TaxTMI 
TaxTMI 
2026 (3) TMI 765
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....lladakeri and Shri Navnath Zhanje at the premises of M/s. RU Gold, Singhvi Complex, Sowcarpet, Chennai, on 16.04.2024. They were found carrying 3 gold bars, one without any marking and two with the marking 'RU999'. A search of the premises resulted in the recovery of 5 gold bars along with assorted gold bits etc. and some cash from the safe. The gold bars carried the markings 'RU999'. No documentary evidence supporting lawful possession of the gold or cash was allegedly produced by the said persons. The entire weight of 8 bars of gold along with bits etc. weighed 6,821.85 grams of gold and cash amounting to Rs.25,61,200/-, found in the safe were seized under a mahazar on the reasonable belief that the same related to smuggled goods and the sale proceeds thereof. A desktop computer and a scandisk pen drive were also seized. The seized gold was assayed and found to be of 24 carat purity. After following due process, the Ld. Adjudicating Authority ordered absolute confiscation of 6,821.85 grams of gold and confiscated the Indian currency. Penalties of Rs.1,50,00,000/- each were imposed on Shri R. Uttam Patankar, Shri Shrikant U. Patankar and Shri Suryakanat U. Patankar, and penalties ....
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....oreover, the harsh penalty imposed on the deceased appellant Shri R. Uttam Kumar Patankar (represented by legal heir Mrs. Anjana Uttam Patankar), is not invokable when it was not shown that he has imported the gold or otherwise dealt with the gold which is liable for confiscation. The authorities below failed to appreciate the binding judgment of the Hon'ble Madras High Court in B. Lakshmichand Vs GOI - 1983 (12) ELT 322 (Mad.), which clearly holds that unless the show cause notice specifically alleges the exact sub-clause of Section 112 violated and sets out the manner in which the noticees attracted the said provision, the notice stands vitiated and hence the impugned order may be set aside with consequential relief. He prayed that the matter may be decided early. 3.2 The Ld. A.R. referred to the findings of the OIO and submitted that the appellant's contention regarding the inapplicability of Section 123 of the Customs Act, 1962, in the absence of foreign markings, is untenable. As the statutory burden was not discharged, confiscation and penalties were rightly imposed. She referred to the statutory provisions as recorded at para 2.8 of the impugned order, which states as und....
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....w the smuggled origin of the gold is on the department as per law or whether section 123 of the Customs Act, shifts the burden to the appellant to prove that the gold in his possession was not smuggled gold. 5. Section 123 of the Customs Act, which is then essential for examining the issues involved, is reproduced below for ease of reference. "123 Burden of proof in certain cases (1) Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be-- (a) in a case where such seizure is made from the possession of any person,-- (i) on the person from whose possession the goods were seized; and (ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other person; (b) in any other case, on the person, if any, who claims to be the owner of the goods so seized. (2) This section shall apply to gold, and manufactures thereof, watches, and any other class of goods which the Central Government may by notification in the Official....
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....by the Bombay Express. He was intercepted and questioned by a Head Constable of the State Police Service attached to the Prohibition Intelligence Department. Nandgopalan admitted that he was carrying gold on behalf of the respondent firm, having brought it from Bombay. The Head Constable immediately informed officers of the Preventive Section of the Customs Department stationed at the Central Station. Upon interrogation, the Customs officers in the reasonable belief that they are smuggled goods, seized four gold blocks from Nandgopalan, weighing approximately 1,000 tolas in total. After conducting enquiries to verify the source of the gold, the Collector of Customs, issued a show-cause notice to the respondent proposing confiscation of the gold. Although the respondent submitted an explanation, the Collector held that the respondent had failed to discharge the burden of proving that the gold was not smuggled under the Customs Act and accordingly ordered its confiscation. 8.1 On appeal, the Hon'ble Madras High Court held that section 178A of the Sea Customs Act was void under Art. 13 of the Constitution. They further, among other issues, held that even if section 178A were valid,....
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....t is, in most cases, incapable of discharge, as gold is non-identifiable, large quantities were lawfully imported prior to 1939, indigenous gold is indistinguishable from imported gold, and the commodity frequently changes hands and is subject to melting and re-fusion, with no system of compulsory marking. 8.3 The Constitutional Bench after examining the issues came to the following conclusion. In every case, the possessor of the gold is necessarily the person best acquainted with the manner and circumstances of its acquisition. A seizure based on the officer's reasonable belief that the goods are smuggled does not, by itself, result in confiscation or deprivation of property; confiscation follows only upon an order of the adjudicating authority under Section 182 of the Sea Customs Act, after due inquiry. At that stage, the entirety of the material available to the seizing officer must be placed before the adjudicating officer, who is required to examine the reasonableness of the belief that led to the seizure. The facts forming the basis of such belief therefore bear a rational nexus to the fact presumed, namely smuggling, and the argument of lack of rational connection is with....
