2025 (6) TMI 1189 - AT - Customs

Absolute confiscation of the 6 kg gold required from the appellant no. 2 3 - imposing of penalty on the appellants - appellant has not submitted any document regarding procurement of gold bars of foreign origin at the time of seizure - whole of the case of the department is on the basis of statement of appellant no. 2 and 3 and which were retracted by the appellants on very first opportunity - HELD THAT - It is found that the statements recorded during the course of investigation cannot be relied upon as an evidence to allege that the appellants have admitted that the gold is of foreign origin. Infact the statement recorded under Section 108 of Customs Act has to be tested as provided under Section 138(B) of the Customs Act 1962 by way of examination in Chief and after the examination in Chief The Adjudicating Authority has to make up his mind that the statements made by the accused are admissible in evidence. The said examination has not been done by the Adjudicating Authority. Moreover the statements recorded during the course of investigation have been retracted before the Session Judge. In that circumstances the statements recorded during the course of investigation are not a piece of evidence to allege that gold in question is of smuggled in nature. From the facts of the case as there is no mentioning of foreign origin on gold having purity of 99.6% and not recovered either at port/airport or international border it is held that the burden under Section 123 of the Act to prove that the gold is not the smuggled one does not lie on the appellant. Further as evidence of GST paid in the gold in question has been produced by the appellant in support of the claim also that goods are not smuggled one has been discharged by the appellant in terms of Section 123 of the Act and Revenue has failed to discharge the onus to prove that gold in question is the smuggled one the gold in question cannot be confiscated. Conclusion - The confiscation of the gold in question is held illegal and the confiscation thereof is set aside - As gold is not liable to confiscation therefore no penalty can be imposed on the appellant .Consequently penalty imposed on the appellant are set aside. The impugned order is set aside - appeal allowed.

The core legal questions considered by the Tribunal in this case include:

1. Whether the gold bars seized from the appellants were of foreign origin and smuggled into India, thereby justifying confiscation under the Customs Act, 1962.

2. Whether the appellants discharged the burden of proof under Section 123 of the Customs Act, 1962, which places the onus on the person in possession of seized goods to prove that the goods are not smuggled.

3. Whether the confessional statements recorded under Section 108 of the Customs Act, 1962, could be relied upon as evidence against the appellants, especially when such statements were retracted.

4. Whether the investigating authorities had reasonable belief at the time of seizure under Section 110 of the Customs Act, 1962, to justify the seizure and subsequent confiscation of the gold.

5. Whether the procedural requirements under Section 110 regarding the seizure, retention, and issuance of show cause notice were complied with by the department.

6. Whether the penalty imposed on the appellants was justified in the absence of sufficient evidence of smuggling.

Issue-wise Detailed Analysis:

1. Whether the seized gold bars were of foreign origin and smuggled:

The legal framework revolves around the Customs Act, 1962, particularly Sections 110, 111, 112, and 123. Section 111 authorizes confiscation of smuggled goods. Section 123 places the burden on the person in possession of seized goods to prove that the goods are not smuggled when seizure is made under reasonable belief that the goods are smuggled.

The appellants produced delivery challans, invoices, stock registers, and GST returns showing payment of tax on the gold bars, asserting the gold was procured domestically from M/s Raj Shree Jewellers and M/s Chandan Enterprises. The Chemical Examiner's report (CRCL) indicated the purity of the gold was 99.6% to 99.8%, lower than the typical 99.9% purity of foreign-origin gold. No foreign markings were found on the gold bars.

The department's case primarily rested on confessional statements recorded under Section 108, wherein the appellants initially admitted the gold was of foreign origin but retracted these statements subsequently. The department failed to produce independent corroborative evidence of smuggling or foreign origin, nor did it investigate or verify the genuineness of the documents submitted by the appellants.

The Tribunal noted that the seized gold was not recovered from any port, airport, or international border, and the appellants had produced GST-paid invoices. The department did not challenge the authenticity of these documents.

Precedents such as the decision in Shanti Lal Mehta v. UOI and Sitaram Sao v. State of Jharkhand were relied upon to emphasize that mere suspicion or uncorroborated confessional statements cannot establish smuggling. The Tribunal held that the department failed to establish reasonable belief supported by concrete evidence that the gold was smuggled.

