The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside the confiscation of 100 grams of gold in the form of a kada/bangle and the penalty imposed on the appellant, holding that mere purity of gold coupled with transportation through a domestic courier, without additional incriminating material, was insufficient to sustain a finding that the gold was smuggled.

The Single Member Bench comprising Angad Prasad (Judicial Member) has observed that transportation through a domestic courier for stated job-work purposes could not, without further incriminating material, automatically be equated with physical concealment designed to avoid detection.

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The case concerned 100 grams of gold in the form of a kada/bangle. The appellant, Manik Chand Soni, claimed that the gold had been manufactured from gold lawfully purchased from domestic dealers.

The Customs Department, however, treated the gold as being of foreign or smuggled origin and consequently ordered its confiscation and imposed a penalty on the appellant.

The appellant maintained that he was a registered manufacturer and that the gold had been purchased from registered domestic dealers under tax invoices. According to the submissions recorded by the Tribunal, the transactions were reflected in the books of account and GST records, and the article was being transported for job-work.

The appellant also pointed out that the seized article did not bear any foreign marking and argued that the purity of the gold, by itself, could not establish foreign or smuggled origin.

The dispute had previously reached CESTAT.

The Tribunal had taken note of the appellant’s reliance on purchase invoices issued by M/s Augmount Enterprises Pvt. Ltd., Hyderabad and M/s Preeti Jewellers, Secunderabad.

The appellant’s case was that 999-purity gold purchased under those invoices had been used in manufacturing the seized kada/bangle.

The Tribunal had found that the adjudicating authority as well as the Commissioner (Appeals) had not properly examined or verified this documentary evidence. The matter was consequently remanded for fresh adjudication after examining the invoices and related evidence. The earlier order had not expressed a final view on the merits of the dispute.

This verification became significant in the subsequent proceedings because the appellant’s defence was based not merely on a general assertion of domestic purchase but on specific suppliers and identified tax invoices.

During the fresh proceedings, the Department relied upon Section 123 of the Customs Act, 1962, which contains a reverse burden provision in respect of notified goods seized on the reasonable belief that they are smuggled.

The Department also relied upon the judgment of the Calcutta High Court in Commissioner of Customs (Preventive), Kolkata v. Shri Anil Kumar Soni & Shri Anil Kumar Goud, CUSTA Nos. 30 & 31 of 2025, decided on March 31, 2026.

According to the Department’s submissions, the absence of foreign markings was not conclusive and once the statutory requirement of reasonable belief was satisfied, the burden would fall upon the person from whom the notified goods were seized to establish their lawful acquisition.

The principal issue before the Hyderabad Bench was whether the Department had established the foundational circumstances necessary for invoking the reverse burden under Section 123 and, if so, whether the appellant had satisfactorily discharged that burden.

The Tribunal considered the Calcutta High Court’s ruling and accepted the principle that a seizure taking place in an inland or town area does not, by itself, prevent the operation of Section 123.

The Tribunal noted that the test of reasonable belief has to be applied on the basis of the cumulative circumstances. It also acknowledged that the absence of foreign markings does not, by itself, rule out a reasonable belief that gold is of smuggled origin.

However, the Hyderabad Bench emphasised an important qualification: reasonable belief must be founded on tangible material and the totality of surrounding circumstances and cannot rest merely on suspicion.

The Bench closely examined the factual circumstances in the Calcutta High Court case relied upon by the Department.

In that matter, the High Court had considered circumstances including gold weighing approximately two kilograms being carried in a specially stitched waist belt beneath the carrier’s clothes. The courier had also made statements under Section 108 admitting foreign origin, while the purity of the gold was found to be around 99.5–99.6%.

The explanation that the gold had been obtained by melting old ornaments was also unsupported by refinery or melting records.

The Hyderabad Bench held that the facts before it were materially different.

Here, the disputed goods were a 100-gram gold kada/bangle, rather than unmarked bullion bars concealed on a person’s body. The article was being transported through a domestic courier along with other jewellery/gold articles.

More importantly, the appellant had disclosed the claimed source of the gold from the investigation stage itself and produced purchase invoices from identified domestic suppliers.

A significant distinction drawn by the Tribunal concerned the purity of the source gold.

The appellant’s case was not that 22-carat old jewellery had subsequently been converted into high-purity bullion. Instead, the appellant specifically claimed that 999-purity gold itself had been purchased from domestic suppliers under GST invoices.

The Tribunal observed that this factual distinction was important because the evidentiary gap identified by the Calcutta High Court—conversion of claimed 22-carat jewellery into 99.5–99.6% bullion—did not arise in the same manner in the present case.

If the invoices genuinely related to 999-purity gold and the purchases were genuine and accounted for, there was no unexplained conversion of 22-carat scrap into 24-carat bullion of the kind that had weighed with the Calcutta High Court.

The Tribunal made an important observation on the application of Section 123.

While acknowledging that Section 123 places a reverse burden upon the claimant once the statutory conditions are met, the Bench held that the provision does not permit confiscation on the basis of a presumption upon a presumption.

According to the Tribunal, there must first be material capable of supporting the statutory “reasonable belief”. Once that foundation exists, the explanation and evidence produced by the claimant must then be objectively evaluated.

The Tribunal therefore rejected both extremes.

On one hand, the appellant’s proposition that the absence of foreign markings automatically excludes Section 123 could not be accepted in view of the Calcutta High Court judgment.

On the other hand, the Tribunal held that every piece of high-purity gold found inland cannot automatically be presumed to be smuggled merely because gold is a notified commodity.

Instead, the decision must be based on the cumulative evidence, including: manner of carriage; nature of the article; statements recorded during investigation; documentary provenance; accounting trail; and surrounding circumstances.

The Tribunal placed considerable emphasis on the fact that the appellant had identified specific domestic suppliers and produced specific tax invoices.

The Tribunal further held that where objectively verifiable documents are produced, the adjudicating authority is required to examine their genuineness and nexus with the transaction, rather than rejecting them merely because the appellant was unable to establish the complete historical movement of every gram of gold.

The Tribunal also clarified the nature of the burden imposed under Section 123.

The Bench acknowledged that the burden on the claimant is stringent but held that it is capable of being discharged on the basis of preponderance of probability supported by reliable documentary and circumstantial evidence.

Importantly, the Tribunal observed that a jewellery manufacturer cannot necessarily be required to establish an impossible, uninterrupted physical identity of fungible gold from the point of purchase through every stage of manufacture, unless the particular circumstances reasonably require such proof.

The Tribunal also explained that the Calcutta High Court judgment did not dispense with examination of documentary evidence. In that case, the documents were found inadequate because they did not bridge the factual and scientific gap between the claimed old jewellery and the seized high-purity bullion.

The Bench found that the circumstances supporting confiscation in the Calcutta High Court matter were absent.

The Tribunal noted the absence of foreign inscriptions or markings on the article; physical concealment comparable to the specially stitched waist belt in the Calcutta case; an incriminating admission regarding foreign origin; a finding that the purchase invoices were false or fabricated; and other reliable material linking the seized gold to smuggled gold.

The Bench accordingly held that mere purity of gold coupled with transportation through a domestic courier was insufficient to sustain the conclusion that the gold was smuggled.

The Tribunal held that the appellant’s documentary explanation regarding domestic acquisition could not be rejected merely on conjecture.

The findings sustaining confiscation and penalty were therefore held to be unsustainable.

The impugned order, insofar as it related to the appellant, was set aside. The confiscation of the 100 grams of gold/kada-bangle and the penalty imposed upon the appellant were also set aside.

The appeal was accordingly allowed with consequential relief, if any, in accordance with law.

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