No Gold Seizure Without Proof of Smuggling or Foreign Origin: CESTAT

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has upheld an appellate order setting aside the confiscation of nearly 1.87 kilograms of gold and penalties imposed on six individuals, ruling that customs department failed to establish that the seized gold was of foreign origin or had been smuggled into India. The bench of Justice P.K. Choudhary (Judicial Member) and P. Anjani Kumar (Technical Member) dismissed six appeals filed by the Commissioner of Customs (Preventive), Lucknow and affirmed the order of the Commissioner (Appeals), which had earlier quashed the confiscation of gold ornaments and gold pieces valued at approximately ₹90.50 lakh and set aside penalties imposed on the respondents. The dispute arose from an operation conducted by the Directorate of Revenue Intelligence (DRI), Lucknow Zonal Unit, on December 30, 2022. Officials apprehended Md. Shahbaz Siddiqui at Lucknow’s Charbagh Railway Station while he was travelling from Gorakhpur to Lucknow. During the search, officers recovered gold ornaments weighing 946 grams and primary gold cut pieces weighing 921.7 grams, aggregating 1,867.7 grams. The gold was valued at ₹90,50,385. According to the Revenue, Siddiqui failed to produce documents evidencing the lawful purchase or import of the recovered gold. Based on statements recorded under Section 108 of the Customs Act, authorities alleged that the gold had originated from Nepal and had been smuggled into India. The DRI subsequently seized the gold under Sections 110 and 123 of the Customs Act and initiated proceedings for confiscation and penalties. The Department’s case was primarily founded on statements allegedly made by Siddiqui and other respondents. Customs authorities contended that Siddiqui admitted carrying jewellery manufactured from smuggled foreign-origin gold and transporting gold pieces received from individuals in Gorakhpur. The Department also relied on call detail records (CDRs), claiming they demonstrated regular communication among the respondents and thereby corroborated the smuggling allegations. The adjudicating authority accepted these allegations and passed an Order-in-Original in March 2024 confiscating the gold absolutely and imposing penalties on all respondents. The respondents contested the allegations, arguing that Siddiqui was a jewellery maker who routinely travelled for business purposes. They maintained that the gold and jewellery were lawfully acquired and that supporting documents existed but were allegedly ignored during investigation. Siddiqui further asserted that his statement had been obtained under pressure and that he had merely signed a typed statement prepared by investigating officers. Other respondents denied involvement in any smuggling activity and stated that their communications with Siddiqui were limited to discussions regarding prevailing gold rates and jewellery-related work. Certain respondents also produced invoices to establish the lawful source of portions of the gold. A central issue before the Tribunal was whether the gold could be presumed to be smuggled merely because the carrier failed to immediately produce supporting documents. The Bench noted that the seizure occurred at a railway station within the country and not at an international border, customs station, or notified area. It therefore qualified as a “town seizure,” a category of cases in which customs authorities bear a heavier burden to establish smuggling before invoking statutory presumptions under Section 123 of the Customs Act. Importantly, the Tribunal observed that the seized gold did not bear any foreign markings and there was no physical evidence suggesting recent importation from abroad. The Bench held that before shifting the burden onto the possessor of the goods, customs authorities must first demonstrate a reasonable belief, supported by objective material, that the goods are smuggled. The Tribunal subjected the statements relied upon by the Department to close scrutiny and found significant weaknesses. It observed that Siddiqui’s claim regarding Nepal-origin gold was not based on his own knowledge but on what he allegedly heard from other individuals. Such assertions, the Bench held, amounted to hearsay and could not by themselves establish smuggling. Furthermore, the statements of other respondents contained inconsistencies, with some later retracting incriminating portions and alleging coercion. The Tribunal concluded that the chain of evidence regarding the alleged smuggling route, importation method, and foreign origin of the gold remained incomplete. There was no direct evidence identifying who brought the gold into India, when it entered the country, or through which route. Rejecting another key plank of the Department’s case, the Tribunal ruled that call detail records merely established that the respondents were in contact with each other. Such records, without evidence regarding the contents of the conversations, could not establish involvement in a smuggling operation. The Bench relied on earlier precedent holding that telephonic communication alone does not prove illicit activity unless the subject matter of the communication is independently established. The Tribunal also found procedural infirmities in the adjudication process. It noted that requests for cross-examination of persons whose statements were relied upon had been rejected by the adjudicating authority. Referring to Section 138B of the Customs Act and judicial precedents, the Bench held that statements recorded during investigation cannot automatically be treated as evidence unless statutory safeguards are followed. Since the Department failed to comply with these requirements and denied cross-examination without valid justification, the statements could not be relied upon. After examining the record, the Tribunal concluded that the Department had failed to produce any cogent evidence proving that the gold was smuggled or of foreign origin. The absence of foreign markings, lack of corroborative evidence, deficiencies in the investigation, and failure to permit cross-examination collectively undermined the Revenue’s case. Accordingly, CESTAT upheld the Commissioner (Appeals)’ order and dismissed all six appeals filed by the Revenue, thereby confirming the release of the seized gold and setting aside the penalties imposed on the respondents. Case Details Case Title: Commissioner of Customs (P), Lucknow Versus Shri Md. Shahbaz Siddiqui Citation: JURISHOUR-1554-CES-2026(DEL) Case No.: Customs Appeal No.70520 of 2025 Date: 02.06.2026 Counsel For Appellant: Santosh Kumar, Authorized Representative Counsel For Respondent: Kartikeya Narain, Advocