2025 (10) TMI 980 - AT - Customs

Revenue appeals dismissed; confiscation and penalties under s.112(b) set aside where no proof of smuggling under s.123

Principal Commissioner of Customs (Preventive), Kolkata Versus Shri Prashant Mishra and Shri Laxmi Prasad

CESTAT KOLKATA - AT dismissed the Revenue appeals and upheld the appellate order setting aside confiscation and penalties under s.112(b) Customs Act. The ... Absolute confiscation - Levy of penalty u/s 112(b) of the Customs Act, 1962 - smuggling of Gold - failure to produce any licit document in support of legal possession/transporting/carrying of the said gold - Respondents have been implicated in the alleged offence of smuggling of gold biscuits on the basis of their own statements - evidences available on record indicate that the Respondents were involved in the alleged offence of smuggling of gold bars, or not - burden of proof under Section 123 of the Customs Act, 1962, can be shifted on the Respondents in the absence of any conclusive evidence or not - validity of dropping of the penalties against the respondents. Whether the evidences available on record indicate that the Respondents were involved in the alleged offence of smuggling of gold bars? - HELD THAT:- The gold in question was seized from the domestic area. It is found that the officers did not derive any subjective satisfaction that the gold was of foreign origin and smuggled. The seizure inventory fails to disclose any material evidence justifying a ‘reasonable belief’ for seizure of the gold. In this regard, we observe that mere finding of gold does not render it liable for seizure unless there is cogent and positive evidence proving its foreign origin as the first condition, as precursor to seizure. The Hon'ble Delhi High Court in the case of Shanti Lal Mehta v. Union of India & Ors. [1982 (11) TMI 56 - HIGH COURT OF DELHI], has elaborately dealt with town seizures and the evidences required to have the 'reasonable belief' that the goods are smuggled in nature, in such cases. Thus, the evidences available on record do not indicate that the Respondents were involved in the alleged offence of smuggling of gold bars. Accordingly, the evidences available on record does not indicate that the Respondents were involved in the alleged offence of smuggling of gold - the question is answered in the 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:- Section 123 of Customs Act, 1962, prescribes that the burden of proving that goods which have been seized under the Act are not smuggled in nature is on the person who claims the ownership of the goods - the provisions of Section 123 of the Customs Act, 1962 are applicable only when it is established that the gold in question were of smuggled in nature. In the present case, it is found that the investigation has not brought in any evidence on record to establish that the gold in question was smuggled in nature. As the gold in question was seized from the domestic area, it is observed that the provisions of section 123 of Customs Act, 1962 are not applicable in this case and hence the onus is on the Revenue to prove that the said gold was of smuggled in nature. The Revenue has no evidence on record to establish that the gold in question was smuggled. Accordingly, the Ld. Commissioner (Appeals) had rightly set aside the confiscation of the gold and the penalties imposed on the Respondents herein. the burden of proof under Section 123 of the Customs Act does not shift on the Respondents herein. The Customs authorities must first establish the foreign origin before invoking the presumption of smuggling. So, in this case, the responsibility is 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 Respondents herein - the question is answered in the negative. Whether the dropping of the penalties against the respondents in the impugned order is legally justified, or not? - HELD THAT:- There is no evidence available on record to show that the gold bars were of foreign origin and smuggled into the country. In the absence of any evidence to establish that the gold bars were smuggled ones, penalty under Section 112(b) of the Customs Act, 1962 cannot be imposed. In the present case, it is not proved that the gold bars were smuggled in to the country. As the gold bars found were not established as smuggled in nature and hence on the face of it, the same cannot be treated as prohibited goods. Thus, it is observed that when the gold in question is not considered as ‘prohibited goods’, the provisions of section 112 (b) cannot be invoked to impose penalty. Hence, in these facts and circumstances, no penalty is imposable on the Respondents herein under Section 112(b) of Customs Act, 1962 and the Ld. Commissioner (Appeals) has rightly set aside the penalties imposed on the Respondents. This Tribunal in the case of R.K. Swami Singh v CC(Preventive), Shillong [2024 (5) TMI 19 - CESTAT KOLKATA] wherein under similar facts and circumstances, this Tribunal has set aside the penalty imposed under Section 112(b)(ii) of the Customs Act 1962. Thus, the penalties imposed on the Respondents have been rightly set aside by the Ld. Commissioner (Appeals). Hence, the question is answered in the affirmative. There are no merit in the appeals filed by the Revenue and hence the same are rejected. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the evidences on record establish involvement of the respondents in the alleged smuggling of gold bars seized from domestic area. 2. Whether the burden of proof under Section 123 of the Customs Act, 1962 shifts to the persons from whose possession the goods were seized in absence of conclusive evidence proving foreign origin of the gold. 3. Whether setting aside the penalties imposed under Section 112(b) of the Customs Act, 1962 is legally justified where foreign origin / smuggled nature of gold is not established. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether evidences on record establish involvement in smuggling Legal framework: The power to seize under the Customs Act requires a 'reasonable belief' that goods are liable to confiscation; mere finding of goods in domestic area is insufficient. Seizure must be predicated on cogent and positive evidence indicating foreign origin or smuggling. Precedent treatment: The Tribunal relied upon higher court pronouncements (as cited in the judgment) that define 'reason to believe' as a belief of an honest and reasonable person based on reasonable grounds and that mere suspicion is inadequate. Those authorities were applied rather than distinguished or overruled. Interpretation and reasoning: The Court examined the seizure inventory and record and found no antecedent subjective satisfaction or material justifying a reasonable belief of foreign origin at the time of seizure. The authorities emphasize that reasonable belief must exist anterior to seizure and be supported by evidence (e.g., markings, documents, or other material indicia). Here, investigation produced no material proving foreign origin; statements under the Act were insufficient to establish smuggling. Ratio vs. Obiter: Ratio - that seizure from domestic area requires demonstrable material establishing foreign origin and reasonable belief before invoking confiscation; Obiter - reiteration of general principles concerning town seizures as discussed in cited authorities. Conclusion: Evidence does not indicate respondents' involvement in smuggling; answer to Issue 1 is negative. Issue 2 - Whether burden under Section 123 shifts to the respondents Legal framework: Section 123 places burden on claimant to prove goods are not smuggled only where goods are seized in the reasonable belief that they are smuggled. Applicability of Section 123 is conditional on establishment of smuggled nature. Precedent treatment: The judgment applies controlling authorities holding that burden shifts only after prima facie evidence of foreign origin; such precedents were followed and applied to facts here. Interpretation and reasoning: Because the record lacks prima facie evidence of foreign origin (no markings/documents/materials), the precondition for invoking Section 123 is absent. Consequently, the onus remains on the Revenue to establish smuggling. The Tribunal emphasized that absence of foreign markings/documentation or other corroborative material prevents invocation of the statutory presumption. Ratio vs. Obiter: Ratio - Section 123 does not apply and burden does not shift in absence of antecedent reasonable belief/prime facie evidence of foreign origin; Obiter - discussion of authorities reiterating that suspicion or disputed markings alone cannot trigger the presumption. Conclusion: Burden under Section 123 did not shift to the respondents; answer to Issue 2 is negative. Issue 3 - Whether dropping of penalties under Section 112(b) is justified Legal framework: Penalty under Section 112(b) is imposable when a person is found dealing with goods for which prohibition is in force or goods are liable for confiscation. Penal provisions presume the prohibited/confiscable nature of goods only upon satisfaction of necessary antecedent facts (e.g., smuggled/prohibited status). Precedent treatment: The Tribunal relied on prior Tribunal/Higher Court decisions (as cited in the judgment) which held that in absence of evidence of foreign origin, penalties under Section 112 cannot be sustained. Those authorities were followed and applied to the present facts. Interpretation and reasoning: Since foreign origin and smuggled character of the gold were not established, the goods could not be categorised as 'prohibited goods' for purposes of Section 112(b). Without confiscability, the statutory foundation for penalty fails. The Tribunal noted that penalties cannot be imposed on mere suspicion or unsupported assertions; the Department failed to discharge the burden of proving smuggling and hence failed to establish conditions precedent to penalty imposition. Ratio vs. Obiter: Ratio - penalty under Section 112(b) is unsustainable where confiscation cannot be sustained for lack of proof of smuggled/prohibited character; Obiter - citation of analogous tribunal decision supporting same proposition. Conclusion: Dropping of penalties under Section 112(b) is legally justified; answer to Issue 3 is affirmative. Inter-issue cross-reference The negative finding on Issue 1 (absence of evidence of foreign origin) directly determines Issue 2 (Section 123 presumption not attracted) and Issue 3 (penalty unsustainable), so the conclusions on Issues 2 and 3 follow from the conclusion on Issue 1. Final disposition arising from analysis The Court concluded that the Revenue failed to establish reasonable belief or prima facie evidence of foreign origin; therefore Section 123 does not operate, confiscation and penalties under Section 112(b) cannot be sustained, and the appellate authority's orders setting aside confiscation and penalties were correctly made.