2025 (4) TMI 1725 - AT - Customs

Confiscation of gold and Rs.101.25 lakh quashed where purity below 99.9% and no smuggling evidence, s.111 s.112

CESTAT ALLAHABAD - AT allowed the appeal, set aside confiscation of gold (2998.50 g and samples 4.9 g, 4.72 g) and confiscation of Indian currency (Rs. ... Confiscation - Recovery and seizure of Indian currency, which was sale proceeds of smuggled gold - two gold samples - levy of penalty - statement recorded under duress and subsequently was retracted - no corroborative evidence to substantiate the charges of smuggling of gold - HELD THAT:- The confiscated gold was having purity less than 99.9% - This Tribunal in the case of Neeraj Agarwal and others [2024 (4) TMI 699 - CESTAT KOLKATA] has held in paragraph 12 that gold of foreign origin has purity of 99.9%. By relying on the said decision of this Tribunal, it is observed that the gold confiscated in the present case is having purity less than 99.9% and therefore the same cannot be held to be gold of foreign origin. It is also noted that the subject gold was not seized at any entry point of India nor was there any investigation in respect of the country from which it was brought into India, from whom it was purchased from a place outside India and therefore we hold that subject gold is not of foreign origin. The proceedings have held subject gold to be smuggled gold. Provisions of Section 111 (b) and (d) indicate that if the goods are imported through a route other than the route specified or notified and they are imported contrary to any prohibition then they are liable for confiscation. Further, definition of import is also reproduced above which means that bringing goods from a place outside India. In the proceedings at lower level, from which place outside India the subject gold was brought in has not been established. Therefore, the subject gold is neither smuggled in nature nor was liable for confiscation. The Indian currency was confiscated under Section 121 of the Customs Act, 1962 which provide for confiscation of sale proceeds of smuggled goods. It is now established that the gold which was seized by interception or which was seized at the residence of Rajesh Kumar was not smuggled in nature because it was not liable for confiscation therefore the question of any smuggling involved in the whole proceeding does not arise. Revenue could not make out a case that either 2998.50gms of gold nor two samples of gold weighing 4.9 and 4.72 grams were liable for confiscation. Revenue also could not make out a case that Indian currency of Rs. 1,01,25,600/- was sale proceed of sale of smuggled goods. The gold weighing 2998.50 grams and 4.9 and 4.72 grams was not liable for confiscation and Indian currency was also not liable for confiscation. It is noted that Section 112 (b) deals with imposition of penalty on a person dealing with goods which are liable for confiscation. It is already held that goods were not liable for confiscation therefore Shri Rajesh Kumar was not liable to be imposed with the penalty of Rs. 20,00,000/. It is also held that Shri Parvez Khan was not liable to be imposed with a penalty of Rs. 3,00,000/-. The confiscation of subject gold weighing 2998.50 grams and 4.9 and 4.72 grams set aside - confiscation of Indian currency also set aside - penalty also set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether seized gold bars and small gold samples were 'smuggled goods' within the meaning of Sections 2(39) and 111(b)/(d) of the Customs Act where laboratory purity results were below 99.9% and no entry-point or foreign-origin provenance was established. 2. Whether Indian currency seized from the premises of the person claiming ownership of the gold could be confiscated as 'sale proceeds' of smuggled goods under Section 121 where no evidence established sale, buyer, time or link to sale proceeds. 3. Whether penalties under Section 112(b) and Section 117 could be sustained where goods were held not liable for confiscation. 4. Whether the burden of proof under Section 123 shifted to the claimant/possessor and, if discharged by production of invoices and a family settlement, whether non-response by the Revenue sufficed to establish lawful ownership/possession. 5. Whether the adjudicating authority erred by not offering an option to pay a fine in lieu of confiscation under Section 125 where confiscation was ordered. ISSUE-WISE DETAILED ANALYSIS Issue 1: Characterisation of seized gold as 'smuggled goods' (Sections 2(39); 111(b) & (d)) Legal framework: Smuggling is defined as any act/omission rendering goods liable to confiscation under Section 111. Section 111(b) pertains to goods imported by land/inland water through unspecified routes; Section 111(d) pertains to goods imported/attempted to be imported contrary to prohibitions. 'Import' means bringing into India from a place outside India (Section 2(23)). Precedent treatment: The Tribunal referred to its prior decision holding that gold of foreign origin is indicated by purity of 99.9% (treating that as the threshold used in a recent bench decision). Interpretation and reasoning: The seized three gold bars had laboratory-reported purities of 96.20%, 96.61% and 99.72%. No evidence arose in adjudication establishing the foreign source, point of entry, the country from which the gold was brought, or any transactional chain demonstrating importation from outside India. The Tribunal applied the cited contemporaneous bench holding that foreign-origin gold is indicated by =99.9% purity and observed that none of the seized bars uniformly met that threshold (only one sample 99.72% fell short). Moreover, the statutory predicates for confiscation under Section 111(b)/(d) (importation through prohibited/unspecified route or contrary to prohibition) were not proved: there was no proof the goods had been 'brought into India from a place outside India' or imported contrary to law or through an unsanctioned route. Ratio vs. Obiter: Ratio - where laboratory purity and chain-of-import evidence fail to establish foreign origin or importation contrary to Section 111, goods cannot be