2024 (2) TMI 1599 - AT - Customs

Seizure of 6 kg gold not forfeitable as claimant met Section 123 burden; Revenue failed adequate investigation, natural justice breached

CESTAT KOLKATA (LB) held that the seizure of 6 kg gold could not be upheld for confiscation because the claimant discharged the onus under Section 123, ... Confiscation of 6 kg gold recovered - Levy of penalty - seizure of Gold on a reasonable belief that that the gold bars had been smuggled into India through an unauthorized channel - discharge of onus to prove in terms of Section 123 of the Customs Act, 1962 - evaluation of evidence tendered by the appellants towards discharge of their obligation and onus cast upon them under Section 123 of the Customs Act, 1962 - change in stance and invalidity of altered version - principles of natural justice - difference of opinion - majority opinion. HELD THAT:- The Adjudicating authority has more or less reiterated the allegations in the Show Cause Notice and has made no attempt to address the issues raised by the Noticee. Principles of natural justice requires him to address all the issues and give a proper finding as to why the submissions are not acceptable for the conclusions arrived at by him, which has not been done in this case. In his reply to SCN, Noticee No. 5 submitted that Noticee 6 had duly produced his purchase documents along with stock, sale, purchase registers as well as Ledger Account maintained with respect to sale in favour of Shri Rinku Verma. Such documents are duly enclosed as relied upon documents under covering letter dated 18.05.2017 issued by the Ld. Superintendent of Customs (Preventive), Adjudication Branch, CC(P), WB - It is seen that after the claim of Rinku Verma about procurement of the gold from Snehal Gems Pvt Ltd., a Statement has been recorded from Pradeep Kumar Bothra [their Director - Appellant Number 6]. From the statement recorded, it is seen that he has affirmed that he has sold the goods in question by way of the 4 Invoices submitted by Rinku Verma.The Purchase Invoices of Snehal Gems were also submitted to the effect that the entire transaction is licit one. Rinku Verma has submitted supporting documents in the form of Ledger copies and Banking transactions details. The Dept. is relying on the statement of Pradeep Kumar Bothra to the effect that he cannot vouch if the gold sold by him is the same one which has been seized. The chronological events clearly prove that the transactions in question has lead to many queries for which proper answer was required to be found by the Revenue. The delays caused due to non-appearance for the Summons issued, non-production of the Invoices even when the Appellants 1 to 4 were jailed, producing of the Invoices after many months, retraction of statement by the Appellants 1 to 4 after many months etc, gives enough cause to raise many queries. But these are the cues to be taken for an in-depth and exhaustive investigation to arrive at a clear conclusion about the role played by each of the noticee while issuing the Show Cause Notice. Once this exercise is done, it is for the Noticees to make their submissions and after this, it is for the Adjudicating authority to consider the allegations vis-à-vis the submissions/documentary evidence on record to come to proper conclusion. From the Order in Original, which completely takes the support from Show Cause Notice, it emerges that none of the issues raised by the appellants have been properly addressed before coming to a conclusion. The shortcomings of investigations and perfunctory allegations in the Show Cause Notice cannot be undone at Tribunal level. All the observations about the lapses / shortcomings in the investigation / Show Cause Notice, however serious or valid / relevant they may be, would at best remain as observations only. Therefore, these observations cannot form the basis to arrive at the conclusion as to whether the Appellant has discharged the onus of burden of proof under Section 123. It can be done only on the basis of the Documents produced by the claimant of ownership [Noticee / Appellant No. 5] and documents produced by the Noticee / Appellant No. 6. In order to negate / refute the claim of the Noticee 5, the onus had shifted to the Revenue to undertake proper investigation to check the veracity of these documents for coming to their conclusion. The factual matrix, does not suggest that anything to this effect was undertaken by the Revenue. With the lackadaisical approach of the Revenue resulting in a Show Cause Notice lacking several elements, any painstaking findings by the Bench, which may implicate the Appellants, cannot come to the rescue of the Revenue. The prime reason being that the appellants were never put to notice on these issues and cannot be asked to defend the same at Tribunal level after about 9 years after the event has taken place years [Seizure happened in May 2015] and when the Show Cause Notice was issued in April 2016. This would go against the principles of natural justice. In other words, the shortcomings of investigation and lack of proper allegations in the Show Cause Notice, cannot be overcome by any factual details ascertained by Tribunal now. The Show Cause Notice has proceeded on an erroneous notion that the burden of proof is required to be jointly discharged by Appellant No. 1 to 4 along with Appellant No. 5. In fact the only person who would be required to discharge the burden of proof would be Appellant No. 5. Framing of charges on Appellant No. 1 to 4 on this count is erroneous - While certain discrepancies might have been observed when the documents were examined by the Bench, but on their own, it cannot be conclusively concluded that the documents were fabricated / forged in the absence of any specifics coming in, in the Show Cause Notice. The Revenue had an original lead about the procurement of the