TaxTMI 
TaxTMI 
1986 (2) TMI 218
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.... was not such as would pass through the test of probability. Referring to the facts of the case, the advocate stated that on 10-8-1977, the officers of the Directorate of Enforcement searched the business premises of M/s. Mahendra Jewellers, Mukund Jewellers and associates situated at Prem Kutir, Churchgate, Bombay and seized certain documents. Shri Gagrat referred us to the panchnama of the seizures dated 10-8-1977. He specially drew our attention to the observation that in the cabin of Shri Mukund K. Patel, a steel cupboard was found which contained packets of rough and polished precious stones and this cupboard was sealed after affixing a paper seal with the officer's signature and the safety of the seal was undertaken by Shri Mukund K. Patel a partner of the firm. On 12-8-1977, the Enforcement officers handed over the goods to the Customs officers and the Customs officers continued the search. The advocate referred us to the panchanama of the search of the said premises dated 12-8-1977. The advocate stated that the Customs officers continued the search till 19-8-1977. In support of his averment, the learned Advocate referred to the panchanama dated 19-8-1977. The advocate state....
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....ghed 2,500 carats approximately and were received from Jayantilal. Actually, Shri Rajesh Bhansali gave 2,889.32 carats to Shri Jayanti on 2-8-1977 and this quantity was duly mentioned in the stock account of Shri Rajesh Bhansali and covered with a delivery letter. Out of this quantity, Shri Jayantilal removed some quantity as samples. This weighed 105.10 carats and he took this quantity with him when he left for Cambay on 9-8-1977. Therefore, only 2784.24 carats of diamonds were left in the custody of M.K. Patel and this was indicated as 2,500 carats approx. Shri M.K. Patel admits these facts of the receipt of diamonds and the chit inside. The only discrepancy was that as per his statement it was mentioned that these diamonds were for sale and that the value of these diamonds was Rs. 70/- per carat. Shri Jayantilal was away from Bombay from 9-8-1977 to 26-8-1977 with the samples. On his return he was informed of the raid of Shri Mukund's premises by the Customs and on 29-8-1977 he went to the Custom House for recording his statement. In this statement, he had mentioned about the first lot of 122.10 carats having been received by him on 12-7-1977 from Shri Rajesh of Cherry Traders a....
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....d to para 5 of the Magistrate's order and read the order from para 5 onwards. He reiterated the various infirmities noticed by the magistrate in the prosecution case including the evidence of Shri Jain an Expert Appraiser of Customs who had deposed that the country of origin of the diamonds was difficult to identify. The Advocate relied on the judgment of the Tribunal at Calcutta vide 1983 E.L.T. 1966 in the case of Kirtilal Gagaldas Shah v. Collector of Customs, Calcutta and the decision of the Bombay High Court in Criminal Appeal No. 1241 of 1969, in the case of P.M. Shah v the State of Maharashtra, a copy of which had been filed with the paper book. In particular, the advocate highlighted the observations of Justice Ghatne to the effect that the burden which an accused person is called upon to discharge is not the same as the burden which the prosecution is required to discharge in a criminal trial. The Advocate finally referred to the Govt. of India's decision on Customs Revision Application vide their Order No. 181A/78 of 1978 dated 29-8-1978, a copy of which has been filed with the paper book. In view of the aforesaid pronouncements, the Advocate submitted that the appellant ....
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.... and that the possibility of the same bag being used for packing and wrapping other diamonds could not be ruled out. Shri Senthivel also referred to the panchnama dated 19-8-1977 of the premises No. 2A Prem Kutir, Churchgate to point out that Shri Mukund Patel had stated that the diamonds had been received from Shri Jayantilal Patel for approval basis and that there was no documentary proof to show legal acquisition or importation of the rough diamonds. The diamonds had accordingly been seized in the reasonable belief that they were smuggled. As regards the magistrate's finding Shri Senthivel submitted that Shri Jayantilal had been discharged on altogether a different footing, namely that the foreign origin of diamonds could not be established. Shri Senthivel stated that the seizure of diamonds was made in the reasonable belief that the same were smuggled and that the burden of proof had not been discharged. He relied on the decision of Supreme Court in Bhoormal's case reported in AIR 1974 SC page 859 and read paragraph 26 of the judgment. Referring to the facts of the case, Shri Senthivel submitted that the Addl. Collector had held that the burden of proof had not been discharged.....