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....ea, no such presumption could arise. We find no such limitation in section 123. Gold is easily divisible, melted, and altered, and once melted, generally bears no identifying marks. It is therefore impossible to determine by mere inspection whether gold is lawfully imported or smuggled. Smuggling is an illegal activity hatched and executed in secrecy and it is near impossible to adduce direct evidence of the same. Recognising this inherent difficulty, the law places the burden on the possessor to establish the lawful origin of the gold. Accordingly, section 123 is primarily intended to apply to gold without foreign markings. The Constitutional Bench in Nathella Sampathu Chetty (supra) considered similar objections, including the impossibility for bona fide purchasers to trace the origin of unidentifiable gold, the existence of large quantities of lawfully imported gold prior to 1939, and the frequent melting and circulation of gold in trade. (Which is also similar to the pleadings in the impugned case.) The Court rejected these contentions, holding that the possessor of gold is ordinarily best placed to explain its acquisition and that the innocuous nature or widespread possession ....
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....s acquisition (subject to the last of the points about the burden of proof being impossible to discharge), which would more often than not take it out of the category of smuggled gold. . . . . We shall now proceed to consider the last of the points raised by learned Council in conjunction with point No. 4 which we had reserved for being examined along with it. This point learned Counsel expanded in the following terms. The burden of proof cast by the section is or is almost impossible of discharge, because (1) it extends to facts which would not be in the possession of bona fide purchaser at all, facts which he never knew and which be could never reasonably ascertain ; (2) large quantities of gold have been imported into this country before the introduction of restrictions on their importation by virtue of the legislation brought into force from 1939. . . . . . We are clearly of the opinion that the argument about the relevance of this matter is incorrect and must be rejected. This Court has held in numerous rulings, to which it is unnecessary to refer, that the possibility of the abuse of the powers under the provisions contained in any s....
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....ct. Section 123, therefore, operates not as a punitive presumption, but as a rule of evidence designed to address practical realities inherent in certain economic offences. 10. Having regard to the clandestine nature of gold smuggling, intelligence inputs frequently originate from confidential sources, the disclosure of which may compromise human safety or inter-agency mechanisms. The non-disclosure of such inputs, therefore, does not vitiate the formation of belief by the seizing officer. The law proceeds on the presumption that public authorities act properly and bona fide in furtherance of the public interest. As held by the Hon'ble Delhi High Court in Rajveer Millar Vs State [2016 SCC OnLine Del 1880], the presumption of honesty applicable to witnesses extends equally to police officers [see also State Govt. of NCT of Delhi Vs Sunil - (2001) 1 SCC 652]. Hence by parity of reasoning, applies with equal force to revenue officials as well. Hence the statute itself provides a two-tier safeguard firstly by the formation of a 'reason to believe' and secondly the examination of the 'belief' along with facts at the stage of adjudication, after following the principles of natural jus....
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.... circumstances and the conduct of the accused." The act of smuggling of gold is no different and it is for this reason that a reverse burden of proof has been incorporated into the Customs Act in respect of gold and certain other goods, that are sensitive to smuggling. Hence it is for the appellants to prove licit possession of gold. 13. As regards the evidence produced by the appellant for the licit possession of gold the Ld. Adjudicating Authority has recorded as under in the OIO: "vii. Shri Maruti Halladakeri, Shri Nilesh Savala Patole, Shri Zhanje Navanath, Shri Shrikant U Patankar, Shri Suryakant U Patankar and Shri R Uttam Kumar in their voluntary statements had accepted that the seized 6821.85 grams of gold was melted gold and the cash of Rs.25,61,200/- was the sale proceeds of gold. They further contended that the seized 6821.85 grams of 24 Carat gold was not smuggled gold, as they were having purchase documents for the said gold and the same was declared in the Income Tax return by Shri R. Uttam Kumar. viii. In this regard, Shri R. Uttam Kumar (Proprietor of M/s. RU Gold) submitted copies of certain purchase bills towards evidence for purchase of gold ....
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.....73 grams of pure gold (of 24 Carat Purity) was issued to the customers. However, no details of customers were available in the system / the software "Kacha FT" and no documentary proof for the said receipt/issuance were maintained by M/s RU Gold at the shop which was also admitted by Shri R Uttam Kumar in his voluntary statement. During the forensic analysis, difference in receipt and issuance were noticed for the period from 01.04.2024 to 15.04.2024. In this regard Shri R Uttam Kumar, Shri Shrikant U Patankar and Shri Suryakant U Patankar in their voluntary statements contended that certain outward transactions have not been entered, even though the pure gold has been issued to the customers. M/s RU Gold had never maintained any detailed record of receipt of impure gold and issuance of pure gold, however they claimed to have maintained in "Kacha FT" which is factually incorrect as evident from the forensic analysis. The fact that the entries maintained in "Kach FT" were not complete was admitted by them in their further voluntary statements. Thus, they were unable to prove source of the gold found in their possession. In absence of any documentary proof, it is seen that Shri R Ut....
