2025 (5) TMI 668 - AT - Customs

Smuggling - seized betel nuts of foreign origin - non-notified goods - shifting of burden to proof at any stage of the process of evaluation of the evidence - reliance placed upon a test report of Executive Officer ARDF of Mangaluri Karnataka wherein it is allegedly reported that majority of sample sent to them resembles to the betel buts of Mayanmar (Verma) origin - Confiscation - penalty - HELD THAT - It is observed that 50 nos of sacks containing total 4000 kgs. of betel nuts valuing Rs.8, 00, 000/- were seized on 5.3.18 during the course of its transportation through Saraighat Express at New Jalpaiguri Railway Station. It is found that the said consignments of betel nuts were despatched under 2 Tax Invoices Nos. 008/C and 009/C both dated 2.3.18 in favour of M/s. Bight Trading Company of 125 PurbaSinthi Road Dum Dum West Bengal and Parcel Way Bills Nos. C882551 C88252. It is observed that the said goods were seized by the Customs Officers on the reasonable belief that the said goods were smuggled into the country without payment of applicable customs duties. The department has not brought in any evidence to substantiate the allegation that the said goods were of foreign origin. The only evidence produced by the department in support of the allegation that the betel nuts were of foreign origin is the Report of ARDF. It is observed that the foreign origination of betel nut cannot be determined on the basis of the ARDF report - In the present case it is observed that the goods in question are non-notified in nature and as such the burden of proof lies upon the Revenue. The Hon ble High Court Calcutta in the case of Ritu Kumar 2005 (12) TMI 110 - HIGH COURT AT CALCUTTA has categorically held that such burden of proof can never be shifted at any stage of the process of evaluation of the evidence. Similarly in the case of Raj Kumar Jaiswal 2006 (5) TMI 39 - HIGH COURT CALCUTTA it was held that in case of non-notified goods Revenue is at obligation first to substantiate the foreign origination of the goods and thereafter to establish smuggled character of the same and until both such predetermined are fulfilled question of confiscation of non-notified goods under Section 111 of the Customs Act 1962 cannot arise. In the present case it is found that if the report of ARDF is taken out of record then there is no other evidence available on record to suggest that the goods were foreign origin. In such circumstances the confiscation of the goods under Section 111(b) (d) of the Customs Act 1962 does not arise and accordingly the same is set aside - Since confiscation of the goods is not sustained imposition of penalty upon the appellant under Section 112 (b) of the Customs Act 1962 does not arise and hence the same is set aside. This view has been expressed by the Hon ble High Court at Allahabad in the case of Commissioner of Cus. (Prev.) v. Maa Gauri Traders 2019 (8) TMI 1043 - ALLAHABAD HIGH COURT wherein it was observed that The documents produced by the respondents indicated that the goods in question were purchased from local markets and in support of the purchases they produced the market receipts which has not been doubted by the Revenue Authorities themselves at any stage of the proceedings. The report of the ARDF has also been held to be not reliable inasmuch as it could not be shown with any degree of certainty that the origin of the betel nuts could be established by testing in a laboratory as is clear by the answer to the RTI query given by Directorate of Arecanut and Spice Development Ministry of Agriculture and Farmers Welfare Government of Kerala. The confiscation order under Section 111(b) (d) of the Customs Act 1962 is quashed due to lack of evidence of foreign origin and smuggling - The penalty imposed under Section 112(b) is set aside as it was contingent on the confiscation order. Conclusion - i) The burden of proof to establish smuggling and foreign origin for non-notified goods lies squarely on the Revenue and cannot be shifted. ii) Reports from non-accredited laboratories such as ARDF cannot be relied upon to determine the origin of goods for legal purposes. iii) Confiscation and penalty under the Customs Act require cogent and positive evidence; mere suspicion or uncorroborated laboratory reports are insufficient. Appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the following issues:

1. Whether the seized betel nuts were of foreign origin and smuggled into India without payment of applicable customs duties, thereby attracting confiscation under Section 111(b) & (d) of the Customs Act, 1962.

2. Whether the Report of the Arecanut Research and Development Foundation (ARDF), Mangalore, relied upon by the Revenue, is a credible and legally admissible piece of evidence to establish the foreign origin of the goods.

3. The burden of proof on the Revenue in cases involving non-notified goods like betel nuts, specifically whether the Revenue discharged its obligation to prove smuggling and foreign origin.

4. Whether the imposition of penalty under Section 112(b) of the Customs Act, 1962 is justified when confiscation is not sustained.

Issue 1: Determination of Foreign Origin and Smuggling of Betel Nuts

The legal framework requires that for confiscation under Section 111(b) & (d) of the Customs Act, the Revenue must establish that the goods are imported illegally and smuggled without payment of customs duties. The goods in question, betel nuts, are non-notified under Section 123 of the Customs Act, which places a heavier burden on the Revenue to prove foreign origin and smuggling beyond reasonable doubt.

The Court noted that the seized goods were transported under tax invoices and railway receipts, indicating a transaction in the normal course of business. The seizure was based on a reasonable belief by Customs Officers that the goods were smuggled. However, the Revenue failed to produce any substantial evidence apart from the ARDF report to establish the foreign origin of the betel nuts.

