The Calcutta High Court has held that gold imported in violation of restrictions imposed under the Reserve Bank of India framework and other applicable laws qualifies as “prohibited goods” under the Customs Act, 1962, even if gold has not been absolutely prohibited through a notification issued under Section 11 of the Act.
The Bench of Justice Debangsu Basak and Justice Aryak Dutt consequently upheld the confiscation of 36.856 kilograms of smuggled gold valued at ₹10.07 crore and restored penalties of ₹10.07 crore each imposed upon two persons alleged to be the mastermind and principal accomplice behind the smuggling operation.
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The Bench allowed the appeals filed by the Customs Department and set aside an earlier Single Bench ruling which had concluded that gold was not prohibited goods. The appeals filed by the two individuals challenging the penalties were dismissed.
The dispute arose from an operation conducted by the Directorate of Revenue Intelligence on April 8, 2013. Acting on specific intelligence, DRI officers intercepted nine persons and seized 272 pieces of gold weighing 36.856 kilograms, along with other articles and documents.
Statements of the intercepted persons were recorded under Section 108 of the Customs Act. According to the Department, they identified accused as the prospective recipient of the gold. At least four persons reportedly stated that they had received portions of the seized gold from Ajgar Seikh.
The DRI also examined subscriber details and call detail records relating to the mobile phones used by the intercepted persons and the two alleged organisers. On the basis of the statements and telephone records, the agency concluded that the gold had been smuggled into India through an unauthorised land route along the Indo-Bangladesh border.
The Department alleged that the nine carriers had collected the gold from Ajgar Seikh and were supposed to deliver it to accused. It described Saha as the mastermind and Seikh as his accomplice.
Following the investigation, the DRI issued a show-cause notice dated October 3, 2013 under Section 124 of the Customs Act. After considering the replies and granting personal hearings, the Commissioner of Customs (Preventive), Kolkata passed an adjudication order on November 24, 2015.
The Commissioner ordered absolute confiscation of the gold under Section 111(b) and imposed penalties of ₹10.07 crore each upon the two alleged organisers under Section 112. Penalties were also imposed upon the other nine persons involved in carrying the gold.
Instead of pursuing the statutory appellate remedy available under Section 129A, the two persons approached the High Court under Article 226 of the Constitution. Although they initially challenged the constitutional validity of Section 129E, that challenge was subsequently abandoned.
Their principal contention was that gold could not be regarded as prohibited goods because no notification issued under Section 11 of the Customs Act absolutely prohibited its import. It was argued that gold was merely a dutiable item and that the higher penalty applicable to prohibited goods under Section 112(i) could not be imposed.
They also contended that the adjudicating authority had failed to specify whether the penalty was imposed under clause (a) or clause (b) of Section 112. Since those clauses covered different forms of conduct, it was argued that the failure to identify the applicable clause constituted a jurisdictional error.
It was further submitted that he was only alleged to be the intended recipient of the gold. As the seized gold never reached him, he could not be said to have acquired possession of or dealt with it. It was therefore argued that the statutory conditions for imposing a penalty under Section 112 were absent.
The Customs Department maintained that import of gold into India was highly regulated by the Foreign Trade Policy and RBI circulars. Bulk import was permitted only through nominated banks, authorised agencies or eligible business entities, while import by passengers was governed by the applicable Baggage Rules.
According to the Department, goods brought into India through an unauthorised route to evade revenue and avoid statutory requirements constituted smuggled goods. Gold imported contrary to the restrictions imposed under the Customs Act or any other applicable law consequently fell within the definition of prohibited goods under Section 2(33).
The Division Bench accepted the Department’s interpretation. It observed that Section 2(33) was not confined to goods prohibited through notifications issued under Section 11 of the Customs Act. The definition expressly covered goods whose import or export was subject to a prohibition under the Customs Act “or any other law for the time being in force”.
The High Court explained that a product may fall within the definition of prohibited goods even though the Central Government has not issued a specific prohibition concerning it under Section 11. Restrictions imposed under other applicable laws must also be considered while determining its status.
The Bench noted that bulk import of gold was governed by RBI circulars and notifications, while its import by passengers was controlled by the Baggage Rules. Neither of the two persons proceeded against by Customs was an agency authorised by the RBI to import gold in bulk. Nor was it their case that they were passengers carrying gold through a recognised port of entry under the Baggage Rules.
The Court held that the relevant test was whether the seized goods were covered by a prohibition imposed under Section 11 of the Customs Act or under any other law in force. Where either form of prohibition applied, Customs authorities were required to treat the goods as prohibited goods and proceed accordingly.
“One of the objectives, if not the predominant objective,” of the Customs Act was to ring-fence domestic trade and commerce against unauthorised entry and removal of goods, the Bench observed while interpreting the statutory scheme.
The Court further explained that Section 112 prescribed different levels of penalty for prohibited goods and for dutiable goods other than prohibited goods. In the case of prohibited goods, the penalty may extend to the value of the goods or ₹5,000, whichever is greater. The permissible penalty for dutiable goods other than prohibited goods is substantially lower.
Since the seized gold satisfied the definition of prohibited goods under Section 2(33), the Commissioner was entitled to impose the penalty applicable under Section 112(i), the Court held.
Rejecting the argument that the adjudication order was defective because it did not expressly identify the precise part of Section 112, the Bench said that quoting a wrong statutory provision—or failing to state it with precision—would not invalidate an order where the authority possessed the substantive power to pass it.
The Court found that the Commissioner’s order was a speaking order which clearly treated the seized gold as prohibited goods and imposed the corresponding penalty. The adjudicating authority therefore had jurisdiction to invoke Section 112(i).
The High Court also reiterated that, while exercising writ jurisdiction, it examines the decision-making process rather than functioning as an appellate authority to reassess evidence. A writ petition may be entertained despite an alternative statutory remedy in recognised situations such as violation of fundamental rights, breach of natural justice, lack of jurisdiction or perversity. Those grounds, however, did not justify interference with the Commissioner’s order in the present case.
The Division Bench accordingly held that gold imported contrary to the governing restrictions was prohibited goods within the meaning of the Customs Act and that the Commissioner had correctly imposed the higher penalties applicable to such goods.
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