2023 (5) TMI 940 - AT - Customs

Gold seizure case overturned as department fails to prove smuggling origin despite Section 123 presumption claims

CESTAT Kolkata allowed the appeal in a gold smuggling case where 3999.590 gms of gold bars were seized from carriers at Gaya railway station. The tribunal ... Reasonable belief for seizure - presumption under Section 123 of the Customs Act, 1962 - admissibility and corroboration of confessional/retracted statements of co-accused - burden of proof in smuggling cases - penalties under Section 112 and Section 114AA of the Customs Act, 1962Reasonable belief for seizure - burden of proof in smuggling cases - Whether the materials on record establish that the seized gold bars/pieces were smuggled into India from Bangladesh and justified seizure on 'reasonable belief'. - HELD THAT: - The Tribunal found that the DRI's asserted 'reasonable belief' was not supported by independent or corroborative evidence demonstrating foreign origin or illicit importation. Test reports showed purities of 99.5-99.8% and there were no foreign markings; no documentary or investigative material established import from Bangladesh. Reliance on assumptions and retracted statements without objective indicia was held insufficient to prove smuggling or to sustain the seizure. Consequently, the material evidence does not establish that the gold was smuggled into India without valid documents. [Paras 20]The contention that the gold was smuggled into India is negatived; material on record does not establish smuggled origin.Presumption under Section 123 of the Customs Act, 1962 - burden of proof in smuggling cases - Whether the presumption under Section 123 applies and the burden to prove non-smuggling lies on the Appellants. - HELD THAT: - Section 123 shifts the burden where goods are seized in the reasonable belief that they are smuggled. The Tribunal held that because the Department failed to establish reasonable belief or foreign origin (no foreign marks, purity not indicative of imported gold, and no verification of invoices submitted by the claimants), the prerequisites for invoking Section 123 were not met. The investigation did not verify documentary claims of domestic purchase and improperly brushed aside invoices for minor mismatches and absence of carriers' documents. In these circumstances the onus under Section 123 cannot be fastened on the Appellants. [Paras 22]The presumption under Section 123 does not operate in this case; the burden to prove non-smuggling does not lie on the Appellants.Admissibility and corroboration of confessional/retracted statements of co-accused - Whether retracted/confessional statements of co-accused-recorded during investigation and not tested under Section 138B-can be relied upon to establish guilt of the Appellants. - HELD THAT: - The Tribunal reiterated settled law that statements of co-accused are frail and cannot constitute substantive evidence unless corroborated by independent material. The adjudicating authority relied principally on such statements without examining the declarants in adjudication proceedings as required for admissibility and without independent corroboration. In absence of tangible supporting evidence, reliance on retracted statements alone is legally unsustainable to confiscate goods or impose penalties. [Paras 31]Retracted statements of co-accused cannot be relied upon without compliance with procedural safeguards and independent corroboration; such statements are insufficient to establish guilt of the Appellants.Penalties under Section 112 and Section 114AA of the Customs Act, 1962 - Whether penalties under Sections 112(a)&(b) and 114AA are sustainable against the Appellants. - HELD THAT: - Penalty under Section 112(a)&(b) requires that the person dealt with goods known or reasonably believed to be liable to confiscation. Section 114AA penalises false/incorrect declarations. Given the Tribunal's findings that the gold was not shown to be of foreign origin and that the Appellants produced invoices claiming domestic purchase which the Department did not verify or rebut, there was no basis to conclude the goods were prohibited or that false declarations were made. Consequently, penalties under the cited provisions were unwarranted. [Paras 33]Penalties under Sections 112(a)&(b) and 114AA are not imposable on the Appellants and are set aside.Final Conclusion: Impugned order of absolute confiscation and penalties is set aside; appeals of the Appellants are allowed and consequential relief is to follow as per law. The core legal questions considered by the Tribunal are as follows:(i) Whether the evidence on record establishes that the gold bars/pieces were smuggled into India from Bangladesh without valid legal documentsRs.(ii) Whether, under the facts and circumstances of the case, the benefit of presumption under Section 123 of the Customs Act, 1962 favors the RevenueRs.(iii) Whether the retracted statements of co-accused can be relied upon to establish the guilt of the appellants when the procedural safeguards under Section 138B of the Customs Act, 1962 were not followedRs.(iv) Whether the penalties imposed on the appellants under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962 are sustainableRs.Issue-wise Detailed Analysis(i) Whether the gold bars/pieces were smuggled into India from Bangladesh without legal documentsRs.The relevant legal framework includes the Customs Act, 1962, particularly provisions relating to seizure and confiscation of smuggled goods. The Department relied on the reasonable belief of officers under Section 110 for seizure, citing the Supreme Court decision in Gopal Das Uddhav Das Ahuja v. UOI, which allowed seizure on reasonable belief. However, the Tribunal distinguished that case as it pertained to the Gold Control Act, which is no longer applicable, and noted that under the current Customs Act, the burden is on the Department to establish smuggling.The appellants argued that there was no evidence of foreign origin or smuggling, as the gold lacked foreign markings and was of purity levels (99.5% to 99.8%) lower than typical foreign gold (usually 99.99%). They contended that the gold was domestically purchased from M/s Chandan Enterprises, Delhi, supported by invoices, which the Department failed to verify properly. The appellants also relied on authoritative case law emphasizing that 'reasonable belief' requires objective material and cannot be based on mere suspicion or presumption. They cited decisions such as Tata Chemicals Ltd. v. Commissioner of Customs, Assistant Collector of Customs v. Charan Das Malhotra, and Shanti Lal Mehta v. UOI, which underscore the necessity of corroborative evidence for seizure and the temporal requirement that reasonable belief must exist at the time of seizure.The Court noted that the Department's case rested largely on assumptions and uncorroborated statements without concrete evidence of smuggling or foreign origin. The absence of foreign markings, the failure to verify purchase invoices, and the lack of any direct evidence linking the gold to Bangladesh smuggling led the Tribunal to conclude that the material evidence does not establish smuggling.Conclusion: The evidence does not prove that the gold bars/pieces were smuggled into India from Bangladesh without legal documents. The answer to this issue is negative.