Burden to prove smuggled character failed, so confiscation of diesel engines and penalty could not stand.

Diesel engines not notified under Section 123 of the Customs Act remained outside the reverse burden regime, so the department had to prove smuggled character and unlawful importation before confiscation or penalty could stand. On the materials noted, the assessee's invoices, vouchers and consistent possession evidence, supported by connected parties and sellers, were sufficient to show lawful acquisition, while the department failed to establish even a prima facie case of illicit import. Without proof of smuggling, the foundation for confiscation collapsed and the connected penalty could not survive.

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Issues: Whether the department discharged the burden of proving illicit importation of the seized diesel engines so as to sustain confiscation and consequential penalty.

Analysis: The engines were not goods notified under Section 123 of the Customs Act, 1962, and the burden therefore remained on the department to establish smuggled character and liability to confiscation. The appellants had produced invoices, vouchers, and consistent statements asserting lawful acquisition and possession, including corroboration from connected parties and sellers. On the materials before it, the department failed to establish a prima facie case of illegal importation. Since the foundation of smuggling was not proved, the basis for confiscation and for penalty under the Customs Act also failed.

Conclusion: The confiscation was unsustainable and the penalty orders also could not survive, in favour of the assessee.

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