2025 (10) TMI 890 - AT - Customs

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 ... Town seizure - Smuggling of Silver granules from - failure to produce any valid documents evidencing legal possession/importation/purchase/sale/transportation, etc. of the said silver granules - burden to prove - Relaince placed upon statements of various persons to substantiate their allegation that the 'Silver Granules' were smuggled in nature - Seeking release of confiscated goods - penalties u/s 112(a), 112(b) and 114AA of CA, 1962 - HELD THAT:- The silver granules were not recovered anywhere near the international border and hence it was a ‘town seizure’. The 'Silver Granules' in question were seized by the officers on the reasonable belief that they were smuggled goods brought from Nepal without payment of appropriate customs duties. In this regard, it is pertinent to note that Silver bullion is notified under Section 123 of the Customs Act, 1962 vide Notification No. 103/2016-Customs (NT) dated 25.07.2016 and only silver bullion is notified for the purpose of the Section. Thus, it is seen that the ‘Silver Granules’ in question is not a Notified item under Section 123 of the Customs Act, 1962. Therefore, the responsibility is on the Revenue to prove that the item is of foreign make and the same has been smuggled. In the present case, it is observed that the Revenue has not brought in any evidence to establish that the 'Silver Granules' in question were smuggled in nature. The fact is also noted that there is no foreign inscription on the seized silver granules. Merely on suspicion it was held that that the same have been smuggled from Nepal. In the instant case, it is found that the officers seized the 'Silver Granules' solely on the suspicion that it was smuggled in nature. It is observed the officers proceeded with the seizure of the 'Silver Granules' 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 basis of assumptions and presumptions. It is a settled principle of law that confiscation under the Customs Act requires cogent and credible evidence, not assumptions or unverified inferences - there was no ‘reasonable belief’ in this case for seizure of the 'Silver Granules' in question in terms of Section 110(1) of the Customs Act, 1962. On perusal of the documentary evidences, it is observed that the appellants have paid IGST @3% for the purchase of the 'Silver Granules' in question and the said purchase has been reflected in the GST returns 2A and 2B filed by them during the respective period. As these documents were filed online in the GSTN portal, there are no reason to doubt their genuineness. Just because the officers could not find any firm in the name of ‘AN Enterprises’ during their visit at the address mentioned therein in the invoices, it cannot be concluded that the said firm was not in existence. Accordingly, the documentary evidences submitted by the appellants support their claim that the said 'Silver Granules' were domestically procured on payment of GST. Thus, the said 'Silver Granules' are not liable for confiscation under the provisions of Section 111(b) and Section 111(d) of the Customs Act, 1962. Relaince placed upon statements of various persons to substantiate their allegation that the 'Silver Granules' were smuggled in nature - HELD THAT:- Revenue has relied upon the statements recorded from Shri Kari Karak and Shri Anil Kumar, for confiscation of the seized goods and to implicate the appellants in the alleged offence. The fact is noted that the appellants had sought cross examination of these persons whose statements have been relied upon in the proceedings, but both the Original authority and First Appellate Authority did not allow the cross examination as provided under Section 138B of the Customs Act, 1962 - the statements have no evidentiary value against the appellants. In the present case, it is pertinent to observe that other than the statements, there is no other evidence available on record to implicate the appellants in the alleged offence. As the statements have not been tested as required under section 138B of the Customs Act, 1962, the confiscation ordered in the impugned order on the basis of such untested statements is not sustainable and hence the same is set aside. Confiscation of the Silver Granules - penalties - HELD THAT:- The imposition of penalties on the appellants is not sustainable and hence, the same is set aside. Confiscation of the vehicle used for transportation of the Silver Granules - HELD THAT:- The Silver Granules in question are not liable for confiscation, the said vehicle used for transportation of the 'Silver Granules' is also not liable for confiscation. Accordingly, the confiscation of the said vehicle is set aside. Conclusion - i) The Revenue has not brought in any evidence to establish that the 'Silver Granules' in question were smuggled in nature. ii) As the statements have not been tested as required under section 138B of the Customs Act, 1962, the confiscation ordered in the impugned order on the basis of such untested statements is not sustainable. iii) Confiscation, penalties and vehicle used for transportation of the Silver Granules not liable for confiscation. Appeal disposed off. 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.