No Evidence of Knowledge U/s 112(b)(i): CESTAT Quashes Penalty for Alleged Handling of Smuggled Gold

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Delhi has set aside the penalty imposed on Pawan Soni, holding that customs authorities failed to establish the essential legal requirement of knowledge or reason to believe that the gold jewellery kept at his premises was of smuggled origin. The bench of Justice Dilip Gupta (President) and Ms. Hemambika R. Priya (Technical Member) concluded that the Commissioner of Customs (Preventive), New Delhi had imposed the penalty “perversely,” without any evidence to substantiate that Soni knew the goods were liable to confiscation under the Customs Act and overturned the Rs. 5 lakh penalty earlier imposed under Section 112(b)(i) of the Customs Act, 1962. The case stemmed from a Directorate of Revenue Intelligence (DRI) operation on January 19, 2023, when two individuals—Manish Kumar and Naresh Kumar—were intercepted at Hazrat Nizamuddin Railway Station.Search operations yielded 12 gold bars weighing 12,000 grams and Indian currency exceeding ₹2.3 lakh, all seized on suspicion of being smuggled. Statements recorded under Section 108 of the Customs Act revealed that the duo were allegedly couriers for Bharat Shantilal Shah of Mahalaxmi Chains & Jewellery, Mumbai. Manish Kumar stated that he regularly delivered gold jewellery to M/s Bikaner Jewellers, where Soni was present during the subsequent search. Following these disclosures, DRI officers searched the premises of M/s Bikaner Jewellers, where Soni was present. The search led to Gold jewellery: 11,224.4 grams, Gold cut pieces: 2,818.5 grams, Additional jewellery (6,730 grams) detained for verification and ₹1,60,000 in cash Soni immediately informed officers that the jewellery belonged to Bharat Shantilal Shah, who had left the bags at the shop temporarily as he had to rush back to Mumbai for personal reasons. This explanation was recorded in the panchnama. Shah’s statements—recorded on multiple dates—fully corroborated Soni’s version, affirming that the bags belonged to him, were kept only for safekeeping, and that Soni was unaware of the contents. The jewellery belonging to Bikaner Jewellers itself was later released after verification. A show cause notice issued on July 17, 2023 accused Soni of knowingly handling jewellery made from smuggled gold. Customs authorities argued that Soni “gave consent” for storage of the gold and he allegedly did so without asking for documents. Hence, he acted in a manner attracting penalty under Section 112(b)(i). The appellant rebutted the allegations, emphasizing that he acted only as a favour for a long-time business associate, he lacked knowledge of the bag’s contents, and the law requires knowledge or reason to believe that goods are smuggled—a condition not met in this case. CESTAT found that the Commissioner’s conclusions were unsupported by evidence. The Tribunal held that both Soni’s and Shah’s statements were consistent and uncontroverted. There was “nothing on record” showing Soni knew the jewellery was made from smuggled gold. The Tribunal had already ruled that Shah possessed valid invoices establishing the legitimate origin of the jewellery. After this finding, the allegation that the jewellery was smuggled could not survive. Penalty requires proving knowledge. The Tribunal emphasized, “Mens rea is relevant for imposing penalty under Section 112(b)(i). The essential ingredients were not satisfied.” The adjudicating authority, the Bench held, ignored key facts, including recorded statements, long-standing supplier relationship, and absence of any contradictory evidence. The Tribunal ruled, “The imposition of penalty under Section 112(b)(i) cannot be sustained.” The ₹5 lakh penalty was set aside, and the appeal allowed in full. Case Details Case Title: Pawan Soni Versus Commissioner of Customs Case No.: Customs Appeal No. 52265 Of 2024 Date: 08.12.2025 Counsel For Appellant: Premendra Ojha Counsel For Respondent: Gurdeep Singh, Special Counsel Click Here To Read Order Read More: Bombay HC Frowns On Customs Officials for Not Issuing Speaking Order; Imposes Rs. 25,000 Cost

No Evidence of Knowledge U/s 112(b)(i): CESTAT Quashes Penalty for Alleged Handling of Smuggled Gold

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