TaxTMI 
TaxTMI 
2026 (9) TMI 431
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....Pugaliya (hereinafter referred to as 'respondent'), the proprietor of M/s Pugaliya Jewellers, who asserts lawful ownership of the seized gold bars. Custom Appeal No.2 of 2026 and Custom Appeal No.3 of 2026 pertains to Shri Narendra Hiralal Tiwari and Shri Purmanand Ramchandra Mishra respectively, from whose possession the gold bars were recovered. Since all three appeals arise from a common order raising same questions of law regarding perverse findings and burden of proof under Section 123 of the Act, therefore, they have been heard together and are being decided by this common judgment. ADMISSION OF SUBSTANTIAL QUESTIONS OF LAW 3. Upon perusal of the records and having heard the learned counsel for the appellant, the following substantial questions of law have been raised by the revenue department and have been admitted:- I. Whether the CESTAT erred in law in misinterpreting Section 2(39) read with Section 111 of the Customs Act, 1962 with regard to the terms 'smuggling' and 'confiscation' of such goods? II. Whether the finding of the Tribunal that the Burden of proof was discharged by the respondent is a perverse finding? FACTS 4. The factual matrix of the pres....
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....th purity ranging from 99.35% to 99.67%. e. During the course of the investigation, in response to summons, Shri Anand Navalchand Pugaliya vide letter dated January 14, 2021 submitted certain documents with regard to GST returns, purchase invoices of gold and silver, a gift deed in relation to silver, a delivery note, labour charges paid to a refiner, balance sheet, sale and purchase ledger, stock statements and bank statements. f. Upon receipt of a document pertaining to labour charges paid to a refiner namely Shri Vijay Anandrao Devkar, the DRI officers summoned him, and in response to the said summons, he submitted a notarized affidavit dated February 8, 2021, wherein it was stated that Shri Anand Navalchand Pugaliya had given him 38 pieces of gold weighing approximately 3 kg for melting and converting into 3 bars of 1 kg each, for which he received Rs. 1,500/- in cash. Moreover, in his statement recorded on September 22, 2021, Shri Vijay Anandrao Devkar corroborated his earlier statement regarding melting and conversion of the gold and further stated that he did not possess any dye bearing a marking akin to marking engraved on the seized gold bars. He further ....
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....g authority also ordered confiscation of cash amounting to Rs. 29,71,970/- under Section 121 of the Act besides imposing penalty of varying amounts on the respondent and the two intercepted persons under Section 112(b) of the Act. k. However, a volte-facie was observed at the appellate stage, when the Commissioner (Appeal) vide order dated June 5, 2023, has allowed the appeal filed by the respondent alongwith the two intercepted persons and set aside the order of confiscation passed by adjudicating authority. l. This decision of Commissioner (Appeal) was affirmed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) vide order dated April 23, 2025 with the observation that Commissioner (Appeal) has duly analyzed the evidence tendered and produced before the lower authorities in support of their contentions. m. Being aggrieved by the order of the CESTAT dated April 23, 2025, the revenue has preferred the present appeal before this Court under Section 130 of the Act raising substantial questions of law arising from the impugned final order. ANALYSIS 5. Upon perusal of the order passed by the Tribunal, the core controversy in the present a....
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.... conditions are fulfilled, the presumption of smuggled goods arises, and the burden shifts to the assessee to show that they are not smuggled goods. 9. Applying the aforesaid conditions for seizure of three gold bars, we find that first and second conditions are fulfilled. The third condition of 'reasonable belief' is based on foreign marking on gold as well the clandestine manner of transportation and statements of the intercepted persons. Therefore, the initial burden that was vested on the revenue was discharged. 10. Having noted the above legal position, we are required to examine as to what was the statement of the respondent, the intercepted persons and the refiner about foreign marking gold. As could be seen from the discussion and findings of the investigation in the show cause notice as well as in the adjudicating order, a plethora of inconsistency was brought to light. 11. The statements dated November 28, 2020 of Narendra Hiralal Tiwari and Purmanand Ramchandra Mishra under Section 108 of the Act were recorded whereby they admitted carrying foreign origin smuggled gold. The relevant paragraph from the findings in show cause notice is quoted hereinbelow:- ....
