2025 (8) TMI 1571 - AT - Customs

Seizure arbitrary for lack of independent belief under s.110(1); foreign origin unproven; confiscation and penalties under ss.111,115,112(b) set aside

CESTAT KOLKATA - AT held the seizure arbitrary for lack of an independent reasonable belief under s.110(1) Customs Act, and found the 'THOON' marking ... Smuggling - yellow metal (gold biscuits), wrapped in carbon paper and plastics - seizure of the gold was based on a ‘reasonable belief’ as required under Section 110(1) of the Customs Act, 1962 or not - seized gold actually bore the 'THOON' marking - marking is sufficient to establish the gold's foreign origin or not - burden of proof under Section 123 of the Customs Act, 1962, can be shifted to the appellants in the absence of any conclusive evidence proving the foreign origin of the gold, or not - documents produced by the appellant no. 1 evidence licit purchase of the gold in question from domestic sources or not - confiscation of the seized gold and vehicle under Sections 111(b), 111(d) and 115(2) of the Customs Act, 1962 - imposition of penalties under Section 112(b) of the Customs Act, 1962. Whether the seizure of the gold was based on a ‘reasonable belief’ as required under Section 110(1) of the Customs Act, 1962 or not? - HELD THAT:- In the instant case, Assam Rifles recovered gold from the procession of appellant no. 2 solely on suspicion that it was smuggled and later handed it over to Customs. However, instead of conducting an independent verification or forming their own reasonable belief based on credible evidence, the Customs officers proceeded with the seizure under the Customs Act without exercising due diligence. They failed to assess whether a reasonable belief of smuggling genuinely existed, as required by law, and merely acted on the presumption created by Assam Rifles. This lack of independent application of mind renders the seizure arbitrary and legally unsustainable. There was no ‘reasonable belief’ in this case for seizure of the gold in question in terms of Section 110(1) of the Customs Act, 1962 - the issue is answered in the negative. Whether the seized gold actually bore the 'THOON' marking, and if so, whether the marking is sufficient to establish the gold's foreign origin or not? - HELD THAT:- The Department has failed to establish that 'THOON' is a recognized foreign mark or bears any established nexus with foreign origin. There is no evidence on record of conclusive foreign marking on gold nor any assay reports or any other expert opinion proving that the marking 'THOON' signifies foreign origin. It is also pertinent to note that the remaining 15 bars were completely unmarked, and thus cannot be presumed to be of foreign origin. The impugned order merely emphasizes that the documents produced by the Petitioner did not match the seized goods, but this by itself cannot substitute the mandatory requirement of establishing foreign origin before proving smuggling. In the absence of any official certification, industry recognition, or conclusive evidence linking 'THOON' to a specific foreign source, such markings, if they even existed at seizure cannot be relied upon to establish the foreign origin of the gold. There is no factual or legal basis to conclude that such markings, even if present, prove illicit importation. The confiscation of the gold on this ground alone is therefore legally untenable and unsupported by the evidence on record. The confiscation of the gold on this ground is therefore legally untenable and unsupported by the evidence on record - the issue is answered in negative. Whether the burden of proof under Section 123 of the Customs Act, 1962, can be shifted to the appellants in the absence of any conclusive evidence proving the foreign origin of the gold, or not? - HELD THAT:- It is a fact that in the present case, the gold biscuits do not have clear foreign markings except for disputed markings on a few biscuits, and no further evidence was adduced to prove foreign origin. Hence, in the facts and circumstances of the case, we observe that the burden of proof under Section 123 of the Customs Act does not shift to the owner. The Customs authorities must first establish the foreign origin before invoking the presumption of smuggling. So, we find that the responsibility was on the Department to show that the gold in question was smuggled into the country without payment of appropriate duties of Customs thereon, which the Department has failed to discharge in this case. The burden of proof under Section 123 of the Customs Act does not shift to the appellant no. 1, who has claimed the ownership of the gold in this case - the issue is answered in negative. Whether the documents produced by the appellant no. 1 evidence licit purchase of the gold in question from domestic sources or not? - HELD THAT:- From the Test report reproduced, it is observed that the purity of gold is not 999, which is normally associated with pure 24 carat gold of foreign origin. Thus, there are merit in the submission of the appellants that the gold pieces have been made after melting of old jewellery whose purity is less than 999. Thus, the sale invoices along with the purity of gold less than that associated with 24 carat gold, establish the licit purchase of the gold by appellant no. 1 from M/s. Sangham Diamonds Pvt. Ltd., Mumbai. The documents produced by the appellant no. 1 evidence licit purchase of the gold in question from domestic sources - the issue is