2023 (5) TMI 903 - AT - Customs

Customs Act 1962: Burden of Proof in Seized Goods Appeal Upheld

The appeals were allowed as the department failed to prove the foreign origin and smuggled nature of 5700 kg of cut betel nuts seized under the Customs ... Smuggling - 5,700 kg. cut betel nut alleged illegally imported, to be of third country origin - basis of impugned seizure under Section 110 of the Customs Act 1962 has to be on a “reasonable belief” that the goods are smuggled, of foreign origin and therefore liable for seizure - failure to establish foreign origin of seized goods - onus to prove on Department - provisional release of seized goods - penalty - HELD THAT:- From the facts of the case, it appears that this belief is largely based on this specific information with the authorities, it may have been further strengthened by non-production of transport documents at the time of interdiction of vehicle. Cut betel nuts are non-notified goods and therefore in terms of Section 123 of the Customs Act the onus to prove foreign origin and smuggled nature of the goods is on the department. The appellants have discharged their share of burden by presenting to the department an invoice No. 133, dated 13th March, 2016 - There is nothing expressly indicated in the order appealed to confirm the existence of a reasonable belief. Be it, the seizure may be on an alleged specific information, but beyond the point of seizure by police and the goods being handed over to the Customs department and the supply of documents of purchase of goods through M/s Shree Shai Systems, in turn from Customs auction at Forsebganj accounting for the entire 5700 kgs by way of cut & uncut betel nuts the appellants have discharged there initial onus. There is no shred of evidence to establish or even state that the goods were smuggled. Having lent a credence to the goods to be procured out of Customs auction, it is for the department to affirmatively negate the same. There is no word in the order in respect of the various unanswered questions framed by the Commissioner, as to the investigations in regard to those primary questions. Moreover, smuggled character of goods is to be led and established by positive evidence and cannot be assumed on the basis of some unanswered probabilities as to non-supply of carriage documents or that of long storage or the character of the goods. It is observed from the investigations undertaken, that the department has thus miserably failed in establishing the foreign origin of the seized, confiscated and provisionally released cut betel nuts. There being no shred of any positive piece of evidence led by the revenue, to establish the smuggled nature of the goods, being non notified goods, the onus is on the department to establish smuggled foreign origin of the cut betel nuts. The appellants have discharged their burden on the basis of invoice tendered and related procurement source. Moreover, it is not the case of the department that the goods were not procured in auction by the supplier Shri Arvind Kumar Shahee. The department not being able to discharge the onus cast upon them to establish the smuggled character of the goods, the confirmation of sale to the appellants by Shri Arvind Kumar Shahee picking up the betel nuts in the departmental auction, the order in appeal is set aside and the appeals allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the seizure of goods under Section 110 of the Customs Act was supported by a 'reasonable belief' that the goods were smuggled/foreign-origin. 2. In respect of non-notified goods, whether the statutory onus under Section 123 of the Customs Act to establish foreign origin and smuggling lay on the department and whether that onus was discharged. 3. Whether production of an invoice and auction documents by the claimants sufficed to discharge the initial onus, and what evidentiary burden remained on the Revenue to negativate that defence. 4. Admissibility and probative value of the Arecanut Research & Development Foundation report and its effect on the finding of foreign origin. 5. Whether ancillary measures (confiscation of conveyance, imposition of redemption fines and penalties) could be sustained when the fundamental smuggling/foreign-origin finding was not proven by the department. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of seizure under Section 110: reasonable belief requirement Legal framework: Section 110 authorizes seizure when there is a reasonable belief that goods are liable to confiscation as smuggled/foreign-origin. Precedent Treatment: The order under appeal emphasizes that mere specific information and lack of carriage documents form the basis for the initial seizure; no further precedent was invoked to alter the statutory requirement of reasonable belief. Interpretation and reasoning: The Tribunal recognizes that the initial interception followed specific information and absence of transport documents, which can justify seizure at the interdiction stage. However, the existence of a reasonable belief sufficient for sustained confiscation requires further positive evidence establishing foreign origin/smuggling beyond initial suspicion. The Court distinguishes between a prima facie basis for seizure and the evidentiary threshold required to confirm confiscation. Ratio vs. Obiter: Ratio - reasonable belief at seizure stage is distinct from the burden to prove smuggled character at adjudication; Obiter - observations on frequency of similar modus operandi by smugglers provide context but cannot substitute positive evidence. Conclusions: Seizure under Section 110 was not per se unlawful at interdiction, but lawful seizure does not relieve the department of its statutory burden to establish smuggling/foreign origin for confirmation of confiscation. Issue 2 - Burden under Section 123 for non-notified goods Legal framework: Section 123 places the onus on the department to prove foreign origin and smuggling for non-notified goods; once claimants produce prima facie documents, burden shifts to Revenue to negate them with positive evidence. Precedent Treatment: The Tribunal relies on the statutory allocation of burden and refers to earlier judicial scrutiny (Patna High Court in Salasar Transport Co.) regarding the need to establish credentials of