2025 (11) TMI 1813 - AT - Customs

Gold biscuits confiscation and penalties quashed for lack of reasonable belief under Sections 110(1), 112(b)(ii), 123

CESTAT Kolkata allowed the appeal, setting aside confiscation of 20 gold biscuits and penalties under Section 112(b)(ii) of the Customs Act, 1962. It held ... Seizure of foreign origin Gold - reasonable belief as required u/s 110(1) of the Customs Act, 1962 or not - gold recovered from the appellant was established to be of foreign origin and believed to be smuggled in contravention of the provisions of the Customs Act, 1962 - foreign markings available on the gold biscuits are sufficient to establish smuggled nature of the gold or not - legality of invocation of the provisions of Section 123 of the Customs Act, 1962 - levy of penalty u/s 112(b)(ii) 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? - Whether the gold recovered from the appellant was established to be of foreign origin and believed to be smuggled in contravention of the provisions of the Customs Act, 1962 and the gold recovered from the Appellant is liable for seizure and consequent confiscation? - HELD THAT:- From the provisions of Section 110 extracted above, it is observed that for seizure of the gold, there must be a 'reasonable belief' that the gold in question is liable for confiscation. The Ld. A.R. cited the decision of the Hon'ble High Court of Kolkata and submitted that the intelligence gathered by the officers of DRI that the Appellant is bringing smuggled gold is sufficient to have the 'reasonable belief' that the goods are liable for confiscation. Thus, it is necessary to examine the intelligence available on record and the circumstances that led to the seizure of the gold - The facts and circumstances narrated would prove that the seizing officers were not sure about the foreign nature of the gold. Further, there is no other evidence brought on record by the investigation officers to establish the smuggled nature of the gold. 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. Accordingly, the questions are answered in the negative. Whether the foreign markings available on the gold biscuits is sufficient to establish smuggled nature of the gold and consequently liable for confiscation? - HELD THAT:- There were foreign markings on the gold biscuits. The officers concluded that the gold in question were smuggled in nature and seized the gold bars mainly on the ground that they had foreign markings on them -. It is observed that the place of seizure is Railway station, which is located in the midst of the city of Kolkata where gold with foreign markings are freely available in the market. The gold is seized far away from the Bangladesh Border. The seizure is not at the airport or sea port and the person in possession of the gold was not intercepted in any port while arriving from abroad. We find that the gold is not of 999.9 purity, which is normally associated with foreign origin gold. In the present case the purity ranges from 99.7 to 99.8 purity. Further, it is found that the purity has been tested only in respect of 5 biscuits out of the 20 gold biscuits seized. The said test report obtained for 5 gold biscuits cannot be adopted as the purity for the remaining 15 gold biscuits - it is evident that the test report conducted does not establish that the gold seized was of foreign origin. Under these circumstances, the additional evidence is required to prove that the gold was illegally imported, which is not available in this case. It is also found that there are no specific findings in the impugned order to prove that such markings, even if present, prove illicit importation. It has not been ascertained by the investigation as to the country of origin of the gold and the route followed for its alleged illegal importation. 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. Moreover, the issue of town seizure of unmarked gold is no longer res integra as there have been numerous laid down ratio squarely applicable to the case in hand. The confiscation of the gold on this ground is legally untenable and unsupported by the evidence on record - the issue answered in negative. Whether invocation of the provisions of Section 123 of the Customs Act, 1962 is legal and justified in directing the appellant to prove that the gold held under seizure is not smuggled? - 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,when seizure was affected under the reasonable belief that the said goods are smuggled - It is a fact that in the present case, the investigation has not brought in any evidence to prove foreign origin of the gold or smuggled nature of the gold. 