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....lso statements of Rajesh Bhansali. All these statements confirm the fact that the seized diamonds were imported by M/s. Cherry Traders. The Customs appraiser had assessed the cif value of the diamonds seized from Mr. Mukund Patel at Rs. 2,78,422/-. This was in keeping with the cif value of diamonds imported by M/s. Cherry Traders considering the difference in weight for which explanation had been offered. As regards the SDR's observations that there had been no need for finding a safe place for the storage of diamonds by Shri Jayantilal from 2-8-1977 to 5-8-1977, Shri Gagrat stated that Shri Jayantilal was in Bombay during the relevant period and he had kept the diamonds with him. It was only when he wanted to leave Bombay that he entrusted these for safety to Mukund Patel on 5-8-1977. As regards the SDR's reliance on the Supreme Court's judgment in the case of Bhoormal, the Advocate stated that the ratio would not apply to the present case as the defence put forward by Shri Bhoormal was found false, and therefore, the Supreme Court had held that the Customs could confiscate the goods. On the other hand, in the present case, the explanation submitted by Shri Jayantilal was supporte....
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....formerly took over the possession of the diamonds. In other words, the learned Advocate has tried to equate the action of the Enforcement officers to the proviso to sub-section (1) of Section 110 of the Customs Act which states that where it is not practicable to seize any goods, the Proper Officer may serve on the owner of the goods an order that he shall not remove, part with or otherwise deal with the goods except with the previous permission of the officer. Though the Panchnama for search on 10-8-1977 by the Enforcement Officers, does not indicate under what provisions of law the search warrant was issued by the Asstt. Director of Enforcement on 10-8-1977 and though the learned Advocate for the appellants has not thrown any light on this subject, it is reasonable to presume that this search was carried out under the provisions of Section 37 of the Foreign Exchange Regulations Act, 1973 as the search was of the premises belonging to Shri Mukund Patel. This Section does not have any provision analogous to proviso to sub-section (1) of Section 110 of the Customs Act and hence there could not be any order of restraint by the Officers of the Enforcement on Shri Mukund Patel with reg....
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....harged. Shri Jayantilal Patel has no locus standi to discharge this burden. He has made an attempt, which the learned SDR has described as trying to allocate the goods under confiscation to any imports. I am inclined to believe the submission of the learned SDR. Shri Jayantilal has come into the picture quite late. On the day in question, when the diamonds were seized from Shri Mukund K. Patel, he has stated that the diamonds were left with him for sale. This statement is contrary to the claim of Shri Jayantilal Patel that the diamonds were left for safe custody pending their being cut and polished. There are material discrepancies in the weight and value of the diamonds seized from those imported by M/s. Cherry Traders. The difference in weight is sought to be explained by stating that the weight of diamonds left with Shri Mukund Patel was indicated approximately. This explanation cannot be treated as valid in terms of Section 123. Besides the purpose for which Shri Bhansali gave the alleged diamonds to Shri Jayantilal Patel was for cutting and polishing. According to the appellant's version he had already successfully got a parcel of diamonds cut and polished and returned the sam....
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.... show cause notice dated 25-1-1978, it is seen that the penalty on Shri Jayantilal Patel was for being concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or dealing in the diamonds which he knew, or had reason to believe, were liable to confiscation under the Customs Act. The facts as they emerge indicate that the diamonds were seized from the possession of Mukund K. Patel. Shri Jayantilal's claim for having received the diamonds from Shri Rajesh Bhansali and depositing them with Shri Mukesh Patel has not been accepted. There is no evidence to show that Shri Jayantilal Patel dealt with the diamonds in any manner and that he knew or had reason to believe that the diamonds were smuggled under the Customs Act. In the absence of such an evidence, Shri Jayantilal Patel is not liable to any penalty. Accordingly, I set aside the Collector's order of penalty of Rs. 50,000/- on Shri Jayantilal Patel. 7. Except for the modification mentioned above, the order of the Addl. Collector of Customs is otherwise confirmed and the appeal of Shri Jayantilal Patel is rejected. 8. [Per : K. Gopal Hegde, Member (J)]. - The undisputed facts ....
