2025 (6) TMI 1852 - AT - Customs

Smuggling - Gold bars of foreign origin - town seizure - sufficient documentary evidence to prove licit purchase of the gold or not - Confiscation - penalty - HELD THAT - In this case 06 (six) pieces of gold bars have been seized from the possession of Sk. Amjad Ali by the Personnel of Government Railway Police Guwahati Railway Station which were subsequently handed over to the Customs Authorities for initiating further proceedings. Thereafter the Customs Authorities drew samples from the said gold bars got the same tested and ultimately the same were seized under the reasonable belief that they were smuggled into the country by illegal means without payment of Customs duties thereon. The gold is having 99.5% purity which would not automatically make the gold as foreign origin gold. Department must establish the foreign origin of gold with corroborative evidence. In this case no such corroborative evidence adduced by the Department. It is also a fact that the gold bars in question have been seized from Guwahati Railway Station and therefore it is a case of town seizure. The Department has not brought in any evidence to establish the foreign origin or smuggled nature of the gold. Under such circumstances the provisions of Section 123 ibid. are not applicable and hence the onus is on the Department to prove that the gold is smuggled in nature. It is observed that the Department has failed to bring in any evidence in this regard to substantiate their allegation that the gold had been smuggled into the country. Accordingly the gold in question is not liable for confiscation. It is also found that the documents submitted by the appellant indicate that they had purchased gold from M/s. Nirmala Trading Company which as submitted by the appellant has been converted into 12 gold bars. The Department has contested this claim of the appellant on the ground that there is mismatch in the weight of the gold bars. In this regard it is found that the appellant has submitted to have already melted the said gold and made 12 new gold bars. Thus the original numbers available at the time of purchase would not be available in the new bars made after melting. Thus the appellant has submitted evidence which establishes domestic purchase of the gold from M/s. Nirmala Trading Company. The appellant in this case claims that it is a case of transfer of gold from one unit of the appellant to the other unit i.e. from Kolkata to Guwahati and vice versa which is purely an internal mechanism. In this regard minor variations in the statements of the employee at the time of his interception cannot be a reason to disregard the documentary evidence of domestic purchase submitted by the appellant. It may also be relevant to observe that the employee may not be having the full information regarding the source of domestic purchase of the gold at the time of his interception but in his statements he always maintained that the gold was being brought from their other unit - Since the Department could not produce any evidence for establishing the smuggled nature of the gold there are no reason to reject the documentary evidence submitted by the appellant in this case for the domestic purchase of the said gold. Consequently the documentary evidence submitted by the appellant establishes domestic purchase of the gold and hence the gold bars in question are not liable for confiscation. The confiscation of the gold bars is question is not sustainable. Hence the order of confiscation of the gold bars in question set aside. Levy of penalty u/s 112(b)(i) of the Customs Act 1962 - HELD THAT - It is found that the appellant has produced documentary evidence for licit purchase of the gold in question. Under these circumstances the violations alleged against the appellant in this case do not sustain and therefore the penalty imposed on the appellant under Section 112(b)(i) of the Customs Act 1962 set aside. Conclusion - i) The order of confiscation of the 06 (six) pieces of gold bars totally weighing 499.17 grams valued at Rs.16, 87, 694/- set aside. ii) The penalty of Rs.1, 60, 000/- imposed on Shri Monirul Mallick under Section 112(b)(i) of the Customs Act 1962 is set aside. Appeal disposed off.

The core legal questions considered in this appeal are:

1. Whether the gold bars seized from the possession of the employee of the appellant at Guwahati Railway Station were smuggled into India without payment of appropriate customs duties, thereby justifying confiscation under Sections 111(b) and (d) of the Customs Act, 1962.

2. Whether the appellant has discharged the burden of proof under Section 123 of the Customs Act, 1962 to establish that the gold bars were legally procured domestically and not smuggled.

3. Whether the penalty imposed on the appellant under Section 112(b)(i) of the Customs Act, 1962 is justified in light of the evidence regarding the lawful purchase and possession of the gold bars.

4. The applicability and interpretation of evidentiary standards, including the significance of foreign markings on gold bars, purity levels, and documentary evidence in determining the origin and legality of the seized gold.

Issue-wise Detailed Analysis:

1. Smuggling and Confiscation of Gold Bars under Sections 111(b) and (d)

The legal framework governing confiscation of smuggled goods is enshrined in Sections 111(b) and (d) of the Customs Act, 1962, which authorize confiscation if goods are imported without payment of duty or are smuggled into India. Section 123 places the burden of proof on the person in possession of seized goods to prove that they are not smuggled.

