Admissibility of customs inquiry statements and burden of proof in gold seizure: penalties quashed after procedural and evidentiary failings

Statements recorded before gazetted customs officers are admissible only if the maker is examined as a witness and the adjudicating authority, after forming an opinion in the interests of justice, admits the statement and affords opportunity for cross examination; this procedural requirement under section 138B governs admissibility in customs proceedings. Where goods are seized, the burden of proving they are not smuggled rests on the person from whose possession they were seized, but town seizures lacking foreign marking or requisite purity shift the onus to revenue to justify reasonable belief. Consequently, penalties imposed on an appellant not shown to possess or own seized gold bars were set aside.

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Issues: Whether penalties under Section 112(b)(i) and Section 114AA of the Customs Act, 1962 could be validly imposed upon the appellant in view of (i) reliance on statements recorded under Section 108 without following the procedure mandated by Section 138B and (ii) application of Section 123 given the facts of seizure, absence of foreign marking and purity of the gold bars.

Analysis: The statutory scheme makes statements recorded under Section 108 relevant in adjudication only if the procedure in Section 138B(1)(b) is complied with: the maker of the statement must be examined as a witness before the adjudicating authority and the adjudicating authority must record an opinion that, in the interests of justice, the statement should be admitted. Where those steps are not taken the statements are not admissible evidence. Section 123 places the burden of proving that seized goods are not smuggled on the person from whose possession the goods were seized or on a claimant, but its application depends on the circumstances of seizure including whether the goods bear foreign markings or have purity indicating foreign origin. Town seizures without foreign marking and where purity is below the threshold shift the onus to the revenue to show reasonable belief of foreign origin. The adjudicating authority rejected invoices produced after seizure solely because they were not produced at the time of search; however, later-produced purchase documents are permissible and non-production at seizure time does not automatically render them fabricated. Applying these principles to the case facts, statements relied upon were not admitted in accordance with Section 138B, Section 123 was inapt given absence of foreign marking and purity findings, and the appellant produced documentary evidence of purchase.

Conclusion: Penalties under Section 112(b)(i) and Section 114AA of the Customs Act, 1962 could not be sustained against the appellant; the impugned penalty order is set aside and the appeal is allowed in favour of the appellant.

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