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....nd Pugaliya and he simply signed them upon being insisted by Shri Pugaliya, it is worthwhile to mention that as per the said letters of Shri Vijay Anandrao Devkar, 38 gold pieces were sent by Shri Anand Pugaliya for conversion. In other words, Shri Anand Pugaliya through Shri Vijay submitted that 38 gold pieces were converted into gold bars, whereas, in his statements, Shri Anand Pugaliya kept reiterating that only 35 gold pieces were sent for conversion to the refinery. The submissions of Shri Anand Pugaliya are therefore contradictory in nature and facts and hence raise bonafide suspicion. The gold, as recovered and seized by the DRI officers contained the marks and identification as "PAMP SUISSE" & "VALCAMBI SUISSE" which happens to be of Switzerland origin and as per the investigation conducted, the statements of Vijay Ananadrao Devkar, the refiner from whom the said Gold Bars said to have been procured after casting the 38 cut pieces, as stated by Anand Pugaliya in his defence is nothing but an afterthought and has no bearings." 13. On the contrary, respondent in his statement dated February 28, 2021 stated that he had handed over 35 pieces of gold to the refiner for meltin....
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....conversion into 3 bars by Shri Vijay Devkar was submitted by Shri Anand Pugaliya and Shri Vijay Devkar, and by providing the same document, both the persons are claiming different numbers of gold pieces sent for conversion, i.e. 35 and 38 respectively, which strongly raises suspicion." 16. Based on the aforesaid statements and relied upon documents, the adjudicating authority had passed an extensive order in relation to seized gold bars whereby he had held that the seized gold is smuggled gold of foreign origin and liable for confiscation under Section 111 of the Customs Act. The relevant paragraphs of the order passed by adjudicating authority have been delineated below:- "5.1.1 As per records I find that on 28.11.2020, the officers of Directorate of Revenue Intelligence IDRI Lucknow Zonal Unit, Lucknow intercepted Shri Nagendra Hiralal Tiwari and Shri Pumanand Ramchandra Mishra while they were carrying 2997 grams of smuggled foreign origin gold valued at Rs. 1,31,16,791/. Both the said accused persons were travelling in a bus with registration number as UP70-GT-1095, destined from Nagpur to Prayagraj. Shri Nagendra Hiralal Tiwari & Shri Pumanand Ramchandra Mishra in t....
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....uggled into India through Chhatrapati Shivaji Maharaj International Airport, Mumbai and directed him to deliver the same to some person in Prayagraj but did not provide any other detail of that person. (c) On being asked how he came to know that the goods wrapped in brown coloured tape was foreign origin gold he replied that he had been involved in smuggling of foreign origin gold on earlier occasion also and the gold, as recovered was given to him by Anand Pugaliya only. (d) Purnanand Ramchandra Mishra is also involved in smuggling On direction of Anand Pugaliya,. (e) Such foreign origin gold secretly reaches Mumbai airport from abroad. Thereafter, foreign seal or identification of such gold is altered by melting it or scratching of the foreign marka and then it is sent to other places of the country. (f) They were involved in carrying of smuggled foreign origin gold and therefore they do not have any documents related to it, and neither any related papers or documents were provided to him by his owner. (g) Purnanand Ramchandra Mishra and he are cousins and both are working at Anand Pugaliya's shop. They are simultaneously involved ....
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.... on earlier occasions as well. He further informed that Shri Anand Pugaliya never gave him any documents related to the gold. (f) On being asked about any paper or bill related to the gold recovered from him, he replied that the gold recovered from him is of foreign origin which was brought into India by smuggling so he did not had any paper, bill etc. related to the same. Shri Anand Pugaliya had also not provided any documents related to the same. (g) On being asked his relation with Nagendra Tiwari, he replied that they are cousins and both are working at Pugaliya Jewellers' shop and do smuggling of foreign origin gold on the direction of their boss Anand Pugaliya. (h) On being asked whether he knew that carrying of smuggled gold is illegal and punishable under the provisions of Customs Act, he replied that he is aware that this is a punishable offence but had done the same in the greed of money on the directions of Anand Pugaliya. 5.1.4 On its basis above statements, I find that the seized gold is of foreign origin and it was recovered without the support of any licit documents hence found illegal. 5.1.5 On the other side, Shri An....
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.... of them had confessed of transporting this smuggled Gold and also could not produce any licit document to contradict the allegation. Thus, I am firmly of the opinion that this case is squarely covered under the ambit of Section 123 of the Customs Act 1962................ 5.1.11. In this matter, I find the that defence reply of Sri Anand Pugaliya is received in this office on 04.01.2022, wherein he reiterated that he had submitted certain documents during investigation which were related to purchase of 3 bars of one kg gold from M/s Safari Bullions, Mumbai. I find that Sri Anand Pugaliya had submitted following documents along with his letter dated 14.01.2021 addressed to SIO, DRI, Lucknow;- i. Copy of GST Registration Certificate of M/s. Anandkumar Navalchand Pugaliya ii. Copy of documents pertaining to GST of M/s. Anandkumar Navalchand Pugaliya from April 2020 to October 2020. iii. Copy of 11 Tax Invoices pertaining to purchase of gold from June 2020 to November 2020. iv. Copy of 5 Tax Invoices pertaining to purchase of Silver in the month of November 2020. v. Copy of Gift Deed executed by Shri. Navalchand Pugaliya in favour o....