treated as 'smuggled' and thus are not liable to confiscation under Section 111(b) or (d). The Tribunal's reliance on the 99.9% purity threshold is applied as a determinative factor in this factual matrix (binding as panel precedent for the bench). Observations on absence of entry-point evidence are operative reasoning rather than obiter. Conclusion: The seized gold bars and the small gold samples were not established to be smuggled goods liable for confiscation under Section 111(b)/(d). Confiscation orders for those items were unsustainable. Issue 2: Confiscation of Indian currency as sale proceeds of smuggled goods (Section 121) Legal framework: Section 121 subjects sale proceeds of smuggled goods to confiscation where goods were sold by a person knowing or having reason to believe they were smuggled. Precedent treatment: The Tribunal referenced its own decision holding that to treat currency as sale proceeds there must be proof of a sale: establishment of sale, to whom sold, and quantity sold (citing earlier Tribunal principles). Interpretation and reasoning: The adjudicating authorities did not establish any sale transaction linking the seized Indian currency to proceeds of smuggled gold. There was no evidence showing when the alleged sales occurred, the buyers, the amounts sold or that the seized cash represented receipts from such sale. Coupled with the Tribunal's finding that the goods themselves were not smuggled, the statutory foundation for Section 121 confiscation failed. The appellant produced documentary evidence (two historical invoices and a family settlement) indicating lawful provenance/ownership consistent with a domestic origin, and Revenue offered no rebuttal when afforded opportunity to respond. Ratio vs. Obiter: Ratio - absent proof of (a) smuggling and (b) sale linking proceeds to smuggled goods (with particulars of sale, buyer, time and quantity), confiscation under Section 121 cannot be sustained. Conclusion: Confiscation of Indian currency under Section 121 was not justified and must be set aside. Issue 3: Imposition of penalties under Section 112(b) and Section 117 when confiscation fails Legal framework: Section 112(b) penalises persons who deal with goods which they know or have reason to believe are liable for confiscation under Section 111. Section 117 imposes general penalties where no other specific penalty is provided. Interpretation and reasoning: Because the Tribunal concluded that the goods were not liable for confiscation under Section 111, the foundational element for Section 112(b) (dealing with goods liable for confiscation) is absent. Consequently, the penalty under Section 112(b) could not stand. The subsidiary penalty under Section 117 likewise could not be sustained where the factual predicate of contravention (i.e., smuggling/confiscation liability) was not established. Ratio vs. Obiter: Ratio - penalties predicated on goods being liable for confiscation collapse where confiscation liability is not proved; therefore, penalties under Sections 112(b) and 117 must be set aside in such circumstances. Conclusion: Penalties imposed under Section 112(b) and Section 117 were unsustainable and were set aside. Issue 4: Burden of proof under Section 123 and effect of documentary production plus non-response by Revenue Legal framework: Section 123 places the burden of proving the goods are not smuggled on the person from whose possession goods were seized (and on an owner-claimant), where seizure is made in reasonable belief that goods are smuggled. Section 125 entitles the adjudicating authority to offer an option to pay fine in lieu of confiscation. Interpretation and reasoning: The claimant produced two invoices (dated 2007 and 2008) evidencing purchase of 3 kg gold and a notarized family settlement (2020) indicating distribution/allotment to the claimant. These documents were produced during hearing and copies were handed to Revenue with an express invitation to respond within one week. Revenue did not file any response. On these facts the Tribunal concluded that the claimant discharged the burden under Section 123 to show lawful ownership/possession; absence of rebuttal by Revenue after being given opportunity strengthened the claimant's position. The Tribunal also observed that Section 125 required offering an option to pay a fine in lieu of confiscation, which was not done; failure to offer that statutory option further undermined the confiscation order's sustainability. Ratio vs. Obiter: Ratio - timely production of credible documentary evidence satisfying statutory burden under Section 123, coupled with lack of responsive rebuttal by the prosecuting authority when invited, suffices to discharge the burden of proof; failure to offer the Section 125 option is a procedural flaw affecting confiscation orders. Conclusion: The appellant discharged the burden under Section 123 by producing invoices and a family settlement; Revenue's failure to countermand those documents when given time was material. Additionally, omission to provide the Section 125 option rendered confiscation order procedurally defective. Issue 5: Consequential relief and scope of appellate interference Interpretation and reasoning: Given the Tribunal's findings that (a) the gold was not shown to be smuggled, (b) the currency was not demonstrated to be sale proceeds of smuggled goods, (c) statutory burden under Section 123 was discharged by documentary evidence and (d) Section 125 option was not given, the Tribunal set aside the confiscation orders and the penalties imposed in consequence, and allowed the appeals with consequential relief restoring possession and reversing penalties. Ratio vs. Obiter: Ratio - appellate authority may set aside confiscation and related penalties where both substantive proof of smuggling and required procedural safeguards are lacking; returning consequential relief follows as a necessary incident. Conclusion: Confiscations of the gold items and Indian currency, and penalties imposed under Sections 112(b) and 117, were quashed; appeals allowed with consequential relief in favour of the appellants.