2025 (6) TMI 615 - AT - Customs

Foreign-marked gold confiscation upheld after appellant failed to prove legitimate purchase under section 123

MR. KAILASH CHANDER VARSHNEY Versus ADDITIONAL COMMISSIONER, CUSTOMS (PREVENTIVE) -NEW DELHI

CESTAT New Delhi upheld confiscation of 2946.80 grams of foreign-marked gold seized from appellant and penalty of Rs. 10,00,000 under Customs Act sections ... Absolute confiscation - levy of penalty - smuggling of gold - reason to believe that the gold was smuggled gold or not - discharge of onus as required under section 123 of Customs Act, 1962 - HELD THAT:- There is no doubt that Section 123 applies to gold and manufactures thereof because the section itself says so. If gold is seized under the reasonable belief that it is smuggled gold, then the burden of proving that it is not smuggled rests on the person from whom the gold was seized. On the other hand, if there is no reasonable belief that the gold was smuggled gold, then it is for the Revenue to prove that the gold was smuggled gold. In this case, the search was conducted on the basis of specific intelligence. When searched, the appellant had six cut pieces of foreign marked gold. When the appellant was asked on 11.4.2018, he said that he had no documents whatsoever, let alone, any duty paid documents for the seized gold. He said that he had purchased the gold without any invoices or bills from traders who had come to his shop. In his statement recorded the next day on 12.4.2018, he again reiterated that he had no documents for the seized gold. This gave the officers reasonable belief that the six foreign marked pieces of gold were smuggled gold. When they are seized, the burden of proof shifted to the appellant from who they were seized to prove that they were not smuggled - In another statement recorded on 9.8.2018 (almost after four months), the appellant again reiterated that he had bought the gold pieces without any invoices or documents and had no documents to show their licit possession. Whether the appellant has, by producing the invoice discharged this burden placed on him under section 123 or not? - HELD THAT:- The burden which is required to be discharged is that the seized gold was not smuggled. If gold is imported legally, there will be duty paying documents. Even if the gold so imported is further sold, copies of the duty paid documents will be available. The appellant did not produce, even before us, any duty paying documents which could possibly be seen as documents pertaining to the seized gold. What is produced is an invoice for 3080 grams of gold bars which does not even say that it pertains to imported gold or indicates any bill of entry number under which the gold was imported. The description of the goods is “Gold Bar 99.50%” and the quantity is ‘3080 grams’. Neither the description of the goods nor the quantity matches with the gold that was seized. It is noted that this invoice cannot pertain to the seized gold because in three different statements- the third of which was recorded almost four months after the seizure, the appellant consistently stated that he had bought the seized gold without any invoices or bills from traders who came to his shop. The invoice that is produced is, at best, an after-thought but it also does not correspond to the seized gold either in terms of description or in the quantity. In this factual matrix, it is convinced that the appellant failed to discharge its onus of proving that the seized gold was not smuggled gold - As the gold as was initially presumed to be smuggled gold is hereby held as smuggled gold. Its confiscation under section 111 of the Act must be upheld. The total value of the 2.946.80 grams of the seized gold (as assessed at the relevant time) was Rs. 83,76,464/-. Therefore, the penalty of Rs. 10,00,000/- imposed on the appellant under section 112(b) (i) of the Act is fair and proper and calls for no interference. Conclusion - i) The appellant failed to discharge its onus of proving that the seized gold was not smuggled gold. ii) As the gold as was initially presumed to be smuggled gold is hereby held as smuggled gold. Its confiscation under section 111 of the Act must be upheld. iii) The penalty of Rs. 10,00,000/- imposed on the appellant under section 112(b)(i) of the Act is fair and proper and calls for no interference. Appeal dismissed. The core legal questions considered in this judgment include:1. Whether Section 123 of the Customs Act, 1962 applies to the seized gold in this case, specifically whether the seizure was made under a reasonable belief that the gold was smuggled.2. Whether the appellant discharged the burden of proof imposed under Section 123 to show that the seized gold was not smuggled.3. Whether the confiscation of the seized gold under Section 111(d) of