gold in question by way of cash transaction between Shashi Kant Patil and Rinku Verma. Even as it was important for the Revenue to prove the gold in question was not procured from Snehal, in view of clear lead, the Revenue was also required to prove that the gold in question was procured way of cash transactions from Shashi Kant Patil. This lead has been completely abandoned without any proper reason. This is a serious lapse on the part of the Revenue. The onus under Section 123 stands discharged by Appellant No. 5 [claimant of ownership] since Revenue has not come out with any specific adverse evidence against these Invoices and transactions. I also hold that Appellants 1 to 4 were in no way required to discharge this burden in terms of Section 123. It is agreed with the Hon’ble Member Judicial that burden of proof stands discharged under Section 123 and hold that seized goods are not liable for confiscation. The reference is answered and the difference of opinion stands resolved - The papers may be put up before the Division Bench for deciding and releasing the Final Orders. ISSUES PRESENTED AND CONSIDERED 1. Whether the claimants/noticees discharged the onus cast upon them under Section 123 of the Customs Act, 1962 to prove that the seized foreign-marked gold was not smuggled, thereby rendering the goods not liable to confiscation. 2. Whether documentary evidence (invoices, bank payments, ledger entries) produced belatedly by a claimant and corroborated by the alleged seller suffices to discharge the burden under Section 123, notwithstanding earlier statements by carriers implicating a different source and delays/non-cooperation in investigation. 3. Whether retraction of initial voluntary statements by carriers (recorded under Section 108) months after seizure is admissible and entitled to evidentiary weight, and relatedly, what evidentiary value should be attached to initial versus subsequent statements. 4. Whether deficiencies, delays and perceived lapses in the investigating agency's enquiries (including non-pursuit of leads, timing of summons, CDR/locational analysis) vitiate reliance on the Show Cause Notice and the adjudication based thereon. 5. Whether penalties under Sections 112(b) and 114AA of the Customs Act are imposable on the appellants in light of findings on Section 123 and the factual matrix. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Burden under Section 123: legal framework Legal framework: Section 123 shifts the burden to the person from whose possession goods were seized and to any person who claims ownership to prove the goods are not smuggled where seizure is made in the reasonable belief of smuggling; gold is a notified class attracting this provision. Precedent treatment: Tribunal and High Court decisions cited affirm that once reasonable belief exists, the claimant must establish licit acquisition by documentary and corroborative evidence; cases recognize that production of bills corroborated by seller may discharge the onus when revenue fails to rebut. Interpretation and reasoning: The majority considered that the claimant (who asserted ownership) was the primary person on whom Section 123 burden rested; the carriers never claimed ownership. The claimant produced invoices, banking entries and seller's records; the seller appeared and produced purchase/sale records. The majority found no specific, investigated, cogent evidence in the record demonstrating those documents were false or that the transactions were sham, and noted that the investigating authority did not pursue or disprove the claimant's documentary assertions in depth. Ratio vs. Obiter: Ratio - where a claimant of ownership produces purchase invoices and corroborative seller records and the revenue does not produce specific proof of fabrication or establish that the seller is bogus, the claimant may discharge the burden under Section 123 and confiscation cannot be sustained. Obiter - observations on optimal investigatory steps and best practices. Conclusions: The majority held that the claimant discharged the burden under Section 123; the seized gold was not liable for confiscation and penalties based on confiscation were not imposable on all appellants. Issue 2 - Admissibility and sufficiency of belated documentary evidence Legal framework: Discharge under Section 123 requires proof of licit acquisition - typically invoices, payment records, seller confirmation and supporting documents linking the specific seized goods to the documentary record. Precedent treatment: Cited authorities support both outcomes: (a) production of invoices and seller confirmation (if credible) can discharge onus (decisions favoring claimants); and (b) where invoices are shown to be fabricated, seller bogus, or invoices inconsistent with seized goods, onus not discharged (decisions favoring revenue). Distinguishing facts, particularly timing and verification, are material. Interpretation and reasoning: The Bench majority examined whether the revenue effectively challenged the documents - it noted the department obtained seller's statement and certain seller records, but did not establish fabrication or conclusively disconnect the invoices/payments from the seized bars. The majority emphasized that delay in production raises suspicion but does not ipso facto render documents valueless; absence of concrete disproving evidence and abandonment of alternate investigative leads (cash purchase from a different dealer) meant that revenue failed to negate claimant's documentary proof. Ratio vs. Obiter: Ratio - belated production of invoices, if supported by corroborative seller records and not specifically refuted by revenue through targeted verification, can satisfy Section 123. Obiter - the extent to which timing, sequencing of invoices, and commercial practice (e.g., lack of bar serial numbers, invoicing habits) influence