2024 (3) TMI 1462 - AT - Customs

Confiscation - smuggling - evidences available on record indicate that the gold were of foreign origin and smuggled into India - documentary evidence to substantiate their claim that the gold were locally purchased from domestic sellers or not - burden to prove u/s 123 of the Customs Act 1962 - reliability of statements in terms of Section 138 B of the Customs Act 1962 - statement recorded from the appellant alone is sufficient to confiscate the seized gold - levy of penalties u/s 112(a) and (b) of the Customs Act 1962. Whether the evidences available on record indicate that the gold were of foreign origin and smuggled into India? - HELD THAT - The three gold were seized from the appellant at Howrah Railway Station on a reasonable belief that they were of foreign origin and smuggled in nature. Samples were drawn from the seized gold and sent to CRCL Kolkata for testing. The Test Report received indicated that the gold was having a purity of 99.5%. Normally gold of foreign origin is of 99.9% purity. In this case the gold is only having a purity of 99.5% - there is no foreign marking available on the seized gold bars. Even though there is an allegation in the Notice that the gold bars were of foreign origin there is no evidence to establish that foreign markings were available on the gold bars in question. Further the Appellant claimed that he has purchased the gold in question from M/s.Vir Gems through the invoice bearing No. 014/Jan/2014-15 dated 31.01.2015. This claim of the appellant has not been disproved by the investigation. The Appellants contended that there is no substance in the claim of the Department that the gold were of foreign origin and the department has not produced any evidence to substantiate this claim. Hence they contended that the confiscation of the gold is not sustainable - the evidence available on record does not indicate that the seized gold were of foreign origin - the issue is answered in negative. Whether the appellant has produced documentary evidence to substantiate their claim that the gold were locally purchased from domestic sellers? - HELD THAT - The Department has not brought any evidence on record to disprove the appellant s claim that the said gold was purchased from M/s. Vir Gems in a licit manner. The Department has not negated the cash memos as forged documents. The Department has also not made any enquiry from the VAT Department to ascertain the genuineness of such invoices. The seller of the gold has categorically accepted that they have sold the gold to the appellant. In these circumstances the appellant has produced evidence to substantiate their claim of licit purchase of the gold from the domestic sellers - the evidence on record indicates that the appellant has purchased the gold from M/s. Vir Gems and hence the gold seized is not of foreign origin and cannot be considered as smuggled in nature - the issue is answered in the negative. Whether the provisions of Section 123 of the Customs Act 1962 are applicable to the present case? - HELD THAT - As per Section 123 of the Customs Act the person who claims ownership of the gold has to prove that the said gold is not smuggled in nature - Section 123 applies inter alia to gold seized on the reasonable belief that they are smuggled goods . The burden of proving that they are not smuggled goods shall be on the person who claims to be the owner of the goods so seized or from whose possession the goods are seized. The contention of the Department is that in the instant case the onus of proving that the gold biscuits seized were not of smuggled in nature lies on the Appellant. In the present case it is observed that the appellant has submitted documentary evidence to substantiate their claim that they have purchased the said gold from domestic sellers and submitted copy of invoices evidencing domestic purchase. There is no evidence available on record to establish that the gold seized was of foreign origin or smuggled in nature. Accordingly the provisions of Section 123 of the Act is not applicable to the present case - the issue is answered in the negative. Whether the provisions of Section 138B of the Customs Act 1962 has been followed to rely upon the statements recorded? - Whether the statement recorded from the appellant alone is sufficient to confiscate the seized gold? - HELD THAT - In the present case it is observed that only on the basis of the statement recorded from the appellant his involvement in the alleged smuggling has been confirmed and penalty was imposed. The appellant relied on the decision in the case of Surinder Kumar Khanna- Vs. Intelligence Officer DRI 2019 (1) TMI 828 - SUPREME COURT on the facts identical with the facts of the Appellant s case wherein the Hon ble Apex Court has held In the absence of any substantive evidence it would be inappropriate to base the conviction of the appellant purely on the statements of co-accused. The Appellant is therefore entitled to be acquitted of the charges levelled against him. The change in domestic source of purchase would not make the gold is of smuggled in nature. It is observed that the investigation has not brought in any evidence to substantiate the allegation that the gold is of foreign origin and smuggled in nature. In the absence of any such evidence the gold cannot be confiscated on the basis of the statement of the appellant alone. Accordingly the issue is answered in the negative. Whether penalty is liable to be imposed on the appellant for the offences committed under Sections 112(a) and (b) of the Customs Act 1962? - HELD THAT - There is no evidence available on record to establish that the gold is of smuggled nature. On the contrary the appellant has submitted evidence to substantiate their claim that the said gold was purchased from domestic sellers. The investigation has not negated this claim. Accordingly no penalty is imposable on the appellant under Section 112(a) and (b) of the Customs Act 1962. Accordingly the issue is answered in the negative. The order for extension of time for issue of Show Cause Notice has not been served to the appellant within the stipulated time-limit. Accordingly the Show Cause Notice issued beyond the period of six months is not sustainable. Accordingly the impugned order qua confiscation of the gold from the appellant is set aside on the ground of limitation. The evidence available on record does not indicate that the gold is of foreign origin and smuggled in nature. Hence the confiscation of the gold is not sustainable on merits also. Penalty imposed on the appellant under Section 112(a) and 112(b) of the Customs Act 1962 is set aside. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