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....se ledger etc. in relation to the seized gold to the department during the course of investigation but the adjudicating authority denied the same due to the reason that he has not provided the particular invoice and corresponding entry in stock register. The appellant no. 3 has produced before me the GST paid purchase invoices in relation to the recovered three gold bars duly certified by the Chartered Accountant. The details of the same are as under: S. No. Name of the GST Supplier Safari GST Number of the invoice supplier Invoice Number Invoice Date Quantity 1. Safari Bullions, Zaveri Bazar, Mumbai 27AAMPJ11Q1ZE 1414 05.08.2020 2000 grams 2. 4603 20.10.2010 1000 grams 3. 7299 18.11.2020 1000 grams 4. 7850 23.11.2020 1000 grams The entry of above purchases have also been duly reflected in the stock ledger produced before me by the appellant no. 3 for the period under dispute duly certified by the Chartered accountant, which substantiates the contention of under genuine and valid GST paid purchase invoices and the entries of the same were duly accounted for in the stock ledger. In view of that I find t....
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.... 13. We are of the view that there was no fault in the action of the Respondent in submitting a Certificate from the Chartered Accountant to that effect and their anxiety to establish their case can be understood. It may have been done by way of ex abundanti cautela. The fact that the said purchase invoice have been recorded in the books of accounts and were produced before the authorities at the first available instance goes in as an important proof of legitimate procurement of gold in question. Moreover, the said gold bars were purchased under proper invoices having discharged their tax liability. Strangely there has been no finding recorded on this aspect by the Adjudicating Authority and the Revenue has simply chosen to find fault with findings of the Commissioner (Appeals) based on unrelated facts like past history of co-accused etc. It is settled law that suspicion howsoever grave cannot take the place of proof. We are of the view that the Respondents have sufficiently discharged the onus cast upon them in law and Revenue has not been able to disprove/contradict the direct evidence furnished by the Respondent. When necessary documents and evidence for procurement of g....
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....redited such documentary evidence anywhere in the Show cause notice or in the adjudication order. By submission of such documents, the burden of proof as required under Section 123 of the Customs Act has been discharged by the respondent and the same had been observed by Commissioner as well as CESTAT in their respective orders. 21. Learned counsel appearing on behalf of respondent relies on Triveni Rubber & Plastics vs. Collector (supra), Sumitomo Heavy Industries Ltd. vs. O.N.G.C. [(2010) 11 SCC 296], S.R. Tewari vs. U.O.I. [(2013) 6 SCC 602], Vijay Kumar Talwar vs. CIT [(2011) 1 SCC 673] and Hero Vinoth vs. Seshammal [(2006) 5 SCC 545] to contend that reappreciation of evidence that has already been considered by the Tribunal cannot be done by the High Court as the Tribunal is the last fact finding body. 22. On a perusal of the respective orders passed by the adjudicating authority and the Commissioner (Appeals) and after sifting through the documents that were produced before the adjudicating officer, it is clear that the adjudicating authority had correctly observed that the burden of proof under Section 123 of the Customs Act was not discharged by the respondent. 23.....
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....iner. There is a clear mismatch in facts that has not been answered by the respondent. Secondly, the adjudicating authority has categorically stated that the documents that were submitted by the owner of the goods did not correspond with the gold that had been seized. Even with respect to the invoices that were produced and relied upon by the Commissioner (Appeals) to indicate that there has been shift of burden of proof by the owner to the revenue is without any basis in law as the invoices that have been relied upon by the Commissioner (Appeal) did not specify that the gold that had been purchased had foreign markings. We find that two stands have been taken by the owner which are in complete contradistinction to each other. Firstly, he submits that gold bars were purchased from a dealer namely Safari bullions, and secondly, he submits that three gold bars were produced by the refiner after melting and converting 35 pieces into three gold bars of 1 kg each. It is to be specifically noted that no explanation has been provided with regard to the 'foreign marking' on the three gold bars. 26. It is flabbergasting to note the perfunctory manner in which the Commissioner (Appeal) as....
