, 1962

Relevant Legal Framework and Precedents:

Penalties under Section 112 require commission of an offence, generally linked to smuggling or evasion. If confiscation is unsustainable, penalties typically fall away.

Court's Interpretation and Reasoning:

The Tribunal held that since confiscation was set aside, no offence was committed by appellants, rendering penalties under Section 112 unsustainable.

Key Evidence and Findings:

Penalties were imposed based on confiscation and alleged smuggling, both of which were negated by the Tribunal.

Application of Law to Facts:

Without offence, penalties cannot stand.

Treatment of Competing Arguments:

The Revenue supported penalties, but the Tribunal found no basis for them.

Conclusion:

Penalties imposed on appellants were set aside.

Significant Holdings

"The seizure so made is illegal and hence, the goods are liable to be released and in corollary thereof, confiscation under Section 111 of the Customs Act 1962 is not at all warranted."

"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."

"The documents submitted by the Appellant have not been proved to be false. Considering the documentary evidence submitted by the appellants, I do not find any reason to reject the evidence of legal procurement of the gold produced by the Appellants."

"As the gold is not liable for confiscation, there is no offence committed by the Appellants warranting imposition of penalty under Section 112 ibid. Accordingly, the penalties imposed on the Appellants under Section 112 of the Customs Act are set aside."

Core principles established include:

- The mandatory requirement of forming a 'reasonable belief' before seizure and invocation of Section 123.

- Absence of foreign markings and sub-standard purity undermines presumption of smuggling.

- Genuine documentary evidence of domestic procurement negates smuggling allegations.

- Burden of proof lies on the Department to establish smuggling when reasonable belief is absent.

- Penalties under the Customs Act are contingent on proven offences such as smuggling or evasion.

Final determinations:

- The seizure of gold was invalid due to non-formation of reasonable belief.

- Section 123 was not attracted; burden of proof did not shift to appellants.

- Documentary evidence of indigenous procurement was accepted, negating smuggling allegations.

- Confiscation order was set aside.

- Penalties imposed under Section 112 were quashed.