The Madhya Pradesh High Court at Indore has admitted an appeal challenging an order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) concerning the absolute confiscation of gold and imposition of penal liability under the Customs Act, 1962. 

The Bench of Justice Subodh Abhyankar and Justice Alok Awasthi has framed eight substantial questions of law, including whether confiscation and penalty could be sustained primarily on the basis of a retracted statement recorded under Section 108 without complying with the mandatory requirements of Section 138B of the Customs Act.

The Court admitted the matter after identifying substantial questions concerning the evidentiary value of statements recorded by Customs authorities, the requirement of examination-in-chief and corroboration, the standard of proof in adjudication proceedings, the determination of foreign origin of gold, the right to cross-examination and the binding effect of judicial precedents.

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Challenge to Reliance on Retracted Statement

One of the principal questions before the High Court is whether the Tribunal was legally justified in confirming absolute confiscation and penalty under Section 112(b)(i) of the Customs Act, 1962, by relying upon a statement recorded under Section 108 which was subsequently retracted.

The Court has specifically questioned whether the Tribunal could rely on such a statement while allegedly bypassing the statutory requirements of Section 138B, which governs the admissibility and evidentiary use of statements made and signed before Customs officers.

The substantial question framed by the Court focuses on whether Section 138B requires examination-in-chief and corroborative evaluation of the evidence before such statements can form the foundation for adverse adjudication.

The issue is significant because the appeal raises a broader question concerning the evidentiary safeguards applicable in Customs adjudication proceedings. The High Court has therefore called into question whether a retracted statement can, by itself or without the statutory procedure contemplated under Section 138B, sustain confiscation and penal consequences.

‘Preponderance of Probability’ Cannot Override Statutory Safeguards?

The High Court has also questioned the approach of the adjudicating authority and CESTAT in treating the proceedings as governed by the “preponderance of probability” standard.

The Court has framed a specific question as to whether reliance on this standard can effectively circumvent the requirements of Section 138B and dilute the safeguards associated with fair adjudication. It has also questioned whether the Tribunal could disregard precedents cited before it concerning the specific application of Section 138B.

The question places the evidentiary standard applicable to Customs adjudication alongside the statutory safeguards governing the use of statements recorded during investigation. The High Court will consequently examine whether the principle of preponderance of probabilities can be applied in a manner that renders a mandatory statutory procedure ineffective.

High Court Questions Proof of Foreign Origin of Gold

Another important issue concerns the evidence relied upon to establish that the seized gold was of foreign origin.

The Court has questioned whether the subjective opinion of a local commercial dealer acting as a Government Approved Assayer can constitute conclusive legal proof of the geographical origin of gold, particularly where the gold bars were allegedly unmarked and did not carry foreign markings or foreign manufacturers’ bar codes.

The question assumes importance because the appeal challenges the evidentiary basis for treating the gold as smuggled or foreign-origin material. According to the substantial question framed by the Court, the assayer’s technical expertise may have extended to testing the purity of gold, while the appellant disputes the evidentiary basis for extending that opinion to the geographical origin of the metal.

The High Court will therefore consider whether an assayer’s opinion concerning foreign origin, in the circumstances of the case, can be treated as sufficient legal proof in the absence of physical indicators such as foreign markings or manufacturer bar codes.

Tribunal’s Own Precedents and Judicial Discipline

The High Court has further questioned whether CESTAT failed to follow its own earlier decisions on the issues involved.

One of the substantial questions specifically asks whether the impugned Tribunal order was inconsistent with orders previously passed by CESTAT and whether the Tribunal thereby disregarded the principle of judicial discipline and the binding nature of its own precedents.

The issue becomes particularly relevant where coordinate benches have previously considered similar questions relating to the evidentiary requirements under the Customs Act. The appellant has contended that the Tribunal did not adequately consider the earlier decisions relied upon during the proceedings.

Cross-Examination and Natural Justice at the Heart of Dispute

The appeal also raises a significant natural justice issue concerning the denial of cross-examination.