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....al question of law arises for its consideration when material and relevant facts have been ignored and legal principles have not been applied in appreciating the evidence. Arriving at a decision, upon taking into consideration irrelevant factors, would also give rise to a substantial question of law. It may, however, be different that only on the same set of facts the higher court takes a different view. (See Collector of Customs, Bombay vs. Swastic Woollens (P) Ltd. & Ors. [(1988) Supp. SCC 796]; and Metroark Ltd. vs. Commissioner of Central Excise, Calcutta [(2004) 12 SCC 505*].) 25. Even in a case where evidence is misread, the High Court would have power to interfere. (See West Bengal Electricity Regulatory Commission vs. CESC Ltd. [(2002) 8 SCC 715]; and also Commissioner of Customs, Mumbai vs. Bureau Veritas & Ors. [(2005) 3 SCC 265**].) 29. The Hon'ble Apex Court in the case of Arulvelu vs. State [(2009) 10 SCC 206] has defined 'perversity' and held that a finding is perverse if it is not only against the weight of evidence but is altogether against the evidence itself. The term perversity was defined by tracing various earlier precedents, which is ex....
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....4th Edn. "Perverse. A perverse verdict may probably be defined as one that is not only against the weight of evidence but is altogether against the evidence." (Emphasis added) 30. Furthermore, the Hon'ble Supreme Court in the case of S.R. Tewari vs. Union of India [(2013) 6 SCC 602] has laid down the attributes of perversity in the following manner:- "30. The findings of fact recorded by a court can be held to be perverse if the findings have been arrived at by ignoring or excluding relevant material or by taking into consideration irrelevant/inadmissible material. The finding may also be said to be perverse if it is "against the weight of evidence", or if the finding so outrageously defies logic as to suffer from the vice of irrationality. If a decision is arrived at on the basis of no evidence or thoroughly unreliable evidence and no reasonable person would act upon it, the order would be perverse. But if there is some evidence on record which is acceptable and which could be relied upon, the conclusions would not be treated as perverse and the findings would not be interfered with. (Vide Rajinder Kumar Kindra v. Delhi Admn. [(1984) 4 SCC 635: 1985 SCC (L&S) 13....
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.... fundamental miscarriage of justice rooted in a misapplication of the law. 12.4. We reiterate the following conclusive legal principles as the basis of our determination: (a) We hold that "Reasonable Belief" is a behavioural and material construct, not a geographical one. The "Town Seizure" doctrine cannot serve as a legal sanctuary for the illicit transport of high-purity bullion. Once the modus operandi- clandestine concealment-is established, the jurisdictional trigger of Section 123 is complete. (b) We reaffirm that a statement recorded in a "deemed judicial proceeding" carries a presumption of truth. A non-contemporaneous retraction, appearing after a staggering 850 day interval, must be discarded as a "calculated afterthought" unless corroborated by independent medical or judicial evidence of duress. (c) We hold that in matters of bullion, Scientific Purity is the ultimate provenance. A "paper trail" of GST returns for scrap ornaments cannot bridge the identity mismatch between jewellery alloys and 99.6% pure international standard bullion. The transition from scrap to 24- carat bullion requires industrial electrolytic refinement, not rudimentary lo....
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....hat the procurement of the seized gold bars is highly suspicious and that the evidence produced by the respondent is wholly insufficient to discharge the onus cast upon them under Section 123 of the Customs Act. The adjudicating authority correctly noted that the invoices produced bore no specific nexus to the seized gold bars, and correctly held that the respondent had failed to discharge the burden of proving lawful acquisition of the specific seized articles. 36. The Commissioner (Appeals) and the Tribunal fell into a manifest error of law as they did not consider the clandestine manner under which the gold was recovered, the foreign marking of gold, the inconsistencies in the statement of the carriers, the owner and the refiner. Furthermore, failure to observe the purity of gold as well as the foreign marking is clearly an act of perversity. The Tribunal characterization of these discrepancies as mere 'extraneous' is perverse. The observation of the Tribunal with regard to accepting the GST invoices without regard to whether the same had a nexus to the specific seized gold bars as sufficient to discharge the burden under Section 123 is a patent error of law. This approach is....
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....s. 39. In this regard, it is relevant to cite the judgment of Delhi High Court in Shanti Lal Mehta vs. Union of India [1982 SCC OnLine Del 303] wherein it was held that reasonable belief must be based on some material, not mere suspicion. The relevant paragraphs of the judgment are quoted hereinbelow: "69. Reasonable belief as required by section 110 refers to the point of time when the goods in question are seized and not to a stage subsequent to the act of seizure. (M.G. Abrol v. Amichand, AIR 1961 Bom 227 (19). The condition precedent that there was such a reasonable belief anterior to the seizure must exist before the presumption under section 123 can be invoked............ *** 76. The belief must be such as any reasonable man in the circumstances of the case would entertain about the existence or non-existence of a thing. Simply because the goods were not accounted for at that time does not necessarily mean that the goods were smuggled goods. Unaccounted goods may be stolen goods. Reasonable belief could be entertained either on the basis of some external inindicia or on the basis of some internal information that the goods had been illegally impo....