Confiscation of sale proceeds upheld, but untainted foreign currency returned where no knowledge of unlawful use was shown.

Indian currency covered by seized demand drafts was liable to confiscation under section 121 of the Customs Act because the evidence established it as sale proceeds of foreign currency moved through a smuggling and hawala chain; the confiscation was therefore upheld. The appellants, however, were entitled to return of the US dollar amount they had sold, because the foreign currency was not shown to be tainted and there was no finding that they knew or had reason to believe their sale was part of an unlawful operation. The appeal succeeded only to that extent.

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Issues: (i) Whether the Indian currency covered by the seized demand drafts was liable to confiscation under section 121 of the Customs Act, 1962 as sale proceeds of smuggled goods; (ii) whether the appellants were entitled to return of US $ 1,30,000 sold by them to Tiruchi Enterprises.

Issue (i): Whether the Indian currency covered by the seized demand drafts was liable to confiscation under section 121 of the Customs Act, 1962 as sale proceeds of smuggled goods.

Analysis: The evidence and findings showed that the currency represented proceeds of foreign currency sold in a smuggling chain, and the persons found to be involved in the smuggling and hawala operation did not challenge the confiscation. The appellants could not dispute that finding, since the nexus with the offence had been recorded against the other noticees who were said to have conducted the racket.

Conclusion: The confiscation of the Indian currency under section 121 was upheld.

Issue (ii): Whether the appellants were entitled to return of US $ 1,30,000 sold by them to Tiruchi Enterprises.

Analysis: The foreign currency sold by the appellants was not shown to be tainted, and the Commissioner had recorded that the appellants had not directly violated any prohibition and had no prior knowledge or reason to believe that their sale to a licensed FFMC was part of an unlawful operation. The appellants had consistently claimed the amount throughout the proceedings.

Conclusion: The appellants were entitled to return of US $ 1,30,000.

Final Conclusion: The appeal succeeded only to the extent of return of the foreign currency, while the confiscation of the Indian currency was maintained.

Ratio Decidendi: Currency is liable to confiscation under section 121 of the Customs Act, 1962 only when it is established to be sale proceeds of smuggled goods, whereas untainted foreign currency sold without knowledge or reason to believe of unlawful use cannot be confiscated.

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