Customs penalty requires physical dealing with smuggled goods and knowledge of confiscability, not mere financing.

Penalty under Section 112(b)(i) of the Customs Act, 1962 requires proof that a person was concerned in dealing with smuggled goods, such as carrying, depositing, concealing, selling, purchasing, or otherwise handling them, and also knew or had reason to believe that the goods were liable to confiscation under Section 111. Mere financing activity, without evidence of physical dealing, participation in movement of the goods, or knowledge of their smuggling use, is insufficient. The analysis also aligns this requirement with the approach under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2002, emphasising that mens rea remains essential for penalty.

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Issues: Whether penalty under Section 112(b)(i) of the Customs Act, 1962 was sustainable against a person who had financed the alleged participants in gold smuggling but was not shown to have physical possession of, or direct dealing with, the smuggled goods and was not proved to have knowledge or reason to believe that the goods were liable to confiscation under Section 111 of the Customs Act, 1962.

Analysis: Section 112(b) requires proof that the noticee either acquired possession of, or was otherwise concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling, purchasing or otherwise dealing with the goods, and also that he knew or had reason to believe that such goods were liable to confiscation under Section 111. The evidence relied upon by the revenue showed only financing activity in the ordinary course of business and did not establish that the appellant handled the gold, participated in its movement, or had knowledge that the funds were used for smuggling. The statements and material relied upon did not show a nexus between the appellant and the physical handling of the goods. The reasoning adopted under analogous provisions in Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2002 supported the view that physical dealing and knowledge are essential ingredients. Mens rea remained a necessary element for penalty.

Conclusion: Penalty under Section 112(b)(i) of the Customs Act, 1962 was not sustainable and was liable to be set aside.

Final Conclusion: The appellant was held not liable to the penalty imposed under the Customs Act, and the appeal succeeded with consequential relief.

Ratio Decidendi: Penalty under Section 112(b) of the Customs Act, 1962 can be sustained only where the person is shown to have physically dealt with the goods, or otherwise been concerned in the prohibited handling of them, and to have known or had reason to believe that they were liable to confiscation.

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