Seizure of silver granules quashed where revenue failed to prove smuggling; domestic purchase with IGST shown accepted

CESTAT KOLKATA - AT held that the town seizure of silver granules was unsustainable as Revenue failed to prove they were smuggled or of foreign make; the items are not notified bullion and there was no foreign inscription. Documentary evidence of domestic purchase with payment of IGST reflected in GST returns was accepted. Reliance on untested statements of third parties (cross-examination denied) rendered them inadmissible. Consequently confiscation, penalties and seizure of the vehicle used for transport were set aside and the appeal disposed in favour of the appellants.

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ISSUES PRESENTED AND CONSIDERED

1. Whether there existed a "reasonable belief" under Section 110(1) read with Section 111 of the Customs Act that the seized silver granules were smuggled/of foreign origin, sufficient to justify seizure and confiscation.

2. Whether the burden of proof as to foreign origin shifts to the claimants once goods are seized, and what evidentiary standard the Revenue must meet to establish smuggled character.

3. Admissibility and evidentiary value of statements of third parties relied upon by Revenue where cross-examination under Section 138B was not permitted: whether such untested statements can sustain confiscation/penalty.

4. Validity and sufficiency of documentary evidence (invoices, delivery challans, GST returns) produced by claimants to establish domestic procurement and lawful possession.

5. Applicability of DGFT/RBI/Nomination notifications and specific Customs provisions invoked (Sections 111(b), 111(d), 115(2), 120(1), 112(a)/(b), 114AA), including whether restricted status of silver under DGFT renders Section 111(d) or 111(b) unsustainable when foreign origin is not proved.

6. Whether the adjudicating authority erred in confiscating goods without offering option to redeem under Section 125 for non-prohibited goods.

7. Whether the vehicle used for carriage can be confiscated where confiscation of the goods themselves is unsustainable.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Reasonable belief of smuggling and requirement for seizure

Legal framework: Seizure under Section 110(1) requires a reasonable belief that goods are liable for confiscation under Section 111; confiscation under Section 111(b)/(d) requires proof of importation through prohibited/off-route or contravention of notifications.

Precedent treatment: Cites authorities (Gian Chand v. State of Punjab; Union of India v. Mahesh Raj; D. Bhoormull; Umrao Lal v. Commissioner of Customs) establishing that mere suspicion is insufficient and that cogent evidence of foreign origin or prima facie indicia must exist.

Interpretation and reasoning: The Tribunal found the seizure was a "town seizure" (281 km from border; outside "specified area" under Section 11H) and that no foreign markings or other corroborative evidence of foreign origin were produced. Revenue relied principally on intelligence, interception and statements; no material establishing third-country origin was produced. The Tribunal held that officers failed to exercise due diligence to form a genuine reasonable belief.

Ratio vs. Obiter: Ratio - seizure and confiscation cannot stand where no cogent evidence establishes foreign origin; reasonable belief cannot rest on mere suspicion.

Conclusion: No reasonable belief existed; seizure/confiscation of the silver granules set aside.

Issue 2 - Burden of proof as to foreign origin

Legal framework: Where an item is not a notified item under Section 123, Revenue bears responsibility to establish foreign origin as precursor to confiscation.

Precedent treatment: Reliance on Supreme Court jurisprudence (Mahesh Raj) that burden under Section 123 arises only with prima facie evidence of foreign origin; Tribal decisions applying the same principle.

Interpretation and reasoning: Tribunal observed silver granules are not a Section 123 notified item (only silver bullion is); therefore, onus remained on Revenue to prove smuggled character. Revenue failed to adduce such proof; Tribunal refused to shift burden to appellants at seizure point.

Ratio vs. Obiter: Ratio - where item is not notified, burden to prove foreign origin and smuggling rests on Revenue before confiscation.

Conclusion: Revenue failed its burden; confiscation unsustainable.

Issue 3 - Evidentiary weight of untested statements where cross-examination under Section 138B was not allowed

Legal framework: Section 138B permits cross-examination of persons whose statements are relied upon; untested statements have limited evidentiary value.

Precedent treatment: Tribunal relied on statutory scheme and prior decisions holding that untested statements cannot be sole basis for conviction/confiscation.

Interpretation and reasoning: Revenue relied on statements of third parties (e.g., alleged supplier, intermediary). Appellants sought cross-examination under Section 138B but were denied by both adjudicating and first-appellate authorities. Tribunal held those statements thereby lacked evidentiary value to implicate appellants and could not sustain confiscation/penalty.