Judicial precedents, including the decisions of the Hon'ble High Courts of Allahabad and Calcutta, and this Tribunal, have consistently held that for non-notified goods, the Revenue must first establish the foreign origin of the goods and then prove smuggling. The absence of such proof precludes confiscation. The Court relied on authoritative pronouncements that the burden of proof remains on the Revenue throughout and cannot be shifted.

Applying these principles, the Court held that without credible evidence to establish foreign origin, confiscation under Section 111(b) & (d) cannot be sustained.

Issue 2: Credibility and Admissibility of ARDF Report

The ARDF report was the sole piece of evidence presented by the Revenue to establish the foreign origin of the betel nuts. The appellant challenged the reliability of this report, contending that it is not an accredited laboratory report and thus cannot form the basis for legal liability.

The Tribunal examined prior rulings, including those of the Hon'ble High Court of Patna and this Tribunal, which have held that the ARDF is not an accredited institution under any relevant Act or Rules, and its reports lack the necessary legal sanctity to be relied upon for determining the origin of goods.

Further, the Tribunal noted that the ARDF itself admitted that the country of origin of betel nuts cannot be conclusively determined through laboratory testing. The Court also referenced RTI responses from the Directorate of Arecanut and Spice Development, Ministry of Agriculture, confirming this limitation.

Given these factors, the Tribunal concluded that the ARDF report is not a reliable or admissible piece of evidence to establish foreign origin and smuggling.

Issue 3: Burden of Proof on the Revenue for Non-Notified Goods

The Court emphasized that betel nuts are non-notified goods, and the burden of proof lies heavily on the Revenue to establish both foreign origin and smuggling before confiscation can be ordered. The Hon'ble High Court of Calcutta in Ritu Kumar and Raj Kumar Jaiswal cases clarified that this burden cannot be shifted at any stage.

The Tribunal observed that the Revenue failed to produce any positive, cogent, and corroborative evidence apart from the ARDF report, which itself is unreliable. The appellant produced market receipts and invoices indicating indigenous procurement, which were not effectively challenged by the Revenue.

Consequently, the Tribunal held that the Revenue did not discharge its burden of proof, and the presumption of innocence in favor of the appellant must prevail.

Issue 4: Penalty under Section 112(b) of the Customs Act, 1962

Since the confiscation of goods under Section 111(b) & (d) was not sustained, the Tribunal held that the imposition of penalty under Section 112(b) could not stand. The penalty is contingent on the confiscation order, and without a valid confiscation, penalty imposition is unsustainable.

The Court's reasoning incorporated the following key findings and applications of law:

- The seized betel nuts were transported with proper invoices and receipts, indicating legitimate trade.

- The Revenue's sole reliance on the ARDF report to establish foreign origin is misplaced, as the report lacks accreditation and legal validity.

- Judicial precedents uniformly require the Revenue to prove foreign origin and smuggling for non-notified goods before confiscation.

- The appellant's evidence of indigenous procurement was not rebutted by credible evidence from the Revenue.

- The penalty imposed is invalid in the absence of a confirmed confiscation order.

The Tribunal treated the appellant's arguments with due consideration, particularly the reliance on judicial pronouncements that discredit the ARDF report and emphasize the burden of proof on the Revenue. The Tribunal also rejected the Revenue's reliance on the ARDF report and upheld the principle that no legal liability can flow from a non-accredited laboratory's report.

In conclusion, the Tribunal set aside the Order-in-Appeal and the Order-in-Original insofar as they ordered confiscation of the seized betel nuts and imposed penalty on the appellant. The Tribunal granted consequential relief in favor of the appellant, consistent with the law and facts.

Significant holdings include the following verbatim excerpt from the Tribunal's reasoning:

"We observe that the foreign origination of betel nut cannot be determined on the basis of the ARDF report. We find that this view has been taken by the Hon'ble High Court at Allahabad in the case of Maa Gauri Traders and in the case of M/s. Maa Kali Traders."

"In the present case, we find that if the report of ARDF is taken out of record, then there is no other evidence available on record to suggest that the goods were foreign origin. In such circumstances, we hold that the confiscation of the goods under Section 111(b) & (d) of the Customs Act, 1962 does not arise and accordingly, we set aside the same."

"Since confiscation of the goods is not sustained, imposition of penalty upon the appellant under Section 112 (b) of the Customs Act, 1962 does not arise and hence we set aside the same."

Core principles established:

- The burden of proof to establish smuggling and foreign origin for non-notified goods lies squarely on the Revenue and cannot be shifted.

- Reports from non-accredited laboratories such as ARDF cannot be relied upon to determine the origin of goods for legal purposes.

- Confiscation and penalty under the Customs Act require cogent and positive evidence; mere suspicion or uncorroborated laboratory reports are insufficient.

- Proper documentation indicating indigenous procurement can rebut allegations of smuggling if not effectively challenged.

Final determinations:

- The confiscation order under Section 111(b) & (d) of the Customs Act, 1962 was quashed due to lack of evidence of foreign origin and smuggling.

- The penalty imposed under Section 112(b) was set aside as it was contingent on the confiscation order.

- The appellant was entitled to consequential relief as per law.