credibility in particular fact patterns. Conclusions: On the facts majority concluded documentary evidence (invoices, bank entries, seller confirmations) sufficed to discharge Section 123 burden; revenue's failure to undertake and/or record decisive investigative rebuttal rendered confiscation unsustainable. Issue 3 - Evidentiary value of initial statements versus late retractions Legal framework: Statements recorded under Section 108 are substantive evidence; retractions may be treated as afterthoughts and are to be evaluated for voluntariness, timing, surrounding circumstances and corroboration. Apex court and Tribunal precedents permit conviction/confiscation based on voluntary statements if found reliable; retractions long delayed are oft discounted. Precedent treatment: Authorities cited hold that immediate spontaneous statements carry high evidentiary weight; retractions made long after (without claim of duress at earliest opportunity) are suspect. Other cases accept retractions if credible and corroborated. Interpretation and reasoning: The Technical Member emphasized the unanimity and contemporaneity of early statements implicating a named local dealer and the sustained reaffirmation after custody, viewing the later retractions (after many months) as tutored and unreliable; he attached high weight to the initial statements and to non-cooperation of claimant/seller. The Judicial Member and majority, while noting the initial statements, treated the ultimate question as whether the claimant's documentary proof successfully rebutted smuggling; given revenue's investigative gaps, the later documentary evidence carried decisive weight despite timing concerns. Ratio vs. Obiter: Ratio - retractions long delayed, lacking explanation, and unsupported by plausible duress claims may be discounted; but discounting such retractions does not preclude acceptance of documentary proof by claimant if revenue fails to rebut it. Obiter - detailed tests for voluntariness and admissibility of retraction in different investigative contexts. Conclusions: The majority accepted that delayed retractions were of limited weight but concluded that even discounting retractions the claimant's documents, unrebutted by focused verification, sufficed; the dissent gave primacy to initial statements and perceived orchestration, resulting in opposite outcome on confiscation and penalty. Issue 4 - Effect of investigative lapses on adjudication Legal framework: Show Cause Notices must rest on foundation of investigation; revenue bears responsibility to pursue and verify leads relevant to rebut claimant's documentary proof. Principles of natural justice require clear allegations and opportunity to meet specific charges. Precedent treatment: Courts reject confiscation where revenue fails to investigate or to produce particulars undermining claimant's documents; conversely, where revenue shows forgery or seller is bogus, confiscation upheld. Interpretation and reasoning: The majority identified multiple investigatory shortcomings (delayed summons, failure to pursue initial lead implicating local dealer, absence of detailed falsity allegations in SCN, limited use of CDR/locational data). These lapses meant the revenue did not discharge its counter-burden to demonstrate the claimant's documents were fabricated or the seller was a sham. The Technical Member acknowledged investigatory lapses but nonetheless concluded that overall facts (initial statements, timing, anomalies in invoices, seller's inability to identify bars or confirm payments) demonstrated fabrication/connivance; he considered lapses insufficient to displace the totality of incriminating material. Ratio vs. Obiter: Ratio - investigative negligence or failure to pursue critical leads can materially weaken revenue's case and, where claimant's documentary proof is otherwise unrefuted, justify setting aside confiscation. Obiter - recommended investigatory practices (CDR checks, contemporaneous verification) to avoid such disputes. Conclusions: Majority found investigative lapses fatal to revenue's attempt to rebut claimant's documents and thus favored claimants; the dissent disagreed, treating lapses as insufficient given the incriminatory matrix. Issue 5 - Penalties under Sections 112(b) and 114AA Legal framework: Penalties follow from finding of contravention/confiscation; if goods are not liable to confiscation because owner discharged Section 123 onus, penalties premised on smuggling/confiscation are not sustainable. Interpretation and reasoning: The majority held that if confiscation is unsustainable, penal consequences under the referenced sections cannot be sustained as a corollary. The Technical Member, upholding confiscation, would have upheld imposition of the assessed penalties on respective noticees given his findings of connivance and fabrication. Ratio vs. Obiter: Ratio - penalties predicated on confiscation cannot survive where confiscation is set aside for failure of revenue to prove smuggling; Obiter - allocation of specific penalties when multiple actors and role-reversals occur. Conclusions: Majority set aside penalties as inseparable from the confiscation finding; dissent would have affirmed penalties with confiscation. FINAL CONCLUSION There was a difference of opinion within the Tribunal: one member upheld confiscation and penalties, giving weight to initial carrier statements, delayed retractions as tutored, invoice anomalies and seller's equivocations; a majority concluded that the claimant (owner) produced invoices, banking and seller records which, in absence of a specific and conclusive rebuttal by the revenue and given evident investigatory deficiencies, discharged the burden under Section 123 and rendered the seized gold not liable to confiscation and attendant penalties. The majority order allowing the appeals is the operative decision.