testing agencies; that precedent was used to question the probative value of evidence tendered by Revenue. Interpretation and reasoning: The claimants produced invoice No.133 and auction documentation; the Tribunal finds these suffice to discharge the claimants' initial onus. Thereafter, the department was required to lead positive, cogent evidence demonstrating smuggling/foreign origin. The Tribunal holds that assumptions (age of goods, lack of transport documents, alleged storage period, mould infection, and frequency of similar alibis) cannot substitute for affirmative proof required by Section 123. Ratio vs. Obiter: Ratio - for non-notified goods, Revenue must prove smuggled foreign origin by positive evidence once claimants have produced plausible documents of lawful procurement; Obiter - criticisms of claimants' delay in claiming goods and frequency of 'manufactured document' defenses are relevant but insufficient to discharge Revenue's statutory burden. Conclusions: The department failed to discharge its burden under Section 123; therefore confirmation of confiscation could not be sustained. Issue 3 - Sufficiency of invoice/auction evidence and necessary proof by Revenue Legal framework: Documentary evidence of lawful procurement (invoice, auction order) shifts evidentiary onus to Revenue to demonstrate illegality; the standard is proof by positive evidence rather than conjecture. Precedent Treatment: The Tribunal distinguishes contextual inferences from binding precedent; it treats the auction/invoice evidence as adequate to raise a legitimate presumption of lawful acquisition, thereby obligating Revenue to affirmatively negate that presumption. Interpretation and reasoning: The Tribunal examines timelines (auction date, alleged resale date, seizure date), composition of auctioned goods (mix of cut and uncut) versus seized goods (entirely cut), perishability concerns, and lack of storage capacity proof. While the adjudicator considered these factors as undermining claimants' story, the Tribunal found none of these amounted to conclusive evidence of smuggling. The Tribunal holds that unexplained anomalies or suspicions require follow-up investigation by Revenue, which was not demonstrated. Ratio vs. Obiter: Ratio - invoice and auction documents, if credible, satisfy the initial evidentiary requirement and compel Revenue to produce direct evidence to the contrary; Obiter - articulations that certain business practices are commonly used by smugglers are not substitute evidence. Conclusions: The appellants discharged their initial burden by producing the invoice and auction order; Revenue's failure to undertake or produce further probative investigation or evidence rendered the confiscation unsupported. Issue 4 - Probative value of Arecanut R&D Foundation report Legal framework: Scientific or expert reports used to establish origin must be from accredited, reliable sources and must be connected factually to the seized consignment and its chain of custody. Precedent Treatment: The Tribunal references the Patna High Court observation casting doubt on the accredited status of the Arecanut R&D Foundation, thereby undermining automatic acceptance of its findings. Interpretation and reasoning: The Tribunal notes that the Revenue relied on a laboratory report asserting Burmese origin and mould infection, but the departmental order did not discuss the report in adequate detail nor establish the accreditation/chain of custody or trace the territorial movements of the goods. The Tribunal treats the report as insufficient, in absence of foundational proof, to conclusively establish foreign origin or smuggling. Ratio vs. Obiter: Ratio - scientific reports lacking demonstrable accreditation or proper evidential foundation cannot discharge the department's burden under Section 123; Obiter - mould infection may support age but does not equal foreign origin. Conclusions: The Arecanut R&D Foundation report was not shown to be of sufficient evidentiary weight to establish smuggled foreign origin; Revenue failed to rely on it adequately to meet its statutory burden. Issue 5 - Validity of ancillary confiscation, redemption fines and penalties when foundational finding fails Legal framework: Confiscation of goods and conveyance and imposition of redemption fines/penalties are consequential upon a lawful finding of smuggling/foreign origin under relevant Customs provisions (e.g., Sections 111, 112, 115(2), 125 as applied). Precedent Treatment: The Tribunal applies the principle that consequential penalties and confiscation cannot stand where the primary finding of smuggling is not proved by Revenue. Interpretation and reasoning: Because the Tribunal concluded that Revenue did not discharge the onus on smuggling/foreign origin, all consequential orders (confirmation of confiscation of goods and vehicle, redemption fines, and monetary penalties) lacked lawful foundation. The Tribunal further notes the adjudicator's reliance on non-appearance and circumstantial factors is insufficient to sustain these ancillary orders without positive proof. Ratio vs. Obiter: Ratio - ancillary confiscations and penalties fall with the quashing of the foundational smuggling finding; Obiter - appropriation of security deposits in anticipation of confirmed penalties is permissible administratively but cannot substitute for lawful confiscation. Conclusions: The confiscation, redemption fines and penalties were set aside for want of proof of smuggling/foreign origin; related appropriations were not upheld in absence of a lawful substantive finding. Overall Conclusion of The Tribunal The Tribunal held that while initial seizure on specific information and absence of transport documents may have been justified, the department failed to discharge the statutory onus under Section 123 to establish that the seized non-notified cut betel nuts were of foreign origin and smuggled. Documentary proof produced by the claimants (invoice and auction order) sufficed to shift the evidentiary burden to Revenue, which did not lead cogent positive evidence (including adequate foundation for the laboratory report) to negativate the lawful procurement claim. Consequently, the Tribunal set aside the confirmation of confiscation and related penalties and allowed the appeals.