Gold confiscation set aside as burden under s.123 met, s.119 requirements unmet, s.138B breach invalidated statements

CESTAT set aside the order confiscating 4440.84 gms of gold jewellery under s.119 Customs Act, holding that the statutory requirements for confiscation were not met. The appellant, claiming ownership, produced detailed GST invoices, approval vouchers, and records of legitimate gold purchases and stock, thereby discharging the burden under s.123 Customs Act that the jewellery was not made from smuggled gold. The Department failed to adduce any contrary evidence linking the ornaments to smuggled gold bars. Statements recorded under s.108 Customs Act were held irrelevant as the procedure mandated by s.138B was not complied with. The appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether gold jewellery/gold ornaments weighing 4440.840 grams, claimed by the appellant out of a larger seized quantity, were liable to confiscation under section 119 of the Customs Act, 1962.

1.2 Whether, on the materials produced by the appellant, the burden of proof under section 123 of the Customs Act regarding non-smuggled origin of the gold stood discharged.

1.3 Whether statements recorded under section 108 of the Customs Act could be relied upon in the absence of compliance with the procedure prescribed in section 138B of the Customs Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Confiscation of 4440.840 grams under section 119 of the Customs Act

Legal framework (as discussed)

2.1 The Court examined whether the conditions of section 119 of the Customs Act were met so as to justify confiscation of the appellant's gold jewellery/gold ornaments on the ground that they were used for concealment or as a cover for smuggled goods.

Interpretation and reasoning

2.2 The Court confined itself to jewellery weighing 4440.840 grams out of the total 20,756.3 grams recovered from an employee of another person, which quantity the appellant specifically claimed as its own.

2.3 The appellant furnished details of the seized jewellery, including:

(i) Three GST invoices bearing numbers SG-460 dated 17.01.2023, SG-465 dated 18.01.2023 and SG-466 dated 18.01.2023 covering 1975.790 gms, 741.510 gms and 1427.890 gms respectively; and

(ii) Approval Voucher No. IA-26 dated 12.01.2023 covering 295.650 gms sent on approval basis.

2.4 The appellant asserted that the goods under these documents were manufactured from legitimately purchased gold, supported by stock registers, bills of gold bars, and ledger accounts, and that the transactions were duly reflected on the GSTN portal and in regular books of account.

2.5 The Commissioner, while confiscating the entire 20,756.3 gms including the appellant's 4440.840 gms, only observed that the invoices had been raised "to cover up" the full quantity of jewellery given to the carrier, and inferred that the appellant was "hand in glove" with another person in dealing in jewellery made from smuggled foreign-origin gold bars.

2.6 The Court noted that the adjudicating authority did not examine or discuss the specific documents and records furnished by the appellant, nor did it record any finding that the GST invoices were false, fabricated, or not reflected on the GSTN portal.

2.7 The Court held that in the absence of any finding that the jewellery covered by the appellant's invoices and approval voucher was prepared out of smuggled gold, and in view of the documentary trail produced, the mere suspicion that invoices were raised "to cover up" other jewellery was insufficient to attract section 119.

Conclusions

2.8 The statutory requirements of section 119 of the Customs Act were not fulfilled in respect of the 4440.840 gms of jewellery claimed by the appellant.

2.9 The confiscation of this quantity of gold jewellery/gold ornaments under section 119 could not be sustained and was set aside to that extent.

Issue 2: Discharge of burden under section 123 of the Customs Act

Legal framework (as discussed)

2.10 The Court considered the application of section 123 of the Customs Act, which places a burden on the person from whose possession or ownership gold is seized to prove that it is not smuggled.

Interpretation and reasoning

2.11 The appellant, as the claimed owner of 4440.840 gms, had produced purchase invoices of gold, stock registers of gold bars, bills relating to gold bars, and ledger accounts of bullion suppliers, as well as GST invoices and approval documents for the jewellery in question.

2.12 The Court found that these materials constituted sufficient evidence that the seized jewellery belonging to the appellant was manufactured from legally procured gold and was duly accounted for in the appellant's books.

2.13 The Court further observed that the department had not produced any contrary evidence to show that the jewellery belonging to the appellant was manufactured from smuggled gold bars.

Conclusions

2.14 The burden of proof under section 123 of the Customs Act stood discharged by the appellant in respect of the 4440.840 gms of seized jewellery.

2.15 In the absence of evidence from the department to rebut this, the jewellery could not be treated as made from smuggled gold.

Issue 3: Admissibility and relevance of statements under section 108 without compliance with section 138B

Legal framework (as discussed)

2.16 The Court examined the evidentiary value of statements recorded under section 108 of the Customs Act in light of the mandatory procedure prescribed under section 138B of the Act.

Interpretation and reasoning

2.17 The adjudicating authority had relied, inter alia, on the statements of the carrier and another person recorded under section 108 of the Customs Act.

2.18 The Court held that the procedure contemplated under section 138B had not been followed in relation to these statements.

2.19 Relying on a prior Division Bench decision of the Tribunal in M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur, the Court held that statements recorded under section 108 cannot be treated as relevant or relied upon unless the requirements of section 138B are complied with.

Conclusions

2.20 The statements of the carrier and the other individual recorded under section 108 of the Customs Act were not legally admissible or relevant for sustaining confiscation in the absence of compliance with section 138B.

2.21 Without such valid evidentiary support, the inference that the appellant's jewellery was involved in smuggling or used as a cover for smuggled goods could not be maintained.

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