The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, has held that discrepancies concerning an e-way bill or failure to produce an invoice at the time of interception cannot, without further evidence, establish that gold was illegally imported into India.

The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical  Member) observed that such discrepancies may warrant examination under the GST law, but they cannot justify confiscation under the Customs Act, 1962, unless the Customs Department produces evidence showing the foreign origin and smuggled character of the seized gold.

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The dispute concerned gold claimed by the appellant proprietor of Jaimatha Mahalakshmi Jewellers. He stated that 2,000.940 grams of gold had been purchased on credit from Abhaya Gold Buyers Private Limited, Bengaluru, under a tax invoice dated March 17, 2023.

According to the claimant, the gold was sent to Chennai for conversion into ornaments and was seized while being transported back.

The original adjudicating authority had absolutely confiscated the gold under Sections 111(d) and 111(o) of the Customs Act. The packing material was confiscated under Section 119, while a penalty of ₹12 lakh was imposed upon the claimant under Sections 112(a) and 112(b). Penalties were also imposed upon the carrier and other connected persons.

The Commissioner (Appeals), however, examined the FASTag records, purchase invoice, banking transactions, retractions of statements and other evidence before setting aside the adjudication order in its entirety. The Customs Department challenged that decision before the CESTAT.

The Revenue argued that gold is a notified commodity under Section 123 of the Customs Act and that the burden of proving its lawful acquisition rested upon the person from whose possession it was seized or the person claiming ownership.

It contended that the purchase documents were not produced at the time of interception and that the gold was being carried without proper transport documents or an e-way bill. The Department further relied upon the initial statements recorded under Section 108 of the Customs Act, which allegedly disclosed that the gold had been illicitly purchased in Chennai.

The Revenue claimed that the subsequent retractions and the production of the purchase invoice were afterthoughts.

Rejecting these contentions, the Tribunal held that the presumption under Section 123 does not arise merely because the seized goods are gold. The seizure must be based upon a reasonable belief, supported by objective material, that the particular goods are smuggled.

The Bench said such belief cannot be founded merely upon the purity of the gold, the absence of documents at the exact moment of interception or the fact that the goods were being transported in a private vehicle.

In the present case, the Tribunal noted that the gold was seized within the country and consisted of irregular, re-melted pieces. It did not bear any recognised foreign refinery inscription, overseas mint marking or serial number capable of identifying it as imported gold.

The Department also failed to produce evidence concerning the alleged country of origin, the point or mode of illegal importation, the Customs frontier through which the gold entered India, the foreign supplier, the smuggler or any person allegedly responsible for its importation.

“Purity of gold, by itself, does not establish foreign-origin or smuggled character,” the Tribunal observed.

The Bench also found material discrepancies between the seizure proceedings recorded in the panchnama and the contemporaneous FASTag data concerning the vehicle’s movement.

The panchnama stated that the vehicle was intercepted at around 6.20 pm on March 20, 2023, and that the proceedings at Vijayawada were completed by 12.30 am. However, the FASTag records showed that the vehicle crossed the Tanguturu toll plaza only at approximately 1.22 am on March 21, 2023.

According to the Tribunal, the time and place of interception were not peripheral details but formed part of the very foundation of the seizure. Once those foundational particulars were contradicted by contemporaneous electronic records, the panchnama could not be accepted at face value without cogent corroboration.

The Tribunal noted that the Revenue failed to satisfactorily reconcile the FASTag data with the contents of the panchnama. The argument that both places were within the territorial jurisdiction of the officers did not address the serious discrepancy regarding where and when the vehicle was actually intercepted.

Addressing the statements recorded under Section 108 of the Customs Act, the Bench clarified that although such statements are admissible and may constitute relevant evidence, admissibility and reliability are distinct considerations.

The statements in the present case were retracted in writing within a reasonably proximate period. It was alleged that signatures had been obtained under coercion on stereotyped English formats without supplying copies to the persons concerned.

More importantly, the alleged account of purchasing smuggled gold from an unidentified person in Chennai was not corroborated by the recovery of purchase money, identification of the supposed supplier, communications with that supplier or any evidence tracing the seized gold to an illicit import.

Referring to the Supreme Court’s decision in Vinod Solanki v. Union of India, the Tribunal said that a retracted confession must be examined in light of the surrounding circumstances and corroborative evidence.

It clarified that the principle laid down in Naresh J. Sukhawani v. Union of India does not eliminate the need to scrutinise the voluntariness and reliability of a statement. Nor does it make every retracted statement conclusive regardless of the surrounding evidence.

The Tribunal consequently held that the retracted statements did not have sufficient independent corroboration to sustain the absolute confiscation of the gold or the substantial penalties imposed by the adjudicating authority.

The Bench further noted that the claimant asserted ownership shortly after the seizure and produced a tax invoice predating the interception. The invoice covered 2,000.940 grams of gold purchased from the Bengaluru supplier. The supplier confirmed the transaction, and the payments were shown to have been made through regular banking channels.

The Tribunal rejected the Department’s objection that the purchase was made on credit and that part of the consideration was paid subsequently. It held that a credit purchase or subsequent payment does not, by itself, make a transaction fictitious. The seizure of the goods soon after their purchase also reasonably explained why the payment was made later.

“Discrepancies regarding generation of e-way bill or non-production of invoice at the very moment of interception may invite examination under the applicability of GST law, but they cannot, without further evidence, prove illicit importation or justify confiscation under the Customs Act,” the Bench ruled.

The Tribunal added that even if Section 123 were treated as applicable, the claimant had produced affirmative evidence of domestic acquisition in the form of a contemporaneous tax invoice, confirmation from the supplier and banking transactions.

The Revenue did not establish that the invoice was forged, that the supplier was fictitious, that the payments were circular transactions or that the quantity and description mentioned in the invoice could not be correlated with the seized gold. The Commissioner (Appeals), therefore, correctly concluded that the claimant had discharged the statutory burden.

The Tribunal also found merit in the grievance concerning denial of cross-examination. The adjudicating authority relied upon the statements and the panchnama despite specific objections regarding their voluntariness, preparation and accuracy.

The Bench observed that where statements are sought to be treated as substantive evidence against a noticee, the safeguards contained in Section 138B of the Customs Act ordinarily cannot be bypassed.

Relying upon the Supreme Court’s ruling in Andaman Timber Industries v. Commissioner of Central Excise, the Tribunal reiterated that denying cross-examination of witnesses whose statements form the basis of an adverse order constitutes a serious violation of natural justice.

The denial of cross-examination, the unexplained contradictions in the panchnama and the absence of independent evidence establishing the foreign origin of the gold had materially prejudiced the claimant, the Bench concluded.

The Tribunal further held that Section 111(d) applies only where goods are imported or attempted to be imported contrary to a prohibition imposed by law. Since the foundational fact of illicit importation was not established, the provision could not be invoked.

Similarly, Section 111(o) applies to the breach of a condition subject to which an exemption from duty or prohibition was granted in respect of imported goods. In the present case, neither the show-cause notice nor the adjudication order identified the importer, import documents, relevant exemption or the condition allegedly breached.

Since the gold was not proved to be liable to confiscation, the consequential penalties under Sections 112(a) and 112(b) could not survive. The Tribunal added that merely carrying gold at the owner’s direction, without proof of its smuggled character or conscious involvement in smuggling, was insufficient to impose a penalty.

Finding no infirmity in the Commissioner (Appeals)’s order, the CESTAT dismissed the Department’s appeal.

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