(1) Whether the evidence on record establishes that the seized gold bars were of foreign origin and smuggled into India;

(2) Whether the appellant produced documentary evidence to substantiate his claim that the gold was purchased locally from domestic sellers;

(3) Whether the provisions of Section 123 of the Customs Act, 1962, concerning the burden of proof in smuggling cases, apply to the present case;

(4) Whether the procedural requirements of Section 138B of the Customs Act, 1962, relating to the admissibility of statements recorded during investigation, were complied with;

(5) Whether the statement recorded from the appellant alone suffices to confiscate the seized gold;

(6) Whether penalty under Sections 112(a) and 112(b) of the Customs Act, 1962 is warranted;

(7) Whether the Show Cause Notice (SCN) issued beyond the statutory six-month period from the date of seizure is valid, considering the extension granted and its communication to the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

(1) Whether the seized gold bars were of foreign origin and smuggled into India?

The Customs officers seized three gold bars weighing 3,000 grams at Howrah Railway Station, based on a reasonable belief that they were of foreign origin and smuggled. The seized gold bore inscriptions "Valcambi Suisse, 1 Kg Gold, 999.9 CHI ESSAYEUR FOUNDEUR" with tampered serial numbers. Samples were sent to the Central Research and Development Laboratory (CRCL), Kolkata, which reported the purity as 99.5%. Generally, gold of foreign origin is expected to have 99.9% purity.

The appellant contended that the gold was not of foreign origin and that the purity level of 99.5% negated the claim of foreign origin. The absence of any foreign marking on the gold bars was noted, and the appellant produced invoices from M/s. Vir Gems, Mumbai, dated 31.01.2015, claiming local purchase. The Department failed to disprove this documentary evidence or establish that the gold bars bore foreign markings.

The Tribunal relied on precedent where gold without foreign markings and not uniformly pure was held not to be smuggled, emphasizing that possession of gold within India is not inherently unlawful. The Tribunal concluded that the evidence does not support the claim that the gold was of foreign origin or smuggled.

(2) Whether the appellant produced documentary evidence to substantiate local purchase?

The appellant submitted tax invoices from M/s. Vir Gems, Mumbai, and the sellers acknowledged the sale and stated the gold was procured from local sources. The Department summoned the sellers, who did not appear, but did not negate the genuineness of the invoices or investigate their authenticity through VAT records. No evidence was brought forward to challenge the appellant's claim.

