2025 (1) TMI 998 - AT - Customs

Confiscation of 449g Gold Quashed for Lack of Evidence and Violation of Natural Justice under Section 123 Customs Act

The CESTAT Kolkata held that the confiscation of 449.300 grams of gold alleged to be smuggled was unsustainable due to lack of evidence proving the gold's ... Absolute confiscation - penalty - Seizure of Gold of foreign origin - existence of reasonable belief of smuggled nature of goods or not - iota of evidence brought in by the investigation to prove that the seized gold is of foreign origin or not principles of natural justice. Demand based on assumptions and presumptions - HELD THAT:- It is observed that 7 pieces of fine gold weighing in total of 449.300 gms was seized from Appellant-1 viz. Shri Souvik Mondal on the ground that the said gold pieces were smuggled in nature and illegally transported by the Appellants without any valid documents for its licit purchase. However, the department has failed to produce any evidence to corroborate that the gold seized was smuggled in nature. No evidence has been adduced to the effect to prove the mens rea of the appellant in the alleged act of smuggling/illegal importation. The impugned order has been passed by the lower authorities on the basis of presumptions and assumptions. No evidence has been brought on record to substantiate the allegation that the said gold is of foreign origin and illegally imported into India. Existence of reasonable belief or not - HELD THAT:- Section 123 of the Customs Act clearly stipulates that a 'reasonable belief' that the gold is of smuggled in nature is mandatory for invocation of the said provision. However, in the present case no reasonable belief has been formed by the officers that the gold is of smuggled in nature and hence I hold that provisions of Section 123 are not applicable in this case and the burden lies on the department to prove that seized gold is of smuggled in nature - no evidence has been brought on record by the Revenue to substantiate the allegation that the gold is of foreign origin and smuggled in nature. Principles of natural justice - HELD THAT:- It is observed that there was no Panchanama drawn at the time of seizure of the gold. The appellants have written to the Authorities on multiple times for release of the gold seized and supplying of Relied Upon Documents (RUDs), but there was no response from the authorities. Thus, the principles of natural justice have not been followed during the process of adjudication. Confiscation - penalty - HELD THAT:- Accordingly, the confiscation of the gold in the impugned order is not sustainable on account of non-following of the principles of natural justice also - As the confiscation of the gold is not sustained, the penalties imposed on the appellants are also not sustainable. Conclusion - i) No evidence has been brought on record to substantiate the allegation that the said gold is of foreign origin and illegally imported into India. ii) No evidence has been brought on record by the Revenue to substantiate the allegation that the gold is of foreign origin and smuggled in nature. iii) The principles of natural justice have not been followed during the process of adjudication. iv) The confiscation of the gold in the impugned order is not sustainable on account of non-following of the principles of natural justice also. v) As the confiscation of the gold is not sustained, the penalties imposed on the appellants are also not sustainable. Appeal allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the seizure of the gold was lawful in the absence of a 'reasonable belief' that the gold was smuggled or illegally imported under Section 123 of the Customs Act, 1962. Whether the appellants discharged their burden to prove licit purchase and possession of the seized gold under Section 123 of the Customs Act, 1962. Whether the confiscation order and penalty imposed under Section 112(b) of the Customs Act, 1962 were sustainable in law. Whether the principles of natural justice were followed during the seizure, adjudication, and appellate proceedings. Whether the evidence on record was sufficient to establish the foreign origin and smuggled nature of the seized gold. Whether the seizure without drawing a Panchanama and without providing Relied Upon Documents (RUDs) to the appellants was legally valid. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of Seizure Without Reasonable Belief under Section 123 of the Customs Act, 1962 - Legal Framework and Precedents: Section 123 mandates that seizure can only be effected if the proper officer has a 'reasonable belief' that the goods are smuggled or illegally imported. Precedents emphasize that mere possession without reasonable belief does not justify seizure. - Court's Interpretation and Reasoning: The Court observed that the authorities failed to form or record any reasonable belief that the gold was smuggled. The impugned orders were based on assumptions and presumptions without evidentiary basis. The absence of any cogent reason or credible evidence to support the belief that the gold was illegally imported rendered the seizure unsustainable. - Key Evidence and Findings: No evidence was produced by the Revenue to prove foreign origin or illegal importation. The seizure memo lacked findings of reasonable belief. The Court relied on prior Tribunal decisions emphasizing the necessity of reasonable belief for lawful seizure. - Application of Law to Facts: Since no reasonable belief was formed, Section 123 was held inapplicable. The burden to prove smuggling lay