DRI Failed to Prove Smuggling: CESTAT Quashes Penalties in Gold Seizure Case

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has quashed penalties imposed on two individuals accused of transporting 12kg of alleged smuggled gold. The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed that the Directorate of Revenue Intelligence (DRI) failed to establish that the gold was smuggled or that the individuals had any prior connection with its importation. The case originated on January 19, 2023, when DRI officers intercepted two persons arriving in Delhi from Chennai by train. A search led to recovery of 12 gold bars weighing 12kg, each bearing foreign markings, along with cash totalling over ₹2.3 lakh. Their statements, recorded under Section 108 of the Customs Act, allegedly indicated that they were carrying the gold on behalf of another individual in exchange for commission. However, both men later retracted these statements while in judicial custody, asserting they were obtained under coercion and did not reflect the true facts. In response to the show-cause notice issued in July 2023, the individuals explained that the gold was not smuggled but belonged to a Jaipur-based jeweller who had given it for job-work. They claimed that the gold originally came from M/s B.S. Brothers & Industries, Jaipur. The owner, who was ill and later passed away, had executed a will directing that the bars be returned to his brother. A Chennai-based intermediary had summoned the carriers solely to return the gold and accompanying cash to the rightful inheritor. The carriers were given a job-work issue order and a letter explaining the circumstances. The appellants argued these documents demonstrated licit possession of the gold. Despite these submissions, the Commissioner concluded in June 2024 that the gold was of foreign origin. The owners and carriers failed to produce legitimate import documents. The carriers knowingly transported smuggled gold. The seized cash represented “monetary consideration” for the transport of smuggled goods. Penalties were imposed under Section 112(b)(i), and the gold and cash were ordered to be confiscated. The Tribunal relied on Supreme Court precedent (Radha Kishan Bhatia v. Union of India) to emphasise that mere possession of foreign-marked gold cannot establish smuggling. The department must prove how and when the goods were illegally imported, not merely that they were found in someone's possession. The Commissioner invoked the reverse burden provision under Section 123 to claim the carriers must prove the gold was not smuggled.However, the Tribunal held that Section 123 applies only to the owner of the goods. Since the department itself could not establish ownership, the burden could not be shifted to the appellants. The tribunal held that the person alleged to have handed over the gold—who could have verified the job-work and return-of-gold story—was never examined by officials. This omission weakened the department’s case. The tribunal held that DRI failed to follow the mandatory procedure under Section 138B for using recorded statements as evidence. The Tribunal noted that both carriers had retracted their statements promptly. Since the department could not show that the gold was imported illegally, the gold could not be confiscated under Section 111. Consequently, penalties under Section 112 also could not be sustained. The Tribunal concluded that the DRI had not demonstrated that the gold bars were smuggled, the carriers were linked to any smuggling operation, or the seized cash was proceeds of smuggled goods. Holding that the penalties were unsustainable, the Tribunal allowed both appeals and set aside the Commissioner’s order to the extent of penalties. Case Details Case Title: Manish Kumar Versus Principal Commissioner of Customs Case No.: Customs Appeal No. 52000 Of 2024 Date: 08.12.2025 Counsel For Appellant: Vishwa Raj Singh Counsel For Respondent: Gurdeep Singh, Special Counsel Click Here To Read Order Read More: Limitation Can’t Defeat Substantive Right: Chhattisgarh HC Orders Refund of Service Tax; Holds

DRI Failed to Prove Smuggling: CESTAT Quashes Penalties in Gold Seizure Case

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