Ratio vs. Obiter: Ratio - confiscation or penalty cannot be based solely on statements of persons whose cross-examination was disallowed under Section 138B.

Conclusion: Statements relied upon by Revenue, being untested, do not sustain findings; confiscation and penalties set aside.

Issue 4 - Sufficiency of documentary evidence (invoices, delivery challans, GST returns) to establish lawful domestic procurement

Legal framework: Documentary records, including GST returns and portal filings (GSTR-2A/2B), can serve as evidence of domestic purchase and payment of IGST, bearing on lawful possession.

Precedent treatment: Tribunal treated online GST filings as reliable unless convincingly shown to be forged; physical non-location of supplier alone insufficient to displace portal records.

Interpretation and reasoning: Appellants produced invoices/delivery challans and GST returns showing payment of IGST @3% and corresponding entries in GSTR-2A/2B. Revenue's physical verification did not find the named firm at the invoice address and alleged invoices were fake. Tribunal held that online GST filings corroborated appellants' claim; inability of officers to find firm at address was insufficient to brand invoices fake, absent further contradiction. Tribunal accepted documentary evidence as supporting domestic procurement.

Ratio vs. Obiter: Ratio - where GST portal records and returns corroborate invoiced transactions, such documentary proof is prima facie reliable; mere physical non-location of supplier does not nullify electronic records.

Conclusion: Documentary evidence supported lawful domestic procurement; goods not liable for confiscation under Section 111.

Issue 5 - Applicability of DGFT notification and invoked statutory clauses (111(b), 111(d))

Legal framework: DGFT notification makes import of certain silver forms restricted; Section 111(b)/(d) address smuggled/imported goods and goods contravening notification. Applicability requires demonstration of import/smuggling or contravention.

Precedent treatment: Tribunal recognized that restricted import status does not ipso facto render goods smuggled absent proof of import.

Interpretation and reasoning: Since Revenue failed to prove foreign origin/importation, invocation of Section 111(b)/(d) and DGFT notification was legally unsustainable. Tribunal observed that restricted import status does not obviate need to prove that goods crossed border in contravention.

Ratio vs. Obiter: Ratio - restricted import notification cannot substitute for proof of foreign origin; Section 111 clauses cannot be invoked without such proof.

Conclusion: Invocation of Section 111(b)/(d) and relevant notification unsustainable; confiscation under those clauses set aside.

Issue 6 - Failure to offer option to redeem under Section 125

Legal framework: Section 125 requires that for non-prohibited goods the adjudicating authority ordinarily offer option to pay fine in lieu of confiscation.

Precedent treatment: Authorities require adjudicator to consider and offer redemption where goods are not prohibited.

Interpretation and reasoning: Tribunal found that since confiscation itself could not be sustained, issue of non-offering of redemption became subsumed; the adjudicator's failure to offer redemption was noted but ultimately rendered moot by setting aside confiscation.

Ratio vs. Obiter: Obiter - failure to offer redemption is an error where confiscation is otherwise sustainable; here moot because confiscation vacated.

Conclusion: No separate remedy required once confiscation is set aside; implicit finding that procedural lapse would have been material if confiscation had been sustained.

Issue 7 - Confiscation of vehicle used in carriage when goods' confiscation is unsustainable

Legal framework: Section 115(2) permits confiscation of conveyance used for carriage of smuggled/liable goods; confiscation of vehicle contingent on lawful confiscation of goods or independent proof of its use in contravention.

Precedent treatment: Conveyance confiscation cannot survive if foundational finding about goods is unsustainable unless independent evidence supports vehicle confiscation.

Interpretation and reasoning: Tribunal held that because confiscation of the silver granules was set aside for lack of proof, the vehicle's confiscation - founded on carriage of smuggled goods - also cannot be sustained absent independent proof. Therefore vehicle confiscation set aside.

Ratio vs. Obiter: Ratio - confiscation of conveyance dependent on sustainable confiscation of goods or independent proof; absence of either requires setting aside vehicle confiscation.

Conclusion: Confiscation of the vehicle set aside.

Final Disposition (legal conclusions): There was no reasonable belief of smuggling; Revenue failed to discharge burden of proof as to foreign origin; untested third-party statements lacked evidentiary value; documentary GST evidence supported domestic procurement; confiscation of goods and vehicle and all penalties were set aside. These are binding conclusions of the Tribunal in this matter.

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