on the Revenue, which was not discharged. - Treatment of Competing Arguments: The Revenue's argument that the burden lay on appellants to prove licit purchase was rejected in light of Section 123's requirement of reasonable belief before seizure. The appellants' reliance on established case law was accepted. - Conclusion: Seizure without reasonable belief is illegal; thus, the seizure of gold was not sustainable. Issue 2: Burden of Proof and Evidence of Licit Purchase - Legal Framework and Precedents: Under Section 123, once reasonable belief is formed, the burden shifts to the person claiming ownership to prove licit possession. However, if no reasonable belief exists, the Revenue must prove smuggling. - Court's Interpretation and Reasoning: The appellants produced invoices from indigenous sources (M/S DCM & Co) showing legal purchase of the gold. The investigating officers did not produce any evidence negating these documents or challenging the genuineness of the purchase. - Key Evidence and Findings: Invoices No. 56 and 58 evidencing purchase of 174.900 gms and 274.450 gms from indigenous sources were submitted. No contrary evidence was adduced by the Revenue. - Application of Law to Facts: The appellants discharged their evidentiary burden to prove licit possession. The absence of any counter-evidence by the Revenue supported the appellants' claim. - Treatment of Competing Arguments: The Revenue's contention that appellants failed to discharge the burden under Section 123 was dismissed due to the absence of reasonable belief prerequisite and lack of contradictory evidence. - Conclusion: The appellants successfully established licit purchase and possession of the seized gold. Issue 3: Validity of Confiscation and Penalty under Section 112(b) of the Customs Act, 1962 - Legal Framework and Precedents: Confiscation and penalty under Section 112(b) require proof of smuggling or illegal importation. Without such proof, confiscation and penalty are not sustainable. - Court's Interpretation and Reasoning: Since seizure itself was unsustainable due to lack of reasonable belief and evidence, consequential confiscation and penalty were also held invalid. The Court noted that penalty imposition is contingent on lawful confiscation. - Key Evidence and Findings: No evidence was produced to establish smuggling or illegal importation. The penalty was imposed mechanically without proper adjudication on merits. - Application of Law to Facts: The confiscation and penalty orders were quashed as they were founded on an unlawful seizure and absence of proof of smuggling. - Treatment of Competing Arguments: The Revenue's support for confiscation and penalty was rejected for failure to meet statutory requirements. - Conclusion: Confiscation and penalty were set aside as legally unsustainable. Issue 4: Compliance with Principles of Natural Justice - Legal Framework and Precedents: Natural justice requires fair opportunity to the affected party to produce evidence, be heard, and receive relied upon documents (RUDs). - Court's Interpretation and Reasoning: The Court found that no Panchanama was drawn at seizure, and the appellants' repeated requests for RUDs were ignored. The adjudicating and appellate authorities failed to provide reasonable opportunity to explain or contest allegations. - Key Evidence and Findings: Absence of Panchanama, non-supply of RUDs, and lack of hearing opportunity were established from record and submissions. - Application of Law to Facts: Non-observance of natural justice principles vitiated the confiscation and penalty orders. - Treatment of Competing Arguments: No credible justification was offered by the Revenue for non-compliance. - Conclusion: Orders passed without adherence to natural justice were held invalid. Issue 5: Sufficiency of Evidence to Establish Foreign Origin and Smuggled Nature of Gold - Legal Framework and Precedents: Mere possession is insufficient; Revenue must produce evidence proving foreign origin and smuggling. - Court's Interpretation and Reasoning: The Court noted absence of any foreign markings on gold, no evidence of illegal import, and no corroboration of smuggling allegations. Reliance was placed on prior rulings emphasizing evidentiary requirements. - Key Evidence and Findings: No investigation report or expert evidence was submitted to prove foreign origin or smuggling. Appellants' documents showed indigenous purchase. - Application of Law to Facts: Without evidence, the allegation of smuggling remained unsubstantiated. - Treatment of Competing Arguments: Revenue's reliance on presumption was rejected. - Conclusion: Evidence was insufficient to establish foreign origin or smuggled character. Issue 6: Validity of Seizure Procedure including Absence of Panchanama and Non-Supply of RUDs - Legal Framework and Precedents: Proper seizure procedure requires drawing Panchanama and supplying RUDs to ensure transparency and fairness. - Court's Interpretation and Reasoning: The Court observed procedural lapses including no Panchanama at seizure and failure to provide RUDs despite appellants' requests. Such lapses undermined legality of seizure and subsequent proceedings. - Key Evidence and Findings: Record showed absence of Panchanama and no response to RUD requests. - Application of Law to Facts: Procedural irregularities contributed to invalidation of seizure and confiscation. - Treatment of Competing Arguments: No valid explanation was offered for procedural non-compliance. - Conclusion: Seizure procedure was flawed and contributed to unsustainability of orders.