2025 (7) TMI 166 - HC - Customs

Confiscation of Gold - failure to appreciate scope and ambit of section 111(b) 111(d) 123 112(a) 112(b) and 114AA of the Customs Act 1962 - burden of proof under section 123 of the Customs Act 1962 is upon the respondent to establish with cogent evidence that the seized gold in question are not smuggled goods or not - violation of the principles of natural justice by not considering the outcome of the investigation of DRI Authority - validity of statements recorded under section 108 of the Customs Act 1962 - levy of penalties - HELD THAT - The Court orally made an observation to the learned senior Advocate appearing for the respondent that the application need not be pressed for the time being since this Court is inclined to take up the appeal on an early date. This broad understanding was not recorded as the Court was of the earnest belief that the same will be conveyed to the learned Advocate/authorized representative who will appear for the respondent before the learned Tribunal. However we are surprised to note that the authorized representative of the respondent had made submissions on merits before the learned Tribunal when the application was heard on 30th June 2025 and a direction has been issued to the concerned Officer of the Revenue to remain present on 2nd July 2025 to apprise the Tribunal as to whether they have obtained any stay order against the order passed by the Tribunal or complied with the order passed by the Tribunal till date or not. Considering the fact that the appeal is admitted the order impugned in this appeal passed by the learned Tribunal as well as the order passed by the learned Tribunal in Customs Miscellaneous Application No. 75363 of 2025 dated 30th June 2025 shall remain stayed until further orders. Let the appeal be listed for hearing on 15th July 2025.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered the following core legal questions arising from the appeal against the order of the learned Tribunal in the context of confiscation and release of seized gold and currency under the Customs Act, 1962:

i) Whether the learned Tribunal was justified in allowing the respondent's appeal without properly appreciating the scope and ambit of sections 111(b), 111(d), 123, 112(a), 112(b), and 114AA of the Customs Act, 1962.

ii) Whether the burden of proof under section 123 of the Customs Act, 1962 lies on the respondent to establish with cogent evidence that the seized gold is not smuggled goods.

iii) Whether the learned Tribunal acted perversely and violated principles of natural justice by ignoring the outcome of the Directorate of Revenue Intelligence (DRI) investigation and wrongly allowing the respondent's appeal.

iv) Whether statements recorded under section 108 of the Customs Act, 1962 remain valid evidence when the respondent failed to prove coercion or fraud in recording such statements.

v) Whether the learned Tribunal was justified in holding that no penalty under sections 112(a), 112(b), and 114AA of the Customs Act, 1962 is imposable on the respondent, and whether this finding was perverse given the adjudicating authority's findings and the respondent's role.

vi) Whether the precedents relied upon by the learned Tribunal in deciding issues regarding burden of proof and penalty applicability are applicable to the present facts.

vii) Whether the order dated 12.07.2023 passed by the learned Tribunal is perverse, bad in law, and liable to be set aside.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Justification of the Tribunal's Allowance of Appeal Without Proper Appreciation of Relevant Sections

The relevant legal framework includes sections 111(b), 111(d), 123, 112(a), 112(b), and 114AA of the Customs Act, 1962. Sections 111(b) and 111(d) deal with confiscation of goods and conveyance used in smuggling, section 123 pertains to the burden of proof, and sections 112(a), 112(b), and 114AA prescribe penalties for various customs violations.

The Court noted that the Tribunal allowed the respondent's appeal without fully appreciating the scope and ambit of these statutory provisions. The adjudicating authority had found the goods liable for confiscation and imposed penalties accordingly. However, the Tribunal reversed these findings.

The Court emphasized that proper application of these provisions requires a careful evaluation of the facts and evidence to determine if the seized goods were smuggled and whether penalties are warranted. The Tribunal's failure to do so raised substantial questions of law.

Competing arguments included the respondent's contention that the seized gold was not smuggled and that the penalties were unjustified, while the department argued that the Tribunal ignored statutory mandates and evidence.

The Court concluded that the Tribunal's approach warranted scrutiny to ensure correct legal standards were applied.

Issue (ii): Burden of Proof under Section 123 of the Customs Act

Section 123 places the burden on the person in possession of seized goods to prove that such goods are not smuggled. The Court examined whether the respondent discharged this burden with cogent evidence.

The adjudicating authority had held that the respondent failed to provide sufficient proof, but the Tribunal accepted the respondent's claim. The Court questioned whether the Tribunal correctly applied the burden of proof principle.

The Court highlighted that the burden of proof is a fundamental principle in customs confiscation cases and must be discharged convincingly. The respondent's failure to do so should ordinarily result in confirmation of confiscation.

The Court found that the Tribunal's acceptance without adequate scrutiny of evidence was questionable and required reconsideration.

Issue (iii): Alleged Perversity and Violation of Natural Justice by the Tribunal

The department contended that the Tribunal ignored the outcome of the DRI investigation, which pointed towards smuggling, thereby acting perversely and violating natural justice principles.

The Court observed that ignoring relevant investigative findings without proper reasoning can amount to perversity and breach of natural justice. The Tribunal's failure to consider the DRI report and the role played by the respondent was a serious omission.

The Court stressed that the Tribunal must consider all material evidence, including investigation reports, before arriving at a decision, and failure to do so undermines the fairness and correctness of the order.

Issue (iv): Validity of Statements Recorded under Section 108 of the Customs Act

Statements recorded under section 108 are admissible unless proven to be recorded under coercion or fraud. The respondent did not prove coercion or fraud in recording the statements.

The Court held that the statements should therefore be considered valid evidence. The Tribunal's disregard of such statements without valid reasons was improper.

This principle reinforces the evidentiary value of section 108 statements in customs proceedings unless convincingly challenged.

Issue (v): Justification for Non-Imposition of Penalties under Sections 112(a), 112(b), and 114AA

The adjudicating authority had imposed penalties based on the respondent's involvement and violation of customs laws. The Tribunal, however, held that no penalty was imposable.

The Court analyzed whether the Tribunal's conclusion was perverse in light of the adjudicating authority's findings and the respondent's role.

The Court noted that penalties under these sections are mandatory upon proof of violation unless there are exceptional circumstances. The Tribunal's failure to consider the evidence and findings justifying penalties was a significant legal error.

The Court found that the Tribunal's order on penalties requires reassessment.

Issue (vi): Applicability of Precedents Relied Upon by the Tribunal

The Tribunal relied on certain precedents to support its findings on burden of proof and penalty imposition.

The Court indicated that the applicability of these precedents to the present facts is questionable. The precedents must be carefully examined to ensure factual and legal congruence before being applied.

The Court suggested that the precedents may not be fully applicable given the specific circumstances of this case.

Issue (vii): Whether the Tribunal's Order is Perverse and Bad in Law

Considering the above issues, the Court found that the Tribunal's order dated 12.07.2023 suffers from perversity, failure to apply correct legal principles, and ignoring material evidence.

The Court held that the order is liable to be set aside and requires reconsideration in light of proper legal standards and evidence.

3. SIGNIFICANT HOLDINGS

The Court admitted the appeal on the substantial questions of law raised and stayed the operation of the impugned Tribunal order and related miscellaneous application until further orders.

It was held that the burden of proof under section 123 of the Customs Act lies on the respondent to prove that seized goods are not smuggled, and failure to discharge this burden justifies confiscation.

The Court emphasized that statements recorded under section 108 are valid evidence unless proven to be recorded under coercion or fraud.

The Tribunal's failure to consider the DRI investigation report and the adjudicating authority's findings amounted to perversity and violation of natural justice.

On penalties under sections 112(a), 112(b), and 114AA, the Court held that the Tribunal erred in not imposing penalties despite evidence of violation.

The Court stated: "Ignoring relevant investigative findings without proper reasoning can amount to perversity and breach of natural justice."

Further, the Court directed that the appeal be listed for final hearing, and the miscellaneous applications regarding release of seized gold and currency would be considered at that time.

The directions for release of silver granules and certain gold coins to rightful owners, as previously ordered by the adjudicating authority and affirmed by the Court, were confirmed as complied with.