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 of the gold 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 issue has been examined by this Tribunal at Hyderabad in the case of Balanagu Naga Venkata Raghavendra vs CC Vijayawada [2021 (2) TMI 612 - CESTAT HYDERABAD], wherein it has been held that the burden under Section 123 ibid. will not shift on the appellants when the seizure of gold without foreign markings are seized from city. Thus, the burden of proof under Section 123 of the Customs Act does not shift to the appellant, who has claimed the ownership of the gold. Accordingly, question answered in the negative. Whether imposition of penalty under Section 112(b)(ii) of the Customs Act, 1962 on the appellant is justified? - HELD THAT:- It has been held that the gold in question is not liable for confiscation. In the absence of any cogent evidence establishing the smuggled character of the gold, the appellant cannot be held liable for abetting any offence under the Customs act, 1962. In these circumstances, 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 answered in the negative. Thus, the gold in question cannot be construed to be of foreign origin and/or smuggled in nature. Thus, the 20 pieces of gold seized in this case are not liable for confiscation under Section 111(b) and (d) of the Customs Act, 1962, in the absence of any cogent and corroborative evidence to substantiate the allegation of smuggling. Therefore, the order of confiscation of the seized gold in the impugned order under Section 111(b) and (d) of the Act is set aside - As the gold in question is found to be not liable for confiscation, the penalties imposed on the appellants are not sustainable and hence, the same are set aside. The impugned order is set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether the seizure of gold was founded on 'reasonable belief' as required under Section 110(1) of the Customs Act, 1962. (2) Whether the gold recovered was established to be of foreign origin and smuggled in contravention of the Customs Act, 1962 so as to be liable to confiscation under Section 111(b) and (d). (3) Whether foreign markings and test results on part of the seized gold were sufficient to establish its smuggled nature and justify confiscation. (4) Whether the onus under Section 123 of the Customs Act, 1962 validly shifted to the possessor to prove that the seized gold was not smuggled. (5) Whether penalty under Section 112(b)(ii) of the Customs Act, 1962 was legally sustainable. (6) Consequentially, where the gold has already been disposed of, whether the possessor is entitled to refund of its value with interest and on what basis. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1) - Reasonable belief for seizure under Section 110(1) Legal framework (as discussed): Section 110(1) permits seizure only if the proper officer has 'reason to believe' that the goods are liable to confiscation. The Tribunal examined the contents of the panchnama and the nature of 'intelligence' relied upon. Interpretation and reasoning: The Tribunal noted that the alleged 'specific intelligence' only named the person and broadly stated he would be carrying substantial gold smuggled from Bangladesh, without particulars such as age, address, manner of carriage, quantity, place and time of smuggling, or the identity of the smuggler. The panchnama did not record any concrete material establishing foreign origin prior to seizure; the certification of 24 carat foreign origin gold by the government valuer was not supported by disclosed basis and was not done in the presence of panch witnesses. The route or 'root of import' was not investigated or established. The Tribunal found no cogent material recorded in the panchnama to show how 'reasonable belief' was actually formed, and held that mere assertion in the panchnama that seizure was on reasonable belief is insufficient. Conclusions: The pre-condition for seizure under Section 110(1) was not satisfied; there was no legally sustainable 'reasonable belief' that the gold was liable to confiscation, rendering the seizure itself unsustainable. Issue (2) - Proof of foreign origin and smuggled nature; liability to confiscation under Section 111(b), (d) Legal framework (as discussed): Section 111(b) and (d) apply to goods imported contrary to prohibition or liable to confiscation as smuggled goods. For such confiscation, the foreign origin and smuggled character must be established by the department before adverse presumptions or burdens can operate. Interpretation and reasoning: The Tribunal found that the department failed to establish foreign origin prior to seizure and did not investigate who imported the gold, when and where it entered India, or how it came into the appellant's possession. The place of seizure was a railway coach in Kolkata city, far from the Bangladesh border and not in a customs area; the person in possession had not been intercepted on arrival from abroad. The Tribunal emphasised that foreign markings alone and general suspicion are not enough to infer smuggling, particularly in a town seizure where gold with foreign markings is freely available in the domestic market. On facts, there was no evidence of actual illicit import or of any chain of smuggling, and no corroborative material beyond the officers' belief and an unsupported valuer's opinion. Conclusions: The gold was not proved to be of foreign origin or smuggled in contravention of the Customs Act, 1962; consequently, it was not liable to confiscation under Section 111(b) and (d). Issue (3) - Effect of foreign markings and partial purity testing Interpretation and reasoning: The Tribunal held that foreign markings on gold biscuits, by themselves, do not prove foreign origin or smuggled nature, treating such markings as hearsay unless backed by independent evidence of their source and authenticity. The purity test from the Customs laboratory on five representative biscuits showed 99.7-99.8% purity, not 999.9 fineness typically associated with standard foreign-origin bullion; all 20 biscuits were never tested. The Tribunal found that (a) the test result for 5 biscuits could not automatically be extended to the remaining 15, and (b) even the tested purity did not, in law, suffice to establish foreign origin. It also stressed the town seizure context-Kolkata city railway station, far from an international border or port-making it unsafe to infer smuggling merely from markings and high purity. Conclusions: Foreign markings and partial purity testing (99.7-99.8) were insufficient to establish smuggled nature of the gold; confiscation could not be sustained on this basis. Issue (4) - Applicability of Section 123 and shifting of burden Legal framework (as discussed): Section 123 places the burden of proving that specified goods (including gold) are not smuggled on the person from whose possession they are seized only where (i) the goods to which the section applies are seized, and (ii) the seizure is made 'in the reasonable belief that they are smuggled goods'. Judicial precedents discussed emphasise that before the burden shifts, the department must first establish foreign origin and a reasonable basis for treating the goods as smuggled. Interpretation and reasoning: The Tribunal, having already held that reasonable belief was absent and that foreign origin was not established, reasoned that the foundational conditions for invoking Section 123 were not met. Without proof of foreign origin and a valid reasonable belief of smuggling at the time of seizure, the onus could not be shifted to the possessor to prove licit acquisition or non-smuggled character. Accordingly, the department remained responsible for proving smuggling and had failed to discharge that burden. Conclusions: Section 123 was not attracted; the burden of proof did not shift to the appellant, and the department could not rely on Section 123 to sustain confiscation. Issue (5) - Validity of penalty under Section 112(b)(ii) Legal framework (as discussed): Section 112(b)(ii) penalises acts of dealing with goods liable to confiscation with knowledge or reason to believe they are liable to confiscation. Penalty presupposes that the goods are in fact liable to confiscation and that the person has abetted or dealt with such goods culpably. Interpretation and reasoning: Since the Tribunal held that the gold was not shown to be of foreign origin or smuggled and that confiscation under Section 111(b), (d) was unsustainable, the foundational requirement for penalty-existence of goods liable to confiscation-failed. In the absence of cogent evidence of smuggling or abetment, the mental element required for Section 112(b) could not be inferred. Conclusions: Penalty under Section 112(b)(ii) was not sustainable and was set aside. Issue (6) - Consequential relief: refund of value and interest if gold disposed of Legal framework (as discussed): CBIC Instructions No. 11/2022-Customs and No. 27/2021-Customs provide that where seized gold has been disposed of and an appellate authority orders its return, refund of the value at tariff value or average market price on the disposal date (as fixed by the Joint Pricing Committee) is to be granted. Judicial precedents of the Supreme Court and High Courts recognise that, where confiscation is found illegal and goods have been sold, the affected person is entitled to the money value of the goods plus interest. Interpretation and reasoning: The Tribunal applied these instructions and case law to hold that, in view of the setting aside of confiscation and penalties, the appellant becomes entitled either to the physical return of the gold or, if already sold, to the value of the gold at the average market price as on the date of disposal, with interest from the date of disposal till refund. The Tribunal rejected any approach that would allow the department to benefit from its own wrongful confiscation and disposal. Conclusions: The impugned order was set aside; the appeal was allowed with consequential relief. If the gold has been disposed of, the department must refund to the appellant the value of the seized gold at the average market price prevailing on the date of disposal, as approved by the Joint Pricing Committee, together with applicable interest from the date of disposal until the date of actual refund, in accordance with the cited CBIC Instructions.