(ii) Whether the benefit of presumption under Section 123 of the Customs Act, 1962 applies in favor of the RevenueRs.Section 123 places the burden of proving that seized goods are not smuggled on the person from whose possession the goods were seized or on the owner claiming ownership, but only if the goods are seized on reasonable belief that they are smuggled. The Department argued that since the gold was seized on reasonable belief, the burden shifted to the appellants to prove lawful possession.The appellants contended that Section 123 applies only to gold of foreign origin or foreign markings, which was absent here. They also argued that the gold was domestically purchased and thus not smuggled goods, making Section 123 inapplicable. The appellants supported their position by referencing several decisions, including Sanjeeb Kumar @ Pappu Kumar v. Jt CC and Balanagu Naga Venkata Raghavendra v. CC Vijayawada, which held that without foreign markings or evidence of smuggling, the burden does not shift to the accused.The Tribunal observed that the Department failed to establish reasonable belief of smuggling and did not verify the domestic purchase invoices submitted by the appellants. The absence of foreign markings and the purity levels further supported the appellants' claim of domestic origin. Consequently, the Tribunal held that Section 123's presumption does not apply, and the burden of proof does not shift to the appellants.Conclusion: The benefit of presumption under Section 123 does not apply in favor of the Revenue in this case. The answer to this issue is negative.(iii) Whether the retracted statements of co-accused can be relied upon without compliance with Section 138B of the Customs Act, 1962Rs.The Department's case heavily relied on statements of co-accused persons, some of which were retracted. The appellants argued that such statements are fragile and cannot be the sole basis for conviction or penalty, especially when procedural safeguards under Section 138B (which requires examination of the person making the statement before admitting it as evidence) were not followed. They cited numerous precedents including Mohtesham Mohd. Ismail v. Special Director, Enforcement Directorate, Prakash Kumar v. State of Gujarat, and Surinder Kumar Khanna v. Intelligence Officer, DRI, which emphasize the necessity of corroboration and procedural compliance before relying on co-accused statements.The Tribunal noted that the impugned order relied mainly on statements of the co-accused without independent corroborative evidence. The Department did not examine the co-accused during adjudication, violating Section 138B. The Tribunal referred to the principle that a confession or statement of a co-accused cannot be substantive evidence against another accused and can only be used to corroborate other independent evidence.Given the absence of corroboration and procedural non-compliance, the Tribunal held that reliance on retracted co-accused statements was legally unsustainable.Conclusion: Retracted statements of co-accused cannot be relied upon without following Section 138B procedures and without corroboration. The answer to this issue is negative.(iv) Whether the penalties under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962 are sustainableRs.Section 112 imposes penalties on persons who deal with goods liable to confiscation or prohibited goods, while Section 114AA penalizes making false or incorrect statements or declarations. The Department imposed penalties on all appellants under these provisions.The appellants argued that since the gold was of domestic origin and not smuggled or prohibited, no offence was established against them, and hence penalties were not sustainable. They contended that no evidence was brought to prove false declarations under Section 114AA.The Tribunal analyzed the evidence and found that the appellants had submitted invoices for domestic purchase, which the Department did not adequately verify or rebut. The gold's purity and lack of foreign markings supported the domestic origin claim. There was no evidence of false statements or declarations by the appellants.Accordingly, the Tribunal held that penalties were not imposable under Sections 112(a), 112(b), and 114AA as the essential elements for penalty were not established.Conclusion: The penalties imposed under Sections 112(a), 112(b), and 114AA are not sustainable. The answer to this issue is negative.Significant Holdings'The impugned order has concluded that the said gold bars/pieces were smuggled into India only on the basis of assumptions and presumptions without any concrete evidence to substantiate this claim.''The material evidence available on record does not establish that the gold bars/pieces were smuggled into India without any valid documents.''Section 123 of Customs Act is applicable only to foreign marked gold. Also the gold bars/pieces seized is not of 99.99 purity. Since, there is no foreign mark available on the gold bars/pieces seized from the Appellants, the provisions of section 123 is not applicable in this case.''The officers of the Department had no reasonable belief that the gold was smuggled and therefore they have not discharged their responsibility of forming reasonable belief under Section 123 without which the burden of proof will not shift to the person from whom the gold is seized.''It is a settled law that the statement of the co-accused cannot be relied without any independent corroboration.''The penalties under sections 112(a) and (b) and 114 AA of the Customs Act, 1962 are not imposable in this case.'The Tribunal ultimately set aside the impugned order of confiscation and penalty, allowing the appeals with consequential relief as per law.