the Customs Act, 1962 is justified.4. Whether the penalty imposed under Section 112(b)(i) of the Customs Act, 1962 is appropriate.Issue-wise Detailed AnalysisIssue 1: Applicability of Section 123 of the Customs Act to the seized goldThe relevant legal framework is Section 123 of the Customs Act, 1962, which states that when goods are seized under the reasonable belief that they are smuggled goods, the burden of proving they are not smuggled shifts to the person from whose possession the goods were seized. The section explicitly applies to gold and its manufactures.The Court examined whether the officers had a reasonable belief that the seized gold was smuggled. The search was conducted on specific intelligence, and six pieces of gold bearing foreign markings were recovered from the appellant. The appellant admitted on multiple occasions (11.4.2018, 12.4.2018, and 9.8.2018) that he had no documents or invoices evidencing licit possession and that the gold was purchased without bills from traders who came to his shop.The Court found that these facts gave the officers a reasonable belief that the gold was smuggled, triggering the applicability of Section 123. Therefore, the burden of proof shifted to the appellant to prove that the gold was not smuggled.Issue 2: Whether the appellant discharged the burden of proof under Section 123The appellant contended that invoices were produced, which the lower authorities failed to consider. The appellant also argued that the seizure memo did not record any reason to believe the gold was smuggled, and hence Section 123 should not apply.The Court analyzed the invoice produced, which pertained to 3080 grams of gold bars described as 'Gold Bar 99.50%' but did not indicate any duty-paid documents or bill of entry number. The quantity and description did not match the seized gold, which was 2,946.80 grams of gold pieces with foreign markings.The Court also noted the appellant's consistent statements over several months admitting absence of invoices or bills for the seized gold. The invoice produced appeared as an afterthought and did not correspond to the seized goods.Given this factual matrix, the Court concluded that the appellant failed to discharge the burden of proving that the seized gold was not smuggled.Issue 3: Justification for confiscation under Section 111(d)Section 111(d) of the Customs Act authorizes confiscation of goods liable for confiscation under the Act. Since the Court held that the seized gold was smuggled, confiscation was justified.The Court emphasized that the initial reasonable belief of smuggling was confirmed by the appellant's failure to prove licit possession, thereby validating the confiscation order passed by the Additional Commissioner and upheld by the Commissioner (Appeals).Issue 4: Appropriateness of penalty under Section 112(b)(i)Section 112(b)(i) authorizes imposition of penalty for contravention of the provisions of the Customs Act. The penalty imposed was Rs. 10,00,000/- on the appellant.The Court found the penalty to be fair and proper, considering the value of the seized gold was Rs. 83,76,464/-. The appellant's failure to produce valid documents and the smuggling nature of the goods justified the penalty.Treatment of Competing ArgumentsThe appellant's argument that there was no reasonable belief of smuggling was rejected due to the appellant's own admissions and lack of documentation. The late production of an invoice that did not match the seized goods was insufficient to discharge the burden under Section 123.The Revenue's argument that the appellant was given sufficient opportunity and that the seizure was based on specific intelligence was accepted. The consistency of the appellant's statements negated his claim of licit possession.Significant Holdings'If gold is seized under the reasonable belief that it is smuggled gold, then the burden of proving that it is not smuggled rests on the person from whose possession the goods were seized.''The burden which is required to be discharged is that the seized gold was not smuggled. If gold is imported legally, there will be duty paying documents. Even if the gold so imported is further sold, copies of the duty paid documents will be available.''The appellant failed to discharge its onus of proving that the seized gold was not smuggled gold.''As the gold as was initially presumed to be smuggled gold is hereby held as smuggled gold. Its confiscation under section 111 of the Act must be upheld.''The penalty of Rs. 10,00,000/- imposed on the appellant under section 112(b)(i) of the Act is fair and proper and calls for no interference.'The Court upheld the confiscation of 2,946.80 grams of gold under Section 111(d) and the penalty under Section 112(b)(i). The appeal was dismissed, affirming the orders of the lower authorities.