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.... took the rough diamonds on 5-8-1977, to M/s. Oriental Gems Co. and requested Shri Mukund to keep them in safe custody. He agreed to the proposal of Shri Mukund that an approval memo should be there and he made out an approval memo for a weight of 2500 Cts. He, however, stated that he did not offer the rough diamonds for sale nor did he quote the prices of Rs. 70/- per carat nor did he tell Mukund that he did not get an offer above Rs. 50/-. He further stated that he had ascertained from Shri Rajesh that the diamonds were legally imported and he had also informed his father and wife that he would be staying in Cambay or Surat and he had also informed them of the purpose of his visit to Surat and Cambay. It was then stated by him that the samples which he had taken was brought back by him without getting them cut. On 1-9-1977 the statement of Shri Rajesh of M/s. Cherry Traders was recorded. Shri Rajesh inter-alia stated that in February, 1977 he was introduced to the appellant Jayantilal by a diamond broker by name Jayant, as a trustworthy person and he had satisfied himself as to the trustworthiness of the appellants. He also corroborrated the statement of Shri Jayantilal that he h....
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....sonal penalty of Rs. 50,000/- on Jayantilal, the present appellant under Section 112 of the Customs Act. He, however, exonerated Mukund Patel and Rajesh Bhansali. He disbelieved the version of the appellant that the rough diamonds which he had given to Mukund, were given to him by Rajesh. 13. Being aggrieved by the order of the absolute confiscation and levy of penalty, Shri Jayantilal filed an appeal before the Central Board of Excise and Customs. The Board, however, rejected the appeal. Being aggrieved by the order of the Board, Shri Jayantilal filed a revision application before the Central Government which statutorily stood transferred to the Tribunal. 14. During the hearing of this appeal, Shri J.G. Gagrat, the appellant's learned Advocate, urged the following grounds:- (1) The order of the Board was not based on any legal evidence but was based on suspicion, surmises and conjecture, therefore, it is void and of no legal effect, (2) The Board being an appellate authority was required to pass a speaking order after considering the contentions urged before the Board but then the Board's order is not a speaking order. It had not considered the vari....
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....ement of Shri Jayantilal that while handing over the quantity of rough diamonds for the safe custody the diamonds were not weighed. This statement was corroborated by Shri Mukund who received the diamonds. Further, even in the approval memo the weight had been mentioned as approximately 2500 Cts. Thus what was given to the custody was only an approximate quantity which was further cleared from the fact that at the time of seizure on weighing the Customs Officer found 2784.22 Cts. Shri Gagrat further urged that according to the statement of Jayantilal he brought back the sample without cutting and polishing and the weight of the samples taken was 105.10 Cts. If this weight is added to the weight of the diamonds seized by the Customs it exactly tallies with the weight of the diamonds given by Rajesh to Jayantilal on 2-8-1977. The discrepancy in the weight is sufficiently and satisfactorily explained. The discrepancy regarding the purpose for which rough diamonds were given to Shri Mukund according to Shri Gagrat was also satisfactorily explained. Shri Gagrat drew our attention to the statement of Shri Jayantilal wherein he categorically stated that rough diamonds were given to the sa....
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...., the diamonds were given to him by Rajesh Bhansali. Rajesh Bhansali had admitted that he had given the diamonds to Shri Jayantilal. Therefore, there is no obligation in law for Jayantilal to prove that the seized diamonds were licitly imported into India. He had not claimed any ownership. Therefore, the provisions of Section 123 would not be applicable in his case. The burden, if any, of establishing that the diamonds imported were licitly imported, would be on Rajesh Bhansali and that Rajesh Bhansali did discharge that burden by production of documentary evidence regarding the licit import of 3000 and odd carat of rough diamonds just a few days earlier to the handing over of diamonds to Jayantilal. The adjudicating authority had also exonerated Shri Rajesh Bhansali. In the circumstances, the adjudicating authority was not justified in holding that the appellant had failed to discharge the burden cast on him under Section 123 and, therefore, the diamonds seized are smuggled and became liable to confiscation. 19. It was next contended by Shri Gagrat even otherwise the burden which the appellant was required to discharge under Section 123 is not beyond reasonable doubt. In t....
