SEZ gold diversion can trigger duty and confiscation, but sale proceeds need proof of smuggled goods and knowledge.

Duty-free gold permitted under the SEZ scheme, if diverted to the DTA without valid permission, attracts customs duty, confiscation and redemption fine on the unaccounted goods, as permissible wastage cannot be claimed for illegally removed stock. Confiscation of sale proceeds under the Customs Act, however, requires proof that the goods sold were smuggled goods sold with the requisite knowledge or belief; where the transaction is only a diversion from the SEZ unit and the buyer is not shown to have participated in the illegality, that confiscation fails. Penalties may be sustained, reduced or deleted depending on the degree of proved involvement and knowledge.

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Issues: (i) Whether the diversion of duty-free gold from the SEZ unit to the DTA and the corresponding shortage in stock justified confirmation of customs duty, confiscation, and redemption fine. (ii) Whether the sale proceeds of 10 kg of gold allegedly sold to Joyalukkas were liable to confiscation under the Customs Act. (iii) Whether the penalties imposed on the noticees required interference.

Issue (i): Whether the diversion of duty-free gold from the SEZ unit to the DTA and the corresponding shortage in stock justified confirmation of customs duty, confiscation, and redemption fine.

Analysis: The evidence showed that the appellant was permitted to import gold for manufacture and export, but the stock found on inspection did not tally with the imports and exports disclosed. The claimed job-work removal was not supported by valid permissions for the relevant period, and the material recovered from multiple premises, together with the statements recorded during investigation, established that the gold had been diverted outside the SEZ scheme. The claim for wastage was rejected on the footing that permissible wastage cannot be relied upon where the goods were illegally removed. The duty demand on the unaccounted quantity and the confiscation of the seized gold articles were therefore sustained, along with redemption fine where legally imposed.

Conclusion: The customs duty demand, confiscation, and redemption fine were upheld against the appellants on this issue.

Issue (ii): Whether the sale proceeds of 10 kg of gold allegedly sold to Joyalukkas were liable to confiscation under the Customs Act.

Analysis: The invoice and surrounding facts showed that the transaction was not one of smuggled goods sold with knowledge or reason to believe that the goods were smuggled. The case was one of diversion from the SEZ unit, and the buyer was not shown to have participated in any illegality. In that setting, the statutory basis for confiscation of sale proceeds was not attracted.

Conclusion: The confiscation of the sale proceeds and the connected redemption fine and penalty were set aside.

Issue (iii): Whether the penalties imposed on the noticees required interference.

Analysis: The evidence supported involvement of some noticees in the movement and handling of the gold, but the degree of culpability differed. Penalties were therefore retained where participation was established, reduced where the role was limited, and set aside where the person was shown not to have had knowledge of the illegal nature of the transaction or where the role was not sufficiently proved. The penalty under section 114A was sustained, while the penalty under section 112(a) on Shri Sanjay Subrao Nikam was set aside. Penalties on other noticees were reduced or deleted in accordance with their proved involvement.

Conclusion: The penalty structure was modified by reducing some penalties, setting aside one penalty, and sustaining the penalty under section 114A.

Final Conclusion: The order substantially affirmed the finding that duty-free gold had been illegally diverted from the SEZ unit, while granting limited relief by deleting the confiscation of sale proceeds and reducing or setting aside certain penalties.

Ratio Decidendi: Where duty-free goods permitted for export are diverted outside the authorised SEZ framework without valid permission, customs duty and confiscation consequences follow, but confiscation of sale proceeds under section 121 requires proof that the goods sold were smuggled goods sold with the requisite knowledge or belief.

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