Accordingly, the Tribunal held that the appellant had discharged the burden to prove licit acquisition of the gold from domestic sources.

(3) Applicability of Section 123 of the Customs Act, 1962

Section 123 places the burden of proving that seized goods are not smuggled on the person from whose possession the goods are seized or the owner claiming them, when goods are seized on reasonable belief of smuggling. The Department argued that the appellant must prove the gold was not smuggled.

However, given the appellant's documentary evidence and the Department's failure to disprove the claim or establish smuggling, the Tribunal held that Section 123 was not applicable in this case as the burden had been discharged by the appellant and no contrary evidence was produced.

(4) Compliance with Section 138B of the Customs Act, 1962 regarding statements

Section 138B mandates that before relying on statements recorded during investigation, the adjudicating authority must examine the person whose statement is to be admitted, to ensure voluntariness and reliability. The appellant argued that this procedure was not followed, rendering the statements inadmissible.

The Tribunal noted that the adjudicating authority did not comply with Section 138B, and therefore, the statements recorded from the appellant could not be relied upon as evidence of smuggling.

(5) Sufficiency of the appellant's statement alone for confiscation

The appellant's initial statement mentioned purchase from an employee of a Kolkata jeweller and delivery to persons in Nagpur but did not admit smuggling. Later, the appellant produced invoices indicating a different source. The Department relied heavily on the initial statement to confirm smuggling and impose penalties.

The Tribunal referred to Supreme Court precedent holding that confessional statements of co-accused or the accused alone cannot be the sole basis for conviction or confiscation without corroborative evidence. Since no independent evidence established smuggling, the appellant's statement alone was insufficient to confiscate the gold.

(6) Liability for penalty under Sections 112(a) and 112(b) of the Customs Act, 1962

Sections 112(a) and (b) provide for penalties for unlawful import or smuggling. The appellant argued no penalty was warranted as no smuggling was established and the gold was purchased domestically.

The Tribunal, having found no evidence of smuggling and that the appellant had discharged the burden of proof, held that penalty was not imposable under these provisions.

(7) Validity of Show Cause Notice issued beyond six months

Section 110(2) requires issuance of a Show Cause Notice within six months of seizure, subject to extension by the Commissioner for up to six additional months, provided this extension is communicated to the person concerned before expiry of the initial six-month period.

The gold was seized on 19.02.2015. The extension order was dated 17.08.2015 but was dispatched on 22.08.2015 and delivered to the appellant on 27.08.2015, after the initial six-month period expired on 18.08.2015.

The Tribunal examined Section 153, which governs service of notices, and Supreme Court precedent clarifying that service is complete only upon actual delivery, not dispatch. Since the extension was communicated after expiry of the six-month period, the subsequent Show Cause Notice issued on 05.08.2017 was beyond the permissible time limit.

Accordingly, the Tribunal held the SCN to be invalid and the impugned order liable to be set aside on the ground of limitation.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The evidence available on record does not indicate that the gold is of foreign origin."

"The evidence on record indicates that the appellant has purchased the gold from M/s. Vir Gems and hence, the gold seized is not of foreign origin."

"In the facts and circumstances of the case, the provisions of Section 123 of the Act are not applicable."

"The mandate as provided under Section 138B has not been followed in this case."

"The statement of the appellant cannot be relied upon as evidence to substantiate the allegation of smuggling of the gold."

"Penalty is not imposable on the appellant under Section 112(a) and (b) of the Act."

"The Show Cause Notice issued beyond the period of six months is not sustainable."

The Tribunal emphasized the principle that possession of gold within India is not unlawful per se and that confiscation requires clear evidence of smuggling supported by corroborative material beyond mere statements. It also underscored procedural safeguards in issuing notices and admitting statements under the Customs Act.

Consequently, the impugned order of confiscation and penalty was set aside on both procedural and substantive grounds, modifying the order accordingly.