High Court upholds confiscation of gold bars worth Rs. 91 lakh, reduces penalty under Section 123 Customs Act

The HC set aside CESTAT's order and upheld confiscation of crude gold bars worth Rs. 91,98,090 seized from respondent's possession. Court held that under Section 123 of Customs Act, 1962, burden of proof lies on person from whose possession goods are seized to prove they are not smuggled. Respondent failed to prove lawful acquisition of foreign-origin gold bars. Court found respondent was merely a carrier for smugglers who funded the litigation. While upholding confiscation, HC reduced penalty from original amount to Rs. 1,00,000 considering respondent's modest means. Appeal allowed.

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The core legal questions considered in this matter include:

(a) Whether the seized gold bars were of foreign origin and smuggled into India without declaration and payment of customs duties;

(b) Whether the seized gold bars were of standard size and bore foreign markings as alleged;

(c) Whether the investigation and evidence gathered by the Directorate of Revenue Intelligence (DRI) were sufficient and cogent to establish smuggling;

(d) Whether the confiscation of the gold bars and the imposition of penalties under the Customs Act, 1962 were legally justified;

(e) The applicability and burden of proof under Section 123 of the Customs Act, 1962 in cases of seizure of goods suspected to be smuggled;

(f) Whether the appellate authorities and the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) erred in reversing the confiscation and penalty orders passed by the Additional Commissioner of Customs.

Issue-wise Detailed Analysis:

(a) Whether the gold bars were of foreign origin and smuggled:

The legal framework involves the Customs Act, 1962, particularly Sections 111 (relating to confiscation), 112 (penalty), 119 (confiscation of packing materials), and 123 (burden of proof). The DRI acted on specific intelligence that the gold bars were smuggled from Sri Lanka and seized two crude gold bars weighing 3.097 kg from the Respondent at Pallavaram Bus Stand, Chennai. The Respondent initially denied possession but later admitted carrying the gold bars for a monetary consideration, implicating two others as involved in the smuggling chain.

However, the Additional Chief Metropolitan Magistrate (E.O.I) found that the seized gold bars did not bear any foreign markings, which is a significant factor in determining foreign origin. The Respondent retracted his initial confession, claiming the gold was purchased over time from his earnings abroad and melted into bars for his daughter's marriage. Supporting letters from family members were contradictory and lacked documentary proof of the source of funds or purchase.

The Court noted that the Respondent failed to produce credible evidence to establish lawful ownership or source of the gold. The investigation by the DRI was found to be incomplete, especially regarding the failure to trace and interrogate key accused persons and analyze call data records thoroughly.

(b) Whether the gold bars were of standard size and bore foreign markings:

The Additional Chief Metropolitan Magistrate's certificate under Sections 110(1B) and 110(1C) of the Customs Act confirmed the absence of foreign markings on the gold bars. The Department failed to produce any report from a competent authority like the Government Mint to establish the standard size or foreign origin conclusively. The assayer's certificate produced was dated after the seizure and was not furnished to the Respondent during mahazar proceedings, indicating procedural irregularity.

(c) Sufficiency and cogency of evidence gathered by DRI:

The DRI relied on intelligence inputs, surveillance, seizure, and the initial confession of the Respondent. However, the investigation did not extend to tracing the alleged kingpins Murugan and Batcha alias Pitchai, despite call data indicating communication between the Respondent and these persons. The SIM cards used were registered under fictitious names, and the Department did not pursue verification or statements from the registered owners or dealers. The Court observed that the investigation appeared deliberately incomplete, possibly to protect the main culprits, leaving the Respondent as the scapegoat.

The contradictions in the statements of the Respondent and his family, the lack of documentary evidence of income or purchase, and the failure of the Department to investigate the communication network fully weakened the Department's case.

(d) Legality of confiscation and imposition of penalties:

The Additional Commissioner of Customs ordered confiscation of the gold bars and imposed penalties under Sections 111, 112, and 119 of the Customs Act, 1962. The Appellate Commissioner reversed these orders, holding that the investigation was incomplete and the case was not proved beyond doubt. The CESTAT affirmed the appellate order.

The Court analyzed the burden of proof under Section 123 of the Customs Act, which places the onus on the person from whose possession the goods were seized to prove that they are not smuggled. The Court emphasized that adjudication under the Customs Act is governed by the principle of preponderance of probabilities, not strict rules of evidence.

Despite the incomplete investigation, the Respondent failed to discharge the burden of proof by not explaining the source of funds or providing credible evidence of lawful ownership of the gold bars valued at nearly Rs. 92 lakhs. The contradictions and retractions further undermined the Respondent's claim.

Accordingly, the Court held that the confiscation was legally justified but modified the penalty imposed on the Respondent from Rs. 5,00,000 to Rs. 1,00,000 considering his limited means and role as a carrier rather than a principal offender.

(e) Burden of proof under Section 123 of the Customs Act:

The Court relied on authoritative precedents, including the Supreme Court decisions in "Kewal Krishan Vs. State of Punjab" and "Union of India Vs. Shyamsunder," which clarify that when goods are seized under reasonable belief of smuggling, the burden shifts to the person from whose possession the goods were seized to prove lawful ownership and origin.

The Respondent failed to provide documentary evidence or credible explanation for possession of such high-value gold bars, which led to the conclusion that he did not discharge the burden of proof.

(f) Whether appellate authorities erred in reversing confiscation and penalties:

The Court found that the Appellate Commissioner and CESTAT erred in setting aside the confiscation and penalties. The appellate authorities had overlooked the contradictions in the Respondent's statements and the failure to discharge the burden of proof. The CESTAT's finding was described as "superfluous" and a failure to perform its fact-finding duty under the Customs Act.

The Court therefore reversed the Impugned Order of the CESTAT and restored the original confiscation order, with modification only to the penalty amount.

Significant Holdings:

"Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be- (a) in a case where such seizure is made from the possession of any person,- (i) on the person from whose possession the goods were seized; and (ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other person." (Section 123, Customs Act, 1962)

"When goods are seized by the Customs Officer in the reasonable belief that they are smuggled goods then under Section 178A of the Sea Customs Act the onus of proving that they are not smuggled goods, that is, not of foreign origin on which duty is not paid, is on the person from whose possession the goods are seized. The onus is not on the prosecution to show that the goods are not of Indian origin." (Kewal Krishan Vs. State of Punjab)

"The adjudication under the Customs Act, 1962 is governed by the Principle of Preponderance of Probability and not by strict rules of evidence."

"The investigation by the Directorate of Revenue Intelligence (DRI) was incomplete and shoddy, apparently to allow the main culprits to go scot-free, leaving the Respondent as a mere carrier or hired labour."

"The Respondent failed to discharge the burden of proof to establish lawful possession of gold bars valued at Rs. 91,98,090/- and therefore the confiscation order passed by the Additional Commissioner of Customs was legally justified."

"The penalty on the Respondent is reduced from Rs. 5,00,000/- to Rs. 1,00,000/- considering his limited means and role."

In conclusion, the Court allowed the appeal filed by the Commissioner of Customs, set aside the Impugned Order of the CESTAT, restored the confiscation order, and modified the penalty imposed on the Respondent. The Court underscored the importance of a thorough investigation, proper discharge of burden of proof by the Respondent, and adherence to the principles governing confiscation and penalties under the Customs Act, 1962.

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