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....the burden of establishing that the diamonds were licitly imported into India would be on the appellant since admittedly he had handed them over to Mukund and since the adjudicating authority had not accepted his explanation that the diamonds in question were given to him by Rajesh Bhansali. 25. Shri Senthivel also contended that no importance should be attached to the statements of Shri Rajesh and the appellant Shri Jayantilal since the seizure was on 19-8-1977 and the statements were recorded after a long delay. 26. It was also urged by Shri Senthivel that according to the appellant he received the diamonds on 2-8-1977 they were given to him for the purpose of cutting and polishing. It was highly improbable that he did not weigh them at all. It was further impossible to believe his version that at the time he handed them over to the safe custody of Shri Mukund the diamonds were not weighed. Having regard to the value of the diamonds, it is highly improbable that either Mukund or Jayantilal would not weigh the diamonds. 27. As regards the discharge of the appellant by the Addl. Chief Metropolitan Magistrate's Court, Shri Senthivel contended that two proceedings ....
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....umstances of the case, the levy of personal penalty on the appellant was unjustified, (5) Whether the penalty imposed on the appellant was harsh and unreasonable, (6) What, if any, is the effect of the discharge of the appellant by the Criminal Court? 31. Let me take up for consideration the points set out above in their seriatim. Point No.1. As has been seen earlier, the Addl. Collector who adjudged the confiscation and penalty recorded a finding that the diamonds seized from the possession of Mukund K. Patel did not form part of the rough diamonds imported by the firm Cherry Traders. He had given certain reasons to arrive at that conclusion. The finding had been accepted by the Board and the order passed by him was confirmed by the Board. Shri Gagrat vehemently contended that the facts were taken into consideration by the Addl. Collector could be explained and that the appellant had offered reasonable explanation and every circumstance has been properly explained and there was sufficient proof in support of the explanation. The burden if any cast on the appellant has been adequately discharged. Having regard to Shri Gagrat's contention, it is for consideration whether....
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....ated that he had given to Mukund rough diamonds approximately 2500 Cts. for safe custody and that it was not given for sale. Further, that the appellant had denied that there was any talk about the price as stated by Shri Mukund and Mukund was asked to explain. Mukund's reply was : "Mr. Jayantilal has originally requested me for only safe custody which is not a usual practice. I insisted for the approval memo which he gave. It is my impression that it is for sale. As regards the price, we had a general discussion at which the rough diamond in question would cost it seems that there is some misunderstanding in Shri Jayantilal's denying. Whatever I have already stated earlier and here is correct". Now it is seen from Mukund's further statment that it was not a trade practice to keep any diamonds in safe custody. When such was the practice question of the appellant entrusting the diamond to Shri Mukund for safe custody is ruled out. Even in his statement recorded on 30-8-1977, Mukund did not deny his earlier statement. He confirms it. At the time of recording of the statement of the appellant the appellant was shown the approval memo of 5-8-1977 and his statement was drawn to th....
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....i the total quantity of rough diamonds imported weighed 3133.04 Cts. valued at Rs. 4,68,639/-. The import was from two countries namely from Antwerp and Belgium. After sorting rough diamonds weighing 121.62 Cts. the remaining quantity were mixed together. The diamonds imported are of different colours, some are brown, some are light brown and the diamonds imported from Belgium contained white diamonds. The mixed diamonds having the above colours were given to the appellant according to Shri Rajesh. The seized diamonds are all of one colour. There were no white diamonds among the seized diamonds. It was not the case of the appellant that after he received the diamonds from Rajesh he assorted them and kept the white diamonds separately. The only explanation was that he took some sample when he left for Cambay and Surat. Even those diamonds were brought by him without cutting and polishing. Further, Rajesh Bhansali gave the diamonds for cutting and polishing there was an export obligation on the part of Rajesh. Cutting and polishing were normally done at Cambay and Surat. The appellant had earlier got cut and polished certain quantities at those places. The appellant does not explain ....
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....he relationship between Shri Mukund and the appellant. The appellant is no other than Mukund's young bother's son. Considerable weight has to be attached to the statement of Mukund which was spontaneous and also supported by documentary evidence which bears the signature of the appellant. As a matter of fact, the appellant admits the sale memo. If once the statement of Shri Mukund is accepted (I have no reason not to accept) then there should be no difficulty to uphold the finding of the Addl. Collector that the diamonds given by the appellant to Mukund did not form part of the diamonds imported by Cherry Traders. 35. It is necessary to remember that in respect of 122.10 Cts. rough diamonds given to the appellant by Rajesh on 12-7-1977 the appellant took to Cambay on the very next day and handed over the packet to Star Diamonds and Watch Manufacturers & Co. on 14th morning. According to the appellant the owner of the said Company Bharat Bhansali was his cousin brother. If the appellant could take rough diamonds given to him on 12-7-1977 and entrust them to Bharat he could as well have taken the rough diamonds given to him on 2-8-1977 to Bharat if not for cutting and polishi....
