Burden of proving smuggled import stays with the Department when goods are not notified under Section 123.

Goods not notified under Section 123 of the Customs Act and outside Chapter IV-A do not attract a shifted burden on the importer to prove lawful origin. Mere foreign markings, torn labels, taped caps and non-production of the alleged supplier were insufficient to establish smuggled import or duty evasion without concrete evidence of unlawful importation and non-payment of duty. On that basis, the confiscation, redemption fine and penalty were held unsustainable, and the burden of proving illegal import remained on the Department.

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Issues: Whether Palladium Chloride alleged to be of foreign origin was liable to confiscation and duty on the basis of foreign labels and surrounding circumstances, and whether the burden of proving smuggled import lay on the appellants.

Analysis: The goods were not notified under Section 123 of the Customs Act and were also not covered by Chapter IV-A of the Customs Act. In such a situation, the burden did not shift to the appellants to prove lawful origin. The finding of illegal import rested mainly on foreign markings on containers, torn labels, adhesive-taped caps, and the non-production of the alleged supplier. Those circumstances were held insufficient by themselves to establish smuggled import or duty evasion without concrete evidence of unlawful importation and non-payment of duty.

Conclusion: The confiscation and allied duty liability were not sustainable, and the issue was decided in favour of the appellants.

Final Conclusion: The order of confiscation, redemption fine, and penalty was set aside because the Department failed to prove that the goods were smuggled or illegally imported.

Ratio Decidendi: Where goods are not notified under Section 123 of the Customs Act, mere foreign markings or suspicious circumstances do not by themselves justify a presumption of smuggling, and the burden of proving illegal import remains on the Department.

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