The Court noted that the gold bars were seized within the country at Guwahati Railway Station, constituting a town seizure rather than a border seizure. The seized gold bars did not bear any foreign markings, but had diamond markings, which the appellant argued do not establish foreign origin, as such markings can be applied domestically post-importation. The Court agreed that diamond markings alone do not prove foreign origin.

The purity of the gold bars was found to be approximately 99.5%, which the Court held does not automatically indicate foreign origin. The Department failed to provide corroborative evidence to establish that the gold bars were smuggled or of foreign origin. The Court relied on precedents where absence of foreign markings and lack of corroborative evidence led to the conclusion that gold bars could not be presumed smuggled.

Cases cited in support include:

A precedent where gold bars without foreign markings and seized from a residential premises were held not to be smuggled due to lack of evidence.
A case where gold bars of varying weights and purity without foreign markings were seized, and the Court held that chemical purity alone does not establish foreign origin.

The Court emphasized that suspicion or presumption cannot substitute for evidence in establishing smuggling.

2. Burden of Proof under Section 123 and Documentary Evidence of Legal Purchase

The appellant submitted tax invoices and internal transfer vouchers evidencing purchase of gold from a domestic source, M/s. Nirmala Trading Co., Kolkata, on two dates prior to the seizure. The appellant explained that the purchased gold was melted and reformed into 12 gold bars, six of which were sent to Guwahati for business purposes and six given to local artisans.

The Department challenged the authenticity and relevance of these documents, citing discrepancies in weight and description of the gold bars. The Court found that melting and remaking gold bars naturally results in variations in weight and appearance, and minor discrepancies cannot invalidate the documentary evidence.

The Court referred to decisions where similar documentary evidence was accepted as discharge of the burden under Section 123, especially when the seized gold bars lacked foreign markings and were of purity below 99.9%. It was held that the appellant's evidence sufficiently established domestic procurement, and the Department failed to rebut this with concrete evidence of smuggling.

The Court also noted that the employee carrying the gold had documents evidencing domestic purchase, which were not duly considered by the adjudicating authority, and that minor inconsistencies in statements do not override documentary proof.

3. Penalty under Section 112(b)(i)

Since the Court found that the confiscation was not sustainable due to lack of evidence of smuggling and established domestic purchase, it followed that the penalty imposed on the appellant was also not justified. The penalty under Section 112(b)(i) is contingent upon proven violation of customs laws, which was not established here.

4. Treatment of Competing Arguments and Precedents

The Department relied on case laws supporting confiscation where reasonable belief of smuggling was established. However, the Court distinguished these cases on facts, noting that in those instances, foreign markings or lack of documentary evidence existed, unlike the present case.

The Court also emphasized that older precedents under the Gold Control Act regime are not directly applicable post-liberalization of gold import policies, where foreign marked gold is legally available and traded domestically.

The appellant's reliance on recent Tribunal decisions was found persuasive, particularly those holding that in town seizures without foreign markings and with documentary evidence of domestic purchase, confiscation and penalties are not sustainable.

Significant Holdings:

"The diamond markings on the gold bars alone is not sufficient to arrive at the conclusion that the said gold bars are of foreign origin."

"The gold is having 99.5% purity, which would not automatically make the gold as foreign origin gold. Department must establish the foreign origin of gold with corroborative evidence."

"The burden of proof falls on the Department to prove that the gold is smuggled in nature. The Department has failed to bring in any evidence in this regard to substantiate their allegation."

"Minor variations in the statements of the employee at the time of his interception cannot be a reason to disregard the documentary evidence of domestic purchase submitted by the appellant."

"Suspicion/presumption howsoever strong cannot take the place of an evidence."

"The confiscation of the gold bars is not sustainable and the penalty imposed on the appellant is set aside."

The Court established the core principle that in cases of town seizures of gold bars without foreign markings and with purity below 99.9%, the Department must produce corroborative evidence to establish smuggling. Documentary evidence of domestic purchase, even with minor discrepancies, suffices to discharge the burden under Section 123. Mere suspicion or inconsistent statements do not justify confiscation or penalty.

Accordingly, the Court set aside the order of confiscation of six gold bars weighing 499.17 grams valued at Rs.16,87,694/-, and the penalty of Rs.1,60,000/- imposed on the appellant under Section 112(b)(i) of the Customs Act, 1962.

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