answered in affirmative. Whether the confiscation of the seized gold and vehicle under Sections 111(b), 111(d) and 115(2) of the Customs Act, 1962, is legally justified or not? - HELD THAT:- In absence of any finding with regard to the origin and/or route, the allegation of violation of the Section 7 (c) of the Act is not sustainable. It is also a settled position of law that presumption cannot be a substitute to evidence. In the absence of foreign markings, there should be cogent evidence to establish that the gold is of foreign origin - the confirmation by the supplier further corroborates the claim of the appellant no. 1 regarding the lawful purchase of gold through verifiable and documented transactions. In this regard, the supplier has acknowledged the absence of any foreign markings on the gold bars, nullifying any presumption of foreign origin. The order of confiscation of the said vehicle carrying the gold in question under Section 115(2) also appears to be devoid of merit - the confiscation of the seized gold and vehicle under Sections 111(b), 111(d) and 115(2) of the Customs Act, 1962, in this case is legally not sustainable - the issue is answered in negative. Whether the imposition of penalties under Section 112(b) of the Customs Act, 1962, is legally warranted, or not? - HELD THAT:- The gold in question is not liable for confiscation and the appellants were having valid documents to establish legal purchase of the said gold. Shri R. Rajesh Naykar has produced evidence for legal purchase of the gold and he has no role in the alleged offence. For the same reasons, penalty cannot be envisaged on Shri Soibam Subhash Singh, the driver of the Maruti Vehicle carrying the gold, in the absence of any cogent evidence establishing the smuggled character of the gold. In these circumstances, it is found that the ingredients enshrined in Section 112(b) of the Customs Act, 1962 are not applicable to the present case for imposition of penalties on the appellants. Accordingly, the penalties imposed on the appellants are not sustainable. Thus, the issue is answered in the negative. The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the seizure of the gold was based on a 'reasonable belief' as required under Section 110(1) of the Customs Act. 2. Whether the seized gold bore the marking 'THOON', and if so whether such marking is sufficient to establish foreign origin or smuggling. 3. Whether the burden of proof under Section 123 of the Customs Act shifts to the claimants in the absence of conclusive evidence proving foreign origin. 4. Whether the documents (tax invoices and supplier confirmation) produced by the claimant evidence licit domestic purchase of the gold. 5. Whether confiscation of the seized gold and the vehicle under Sections 111(b), 111(d) and 115(2) is legally justified. 6. Whether imposition of penalties under Section 112(b) is legally warranted. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Reasonable belief for seizure under Section 110(1) Legal framework: Section 110(1) permits seizure if the proper officer has 'reason to believe' goods are liable to confiscation; such subjective satisfaction must be based on objective material. Precedent treatment: Reliance on authorities holding that mere suspicion is insufficient and that the seizing authority must demonstrate subjective satisfaction grounded in objective evidence. Interpretation and reasoning: Seizure was effected initially by a security force and then handed to Customs; neither the handing-over certificate nor the seizure inventory recorded foreign markings or other objective indicators of smuggling. Customs officers did not independently form or record a reasonable belief based on objective material; they acted on the presumption arising from the security force's seizure. Absent cogent evidence of foreign origin or smuggling (markings, route, documents, port/airport connection), the statutory pre-condition for lawful seizure was not satisfied. Ratio vs. Obiter: Ratio - seizure without independent reasonable belief grounded in evidence is invalid; Obiter - remarks on necessity of independent exercise of mind by Customs officers. Conclusion: No reasonable belief existed to justify seizure under Section 110(1); seizure is legally unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Significance of 'THOON' marking Legal framework: Foreign markings can be relevant but do not ipso facto establish foreign origin or smuggling; markings require corroboration, expert/assay opinion or official recognition to be conclusive. Precedent treatment: Followed authorities holding that markings alone are hearsay and insufficient unless linked by evidence to a foreign source; noted decisions that even recognized foreign markings need corroboration. Interpretation and reasoning: Only 5 of 20 pieces bore 'THOON' marking; inventory at handover did not record markings; no evidence that 'THOON' is a recognized hallmark, refinery stamp, or foreign brand; supplier confirmed no markings on goods sold; no assay/expert opinion tying 'THOON' to foreign origin. The presence of crude/indistinct markings (which could have been post-seizure or local) and majority unmarked pieces negate reliance on marking to infer smuggling. Ratio vs. Obiter: Ratio - disputed or uncorroborated markings do not establish foreign origin; Obiter - comment that markings may be manually inscribed and require expert analysis. Conclusion: 'THOON' marking (even if present) is insufficient to prove foreign origin or smuggling; cannot sustain confiscation. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Shifting burden under Section 123 Legal framework: Section 123 places burden on claimant to prove goods are not smuggled only where seizure was made in a reasonable belief that goods are smuggled; prerequisite is prima facie proof of foreign origin. Precedent treatment: Followed authorities that burden shifts only after prima facie evidence of foreign origin; where such evidence is absent, the burden remains on Revenue. Interpretation and reasoning: No prima facie evidence of foreign origin existed (absence of reliable markings, lack of route/port evidence, no independent reasonable belief). Therefore statutory onus under Section 123 could not be invoked to shift burden to claimants. Ratio vs. Obiter: Ratio - burden under Section 123 does not shift in absence of prima facie proof of foreign origin; Obiter - reference to town-seizure contexts where onus remains with Revenue. Conclusion: Burden of proof did not shift to claimants; Revenue failed to discharge initial onus of proving foreign origin. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Sufficiency of documents evidencing licit domestic purchase Legal framework: Claimant's invoices and supplier confirmations can establish lawful domestic acquisition; corroboration of quantity, VAT payment and supplier communication are relevant indicators. Precedent treatment: Treated corroborative documentary evidence and supplier confirmation as material to establish domestic purchase where not rebutted by cogent contradictory evidence. Interpretation and reasoning: Three tax invoices collectively matched the weight of seized gold. Supplier confirmed sale of equivalent quantity and stated bars were melted from jewellery and bore no markings; supplier had discharged VAT for the period. Test report showed purity below 999 (consistent with melted jewellery), undermining inference of pure foreign-refined bars. Department's investigations did not produce sufficient contrary evidence to displace invoices and supplier confirmation; circumstantial doubts raised by adjudicating authority (e.g., shop signage, invoice frequency) were speculative and not conclusive. Ratio vs. Obiter: Ratio - verified invoices and supplier confirmation, corroborated by VAT payment and purity report, suffice to establish licit domestic purchase absent cogent contrary evidence; Obiter - observations on weight correspondence and industry practices. Conclusion: Documents and supplier confirmation demonstrate licit domestic purchase; claimant's ownership claim is substantiated. ISSUE-WISE DETAILED ANALYSIS - Issue 5: Validity of confiscation under Sections 111(b), 111(d) and 115(2) Legal framework: Confiscation under Sections 111(b)/(d) requires proof goods are illegally imported or liable to confiscation; vehicle confiscation under Section 115(2) depends on nexus to illegal import/transport. Precedent treatment: Followed line of decisions requiring cogent evidence (markings, route, corroboration) before upholding confiscation; cautioned against reliance on statements without independent corroboration. Interpretation and reasoning: Given invalid seizure (no reasonable belief), insufficient proof of foreign origin (markings uncorroborated), and verified domestic purchase documents, statutory prerequisites for confiscation were not satisfied. Reliance on statements, inventory inconsistencies, and speculative inferences does not meet standard of proof required. Vehicle confiscation cannot stand where goods are not liable for confiscation. Ratio vs. Obiter: Ratio - confiscation not sustainable absent cogent evidence of illegal import; Obiter - onus and evidentiary standards for town seizures reiterated. Conclusion: Confiscation of gold and vehicle under cited sections is legally unjustified and set aside. ISSUE-WISE DETAILED ANALYSIS - Issue 6: Imposition of penalty under Section 112(b) Legal framework: Penalty under Section 112(b) presupposes violation (attempted/actual smuggling) and culpability commensurate with statutory ingredients. Precedent treatment: Applied principle that penalty cannot be sustained where foundational confiscation/smuggling finding fails and where claimant produces credible proof of lawful acquisition. Interpretation and reasoning: As confiscation findings are unsustainable and claimant produced verified documents of lawful purchase while the carrier had no cogent evidence of knowing participation in smuggling, the statutory elements for imposing penalties under Section 112(b) were not established. Ratio vs. Obiter: Ratio - penalties under Section 112(b) are not maintainable where goods are not shown to be smuggled and claimant's lawful acquisition is established; Obiter - application to carrier in absence of culpable evidence. Conclusion: Penalties imposed under Section 112(b) are unwarranted and set aside. REMEDIAL RELIEF - Disposal of seized goods Legal framework and reasoning: Where seized goods have been disposed during pendency yet confiscation is set aside, established instructions and decisions require refund of value to rightful claimant at approved market valuation with interest. Conclusion: If seized gold has been disposed, claimant is entitled to refund of value at average market price as approved by Joint Pricing Committee, with interest at 12% per annum from date of disposal until payment, in line with departmental instructions and relevant judicial precedents.