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....would have successfully sold the smuggled 6821.85 grams of melted gold." 14. We find the Ld. Adjudicating Authority has done a detailed examination of the accounts, produced by the appellants to prove the licit nature of the gold. However he found that they had failed in doing so due to the unresolved discrepancies stated above. Transacting in such large quantities of gold without maintaining proper records of the persons from whom the gold was purchased and to whom it was sold does not make commercial sense. Moreover the standard of proof in Customs cases is based on a preponderance of probabilities. In RVE Venkatachala Gounder Vs Arulmigu Viswesaraswami and VP Temple [(2003) 8 SCC 752], the Hon'ble Supreme Court has examined the legal terms 'proved'. It held: "28. Whether a civil or a criminal case, the anvil for testing of 'proved', 'disproved' and 'not proved', as defined in Section 3 of the Indian Evidence Act, 1872 is one and the same. A fact is said to be 'proved' when, if considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circ....
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....re not open to re-appreciation. In the present case, the reasons recorded by the Ld. Adjudicating Authority for rejecting the evidence do not suffer from illegality, procedural impropriety, or irrationality. Consequently, it is not for us to substitute our own opinion for that of the Adjudicating Authority. [See: V. Ramana Vs S.P. SRTC and Others - (2005) 7 SCC 338 / Caretel Infotech Ltd. Vs Hindustan Petroleum Corpn. Ltd., - (2019) 14 SCC 81]. The appellants arguments are hence found to be without merit. 18. From the discussions above we are of the opinion that the confiscation of the gold and currency is legal and proper and does not brook any interference. 19. The Ld. Counsel pressed only one judgment at the bar, confined to the issue of penalty, namely B. Lakshmichand (supra), which shall be examined while dealing with the issue of penalty. However, in the appeal memorandum, reliance has also been placed on certain other judgments in support of the appellant's case. (i) The judgment of the Hon'ble Delhi High Court in Commissioner of Customs Vs Rajesh Bhola [CUSAA No. 66/2024 dated 30.07.2024], wherein it was held that retracted statements cannot, by themselves, f....
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....n-origin gold without producing any documents. That in the impugned case, the appellants are engaged in gold refining and have denied the smuggled nature of the gold. We however find that the assay certificate, by a Govt. approved gold assessor dated 01.08.2024, submitted at page 135 of the Appeal Memorandum, categorically identifies the gold as being of 'foreign origin' and having a purity of 24 carat as reproduced below. The certificate has not been challenged by the appellant on any occasion and has in fact been produced as evidence in their case to show that the gold bars had no markings. A certificate cannot be relied only in part, more so when the other part has not been challenged. Further mere admission or denial is not decisive of possessing smuggled gold. In this case the Adjudicating Authority has independently established grounds for confiscation. (iii) In Rajendra Kumar Damani (supra), the Calcutta High Court held that once Section 123 applies, it does not compel the officers to record reasons, and absence of reasons does not invalidate authorization, even where seized gold (99.5% purity) lacks foreign markings. The court relied on the Supreme Court's....
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....y other person claims ownership of the said goods, the burden of proof is shifted on the person in case he claims to be the owner of the goods so seized. 74. In "Kewal Krishan Vs. State of Punjab", AIR 1967 SC 737, the Hon'ble Supreme Court, while dealing with Section 123 of the Customs Act, 1962 regarding burden of proof in certain cases, held that when goods are seized under the reasonable belief that they are smuggled goods, then the onus of proving that they are not smuggled goods and is not of foreign origin is on the person from whose possession the goods were seized. Relevant portion of the aforesaid Judgment of the Hon'ble Supreme Court is as follows:- "When goods are seized by the Customs Officer in the reasonable belief that they are smuggled goods then under Section 178A of the Sea Customs Act the onus of proving that they are not smuggled goods, that is, not of foreign origin on which duty is not paid, is on the person from whose possession the goods are seized. The onus is not on the prosecution to show that the goods are not of Indian origin". 75. The Hon'ble Supreme Court in "Union of India Vs. Shyamsunder", AIR 1994 SC 485, hel....
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....only the bare quoting of S. 112 of the and there is no reference to either to clause (a) or (b) or both of S. 112 of the. The essential ingredients have not been specifically set out with reference to either of the clauses. Hence, it has got to be held that there was no making up of mind either at the earlier stage or at the subsequent stage of the prosecution of the proceedings and the passing of the orders thereon as to which of the clauses would be attracted in the instant case. The whole matter has been dealt with in a sphere of ambiguity. The present case is not a case where a wrong provision has been quoted, so that it can be stated that it was due to a bona fide error, which did not vitiate the jurisdiction of the Authority. As stated above, this is a case where there had been a failure to apply the mind as to which of the clauses is relevant and would be attracted. The power and the discretion given to the Authority functioning under S. 112 of the are judicial in character and are open to judicial review, and if they are found to have been exercised on irrational and ambiguous basis, the court will strike down the orders." (emphasis added) In keeping with judicial dis....