The High Court has framed a question on whether denial of the appellant’s right to cross-examine critical departmental officers and the private assayer, whose assertions allegedly constituted the principal basis of the case, rendered the adjudication proceedings contrary to principles of natural justice.

The Court has further questioned whether there was sufficient evidence on record to establish the allegation that the gold bars were smuggled.

This issue places procedural fairness at the centre of the appeal. The appellant’s case, as reflected in the substantial questions framed by the Court, is that where the statements or opinions of particular witnesses form the foundation of the adverse finding, denial of an opportunity to test such evidence through cross-examination could materially affect the validity of the adjudication.

Reliance on Supreme Court and High Court Precedents

The High Court has also questioned whether CESTAT failed to follow judgments of the High Court and Supreme Court concerning the issues raised in the appeal.

The order specifically refers to the decision in Union of India v. Imtiaz Iqbal Pothiawala, reported in 2019 (365) E.L.T. 167, which was stated to have been relied upon before the Tribunal. The High Court has also noted the appellant’s contention that the departmental appeal against that decision was subsequently dismissed by the Supreme Court.

The question before the High Court is consequently not limited to the evidentiary merits of the individual case. It also concerns the obligation of the Tribunal to consider and follow applicable judicial precedents when deciding an issue that has already been addressed by higher courts.

Sale and Disposal of Seized Gold Before Adjudication

A further substantial question concerns the alleged disposal of the seized gold before the adjudication order was passed.

The High Court has questioned whether the Customs officers could have sold the gold and disposed of the seized material before completion of adjudication. The appellant has relied upon the Bombay High Court decision in Leyla Mohmoodi v. Additional Commissioner of Customs, reported in (2023) 13 Centax 291 (Bom.), in support of the challenge.

The issue raises questions about the legal consequences of disposing of seized goods before the adjudication process reaches its conclusion, particularly where the seized material may subsequently become relevant to the determination of the dispute.

Dispute Over Evidence of Licit Acquisition

The eighth substantial question concerns the evidence allegedly produced by the appellant to demonstrate the licit acquisition of the gold bars.

The High Court has questioned whether CESTAT, while acting as the final fact-finding authority, adopted the correct procedure before discarding what the appellant described as unimpeachable evidence showing that the gold bars had been lawfully acquired from melted ornaments.

The appellant’s case, as recorded in the order, is that gold is freely saleable and tradeable in the open market and that the appellant was engaged in the business of dealing and trading in gold and other precious metals.

The question therefore involves both the evidentiary burden surrounding the alleged illicit nature of the gold and the manner in which the Tribunal evaluated the appellant’s explanation and supporting evidence.

No Coercive Action Against Appellant

After admitting the appeal, the High Court issued notice to the respondents. Shri Prasanna Prasad, Advocate, appeared for the respondent and accepted notice. The Court granted six weeks for filing a reply, if necessary.

As an interim measure, the Bench directed that no coercive action be taken against the appellant. The matter has been directed to be listed after six weeks.

Eight Questions Could Have Wider Implications for Customs Adjudication

The High Court’s decision to admit the appeal is significant because the questions framed extend beyond the individual dispute over the seized gold. The Court will examine the relationship between the evidentiary standard applicable to Customs adjudication and the statutory safeguards governing statements recorded under the Customs Act.

The appeal also raises questions about the evidentiary value of expert or assayer opinions on the foreign origin of gold, the right of an assessee to cross-examine persons whose evidence forms the basis of an adverse order, the treatment of retracted statements, and the obligation of CESTAT to adhere to binding judicial precedents.

At this stage, the High Court has only admitted the appeal and framed substantial questions of law. It has not finally ruled on the legality of the confiscation, penalty, the alleged foreign origin of the gold, or the evidentiary issues raised by the appellant. The final determination will follow after the respondents file their response and the appeal is heard on merits.

The petitioner was represented by Dr. Sujay Kantawala, through VC alongwith Shri Ankur Upadhyay.

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