The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has set aside the confiscation of nearly four kilograms of gold valued at ₹2.12 crore, holding that Customs had failed to establish a reasonable belief that the gold was smuggled. The tribunal also cancelled the penalties imposed on six persons in connection with the seizure.

The bench of P.K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) found that the gold bore no foreign markings and that the investigation had produced no evidence showing where it had entered India, who had brought it across the border, or how it reached the persons carrying it. In contrast, the appellants had produced records supporting their claim that the gold came from domestic purchases.

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DRI officers intercepted the appellants while they were travelling on a bus from Gorakhpur to Delhi during the night of September 4–5, 2020. The officers seized approximately 3,999 grams of gold, valued at ₹2,12,79,096, on the belief that it was of foreign origin. The two men said they were carrying the gold for Bajrang Bullion Traders, Gorakhpur, for delivery to Mahaveer Bullion in Delhi, and had vouchers dated September 3, 2020.

The Customs Commissioner ordered confiscation of the gold and imposed penalties following a show-cause notice issued in February 2021. Sahani and five other persons challenged that order before the tribunal. They maintained that the gold had been purchased from registered domestic bullion traders through banking channels, recorded in the business’s stock and purchase records, and accompanied by supporting invoices and vouchers.

A central question was whether Section 123 of the Customs Act shifted the burden onto the appellants to prove that the gold was not smuggled. The tribunal held that such a burden could not arise merely because officers suspected smuggling. For a seizure under Section 110, the officers first had to possess an objectively supportable reason to believe that the goods were liable to confiscation.

The bench found that the Customs investigation did not meet that threshold. The gold had no foreign markings, while laboratory testing recorded varying purity levels. Call records showed contact among the persons involved in the domestic bullion business, but did not establish contact with anyone abroad. The tribunal said the alleged statements about smuggling were general and were not supported by an investigation into the route, border crossing, transport or source of the gold.

Customs had questioned two bullion traders about the invoices submitted by the appellants. They disputed signatures appearing on certain invoices, but did not deny their business transactions with Bajrang Bullion or its proprietor. According to the tribunal, investigators neither verified the disputed signatures nor pursued the financial transactions further. That incomplete inquiry did not establish that the invoices were false or that the seized gold had been smuggled.

The appellants also produced documents concerning their purchases, GST records, the sale vouchers carried at the time of interception, and a challan relating to the melting of gold at a refinery. The bench held that Customs had not disproved the claimed domestic source of the seized gold. It added that even an issue under another law would not, by itself, make the goods confiscable under the Customs Act.

The case returned to CESTAT after the Allahabad High Court set aside an earlier tribunal order dated April 24, 2025. That order had relied in part on a finding that the procedure concerning witness statements under Section 138B of the Customs Act had not been followed. The High Court directed the tribunal to determine whether the noticees had actually requested cross-examination of the witnesses whose statements were relied upon.

At the rehearing, counsel for the appellants acknowledged that no specific request for cross-examination had been made before the adjudicating authority. CESTAT accordingly declined to set aside the Customs order on that procedural ground and decided the appeals on their merits. Its ruling on the gold seizure rested on the lack of evidence establishing smuggling and the failure to substantiate reasonable belief at the time of seizure.

The tribunal also held that the penalties could not stand: their basis was the allegation that the appellants had dealt with smuggled gold, which Customs had failed to prove. It allowed all six appeals and granted consequential relief, if any, in accordance with law.

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