2026 (2) TMI 445 - AT - Customs

Confiscation of gold bars and admissibility of summoned statements: appellate reversal where evidence fails to show foreign origin.

Admissibility of statements recorded under the customs summons power was rejected where mandatory conditions were not met, so those statements could not ... Confiscation of gold bars and the bag and the vehicle used for concealment of gold bars - Admissibility of statements recorded u/s 108 read with section 138B - Relevance of documentary evidence produced after seizure - Application of burden of proof under section 123 in town seizures with no foreign marking and purity below 99.9% - Requirement of reasonable belief for seizure u/s 110 - Validity of confiscation u/s 111(d) and 111(h) - Imposability of penalties u/s 112(b)(i) and 114AA where confiscation is unsustainable - HELD THAT:- Section 108 of the Customs Act deals with power to summon persons to give evidence and produce documents. It provides that any Gazetted Officer of customs shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry which such officer is making under the Customs Act. In Drolia Electrosteel [2023 (11) TMI 10 - CESTAT NEW DELHI] a Division Bench of the Tribunal examined the provisions of section 9D of the Central Excise Act and after placing reliance upon the decision of the Punjab and Haryana High Court in Jindal Drugs Pvt. Ltd. vs. Union Of India [2016 (6) TMI 956 - PUNJAB & HARYANA HIGH COURT] observed that if the mandatory provisions of section 9D(1)(b) of the Central Excise Act are not followed, the statements cannot be used as evidence in proceedings under Central Excise Act. Thus, the statements made by various persons under section 108 of the Customs Act could not have been relied upon by the Commissioner (Appeals) to record a finding that the appellant had smuggled 69 gold bars of foreign origin. In Om Prakash Shah, Director of M/s. Quilon Trade Commerce Pvt. Ltd. vs. Commissioner of Customs (Preventive) [2025 (5) TMI 1623 - CESTAT KOLKATA] the Tribunal held that as it was a case of town seizure and there was no foreign marking on the gold and the purity was less than 99.9%, the burden under section 123 of the Customs Act would not be on the appellant but on the Revenue to show that they had a reasonable belief why the gold was of foreign origin. As noticed, there is no evidence to substantiate that the gold bars in question were smuggled. The gold bars could not have been confiscated and, therefore, could not have been seized. Goods can be confiscated under section 111(d) of the Customs Act where any goods which are imported or attempted to be imported or are brought into India contrary to any prohibition imposed by or under the Customs Act. In the present case, the appellant had purchased the gold bars under invoice dated 20.03.2021. Goods can be confiscated under section 111(h) of the Customs Act where any dutiable or prohibited goods are unloaded or attempted to be unloaded in contravention of the provisions of section 33 or section 34 of the Customs Act. It is not the case of the department that the appellant had smuggled gold bars into India or such gold bars were attempted to brought into India. The appellant had, in fact, purchased the seized gold bars from domestic market, in which case, the burden shifted to the Revenue to show that the appellant had not purchased the seized gold bars. Thus, as the goods could not have been confiscated, penalties under section 112(b)(i) and section 114AA of the Customs Act could not have been imposed upon the appellant. The appellant had also not signed or used any document for alleged smuggling of gold bars into India. Penalty under section 114AA of the Customs Act could not have been imposed upon the appellant on the premises that M/s. S.R. & Co. provided backdated and fabricated invoice in the name of M/s. Pulak Ornament LLP to legitimate the gold bars under the directions of the appellant. Thus, penalty under section 114AA of the Customs Act could not have been imposed upon the appellant. Thus, the impugned order dated 11.10.2023 passed by the Commissioner (Appeals) so far as it rejects the appeal filed by the appellant against the order dated 09.09.2022 passed by the Additional Commissioner deserves to be set aside and is set aside. The appeal is, accordingly, allowed. Issues: (i) Whether statements recorded during investigation can be admitted as evidence without following the procedure for admissibility; (ii) Whether burden under the statutory provision for seized goods shifts to the claimant in a town-seizure where gold lacks foreign marking and requisite purity; (iii) Whether seizure under the provision empowering seizure was supported by reasonable belief that goods were smuggled; (iv) Whether confiscation and penalties imposed could be sustained given findings on admissibility and burden of proof.Issue (i): Admissibility of statements recorded during inquiry without following the statutory procedure.Analysis: The statutory scheme requires that statements recorded before investigating officers acquire relevancy in proceedings only after the person making the statement is examined as a witness before the adjudicating authority and the adjudicating authority forms an opinion, for reasons recorded, that the statement should be admitted in the interests of justice; otherwise such statements are not relevant. Precedents applying parallel provisions in excise and customs underscore the mandatory nature of this two-step procedure and the need to afford opportunity for cross-examination once a statement is admitted.Conclusion: Statements recorded during investigation were not admissible evidence because the mandatory procedure for examination and admission in adjudication proceedings was not complied with; reliance on those statements is impermissible (in favour of the assessee).Issue (ii): Application of the statutory burden-shifting provision in a town-seizure where gold lacks foreign marking and requisite purity.Analysis: The provision that casts the burden on the person from whose possession goods are seized applies where seizure is made under a reasonable belief of smuggling. For town seizures where goods lack foreign marking and do not meet the typical indicia of foreign-origin articles, established authority holds that the burden remains on the revenue to demonstrate reasonable belief of foreign origin; production of invoices after seizure can be permissible to discharge ownership or legitimate purchase.Conclusion: The burden to prove the seized gold was smuggled did not fall on the claimant in the circumstances of a town seizure without foreign marking and with lower purity; invoices produced subsequently could be relied upon (in favour of the assessee).Issue (iii): Legality of seizure under the provision authorising seizure based on reasonable belief.Analysis: Seizure requires a reasonable belief, based on material or indicia, that goods are liable to confiscation as smuggled. Where goods lack foreign markings and no independent material establishes foreign origin or recent unlawful importation, authorities cannot rest seizure on mere speculation or absence of immediate documentary cover; precedents require objective bases for reasonable belief.Conclusion: The seizure was not supported by reasonable belief of foreign origin and thus was not lawful (in favour of the assessee).Issue (iv): Validity of confiscation and penalties imposed in light of inadmissibility of statements, burden allocation, and seizure validity.Analysis: Confiscation under the statutory heads and imposition of penalties depend on admissible evidence and a lawful seizure. Where statements relied upon were inadmissible, the burden did not shift to the claimant in a town-seizure lacking foreign indicia, and the seizure itself lacked reasonable belief, there was no lawful basis to sustain confiscation or to impose penal consequences; penalties premised on alleged fabrication or complicity also could not be sustained absent admissible proof.Conclusion: Confiscation and penalties set aside (in favour of the assessee).Final Conclusion: The cumulative effect of the conclusions is that the impugned confiscation and penalties are unsustainable because material relied upon was inadmissible, the statutory burden did not shift in the circumstances of a town seizure lacking foreign indicia, and the seizure lacked reasonable belief; accordingly the appeal succeeds and the enforcement measures are set aside.Ratio Decidendi: Statements recorded during investigation are admissible in adjudication proceedings only after the witness is examined before the adjudicating authority and the authority records a reasoned opinion admitting the statement in the interests of justice; in town seizures where goods lack foreign marking and requisite purity, the revenue must demonstrate reasonable belief of foreign origin before casting the burden on the claimant, and absent such admissible evidence and reasonable belief confiscation and penalties cannot be sustained.