2. Burden of proof under Section 123 of the Customs Act:

Section 123 applies only when goods are seized under reasonable belief that they are smuggled. The burden then shifts to the person in possession to prove the goods are not smuggled. However, the Tribunal held that the department did not have reasonable belief at the time of seizure because of lack of corroborative evidence.

Several judgments were cited to clarify that the burden does not shift unless the department discharges its initial burden of proving reasonable belief. The Tribunal observed that since the seized gold lacked foreign markings and had purity inconsistent with foreign gold, Section 123 did not apply. The appellants' documentary evidence was sufficient to discharge their burden.

3. Reliance on confessional statements under Section 108:

The Tribunal analyzed the evidentiary value of statements recorded under Section 108 of the Customs Act. It held that such statements require independent corroboration and must be voluntary. The appellants had retracted their statements at the earliest opportunity, claiming they were recorded under duress.

Precedents such as Vinod Solanki v. Union of India and Mohtesham Mohd. Ismail v. Spl. Director were cited to emphasize that confessions obtained under coercion lack evidentiary value. The Tribunal found no corroborative evidence to support the confessions and held that the statements could not be the sole basis for confiscation.

4. Reasonable belief at the time of seizure under Section 110:

The Tribunal examined whether the officers had reasonable belief at the time of seizure that the gold was liable to confiscation. It relied on the Supreme Court's interpretation in Charan Dass Malhotra and Shanti Lal Mehta cases, which require that reasonable belief must be based on objective material and exist prior to seizure.

The Tribunal found that the department's belief was speculative and based on suspicion rather than concrete evidence. It noted that the officers failed to investigate the documents produced by the appellants or verify the source of the gold. The absence of foreign markings and the purity test results further weakened the department's claim.

5. Compliance with procedural requirements under Section 110:

The Tribunal referred to the requirement under Section 110(2) that if a show cause notice is not issued within six months (or extended period) of seizure, the goods must be returned. Although the facts did not indicate any delay in issuance of the notice, the Tribunal emphasized the importance of adherence to procedural safeguards to protect property rights.

6. Imposition of penalty:

Since the Tribunal held that the gold was not smuggled and confiscation was illegal, it followed that penalties imposed under Section 112 were also unjustified. The penalty was set aside accordingly.

Treatment of competing arguments:

The department relied heavily on the initial confessional statements and intelligence inputs about smuggling routes. It contended that absence of documents at the time of seizure and the mode of carriage indicated smuggling. The appellants countered with documentary evidence of legitimate purchase and payment of GST, retraction of confessions, and lack of foreign markings or purity consistent with foreign gold.

The Tribunal favored the appellants' arguments, emphasizing the need for corroborative evidence beyond mere suspicion or retracted confessions. It criticized the department's failure to verify documents or investigate the source of gold thoroughly.

Significant holdings:

"The appellants have discharged their burden under Section 123 of the Customs Act, 1962 by producing evidence of GST payment, invoices, delivery challans, and stock registers. The onus now shifts to the Revenue to prove that the gold is smuggled and of foreign origin, which the Revenue has failed to do."

"The statements recorded under Section 108 of the Customs Act cannot be relied upon as evidence against the appellants in the absence of independent corroboration and when such statements have been retracted by the appellants at the earliest opportunity."

"Reasonable belief under Section 110 of the Customs Act must exist at the time of seizure and be based on objective material. In the present case, the department's belief was speculative and unsupported by evidence."

"The confiscation of the gold bars is illegal and set aside. Consequently, penalties imposed are also set aside."

"The absence of foreign markings and purity below 99.9% negates the presumption that the gold is of foreign origin and smuggled."

"The department's failure to investigate the authenticity of documents produced by the appellants and reliance solely on confessional statements recorded under duress vitiates the proceedings."

"The burden under Section 123 of the Customs Act does not shift to the appellants in the absence of reasonable belief by the department."

"Confessional statements made before customs officers under duress cannot form the basis of conviction or confiscation without corroborative evidence."

"The procedural safeguards under Section 110 regarding seizure and retention of goods must be strictly complied with to protect the property rights of individuals."

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