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....e. If what was stated by the appellant was correct, there was no reasons for the wife and father to inform the Customs Officer that they were unaware of the whereabouts of the appellants. The search had taken place on 12-8-1977 and the statement of the appellant was recorded only on 29-8-1977. He could have come tto know of the search and seizure. He had enough time in the world to find a way out. Having regard to his relationship with Shri Rajesh, he found it convenient to state that the seized diamonds formed part of the imported diamonds of Cherry Traders. 38. On consideration of the evidence as a whole and the circumstances of the case, I see no reason to hold that the findings of the Addl. Collector that the seized diamonds did not form part of the diamonds imported by M/s. Cherry Traders suffers from any infirmity or that such a finding was unjustified on the facts and circumstances of the case. 39. Point No. 2. Admittedly the seized diamonds were rough diamonds. Seizure was made by the Customs Officers on 19-8-1977. Though the search was carried on 12-8-1977, seizure was done on 19-8-1977 since Mukund and his father could not produce proof regarding licit import o....
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....fter locking the said cupboard sealed it after affixing a paper seal which bears our signatures. The safety of the seal was undertaken by Mukund K. Patel, one of the partners of the said firm who came later". In the panchnama dated 12-8-1977, it was stated that the panchas found the seal in the almirah intact. Thereafter the Enforcement Officers broke open the seal and handed over two Godrej keys to the Customs Officers who carried out the search. From the panchnamas referred to above, it is clear that the Enforcement Officers did not seize the packets containing rough diamonds. They only sealed the almirahs containing rough diamonds and took the keys with them. Though the action of the Enforcement Officer prevented Mukund or his father from opening the sealed cupboard, it cannot be said that there was actual seizure of the rough diamonds found inside the steel cupboard. A thing can said to have been seized only when it is taken out of the possession of the owner or person in control against his wish. Seizure amounts to deprivation of possession. The Enforcement Officers did not take posession of the rough diamonds. The actual seizure namely taking possession of the rough diamonds ....
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....s. He was unable to discharge the burden that they were licitly imported into India. Therefore the diamonds became smuggled diamonds. His explanation that they were given to him by Rajesh of Cherry Traders was rightly disbelieved. The evidence of Mukund disclosed that the appellant was concerned in disposing of the diamonds. Knowledge of the appellant that they are smuggled goods shall have to be gathered from the conduct and the circumstances established in the case. From the facts and circumstances established in this case, it could be safely said that the appellant was concerned in the disposal of smuggled diamonds knowingly that they were smuggled, and therefore, no exception can be taken to the imposition of penalty on him. 43. As regards quantum of penalty, the Addl. Collector had imposed Rs. 50,000/-. The value of the seized diamonds was more than Rs. 2 lakhs. The Board has confirmed the penalty imposed. There are no extenuating circumstances requiring the reduction in the amount of penalty. I see no reason to interfere with the quantum of penalty imposed on the appellant. 44. Point No.6: Shri Gargat appearing for the appellant contended that the appellant was pro....
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....y of penalty on the appellant was not legal or unjustified". 48. [Per : K.L. Rekhi, Member (T)]. - As there was difference of opinion between the two learned Members who comprised the Bench, the President has assigned the matter to me for disposal under Section 129 C(5) of the Customs Act, 1962. 49. After due notice and making available copies of the orders already recorded by the learned two members, both sided were heard by me at Bombay today. Shri J.R. Gagrat, Advocate appeared for the appellant and Shri G. Senthivel for the Department. 50. Shri Gagrat stressed the points that the rough diamonds were not seized from the possession of the appellant but from possession of Shri Mukund, that the appellant's failure to rebut the statutory presumption under Section 123 (which made the goods liable for confiscation) could not amount to saying that the diamonds were necessarily smuggled diamonds and it could not amount to an automatic presumption of mens rea required for imposition of personal penalty under Section 112(b) and that the burden to prove the mens rea had to be independently discharged by the department which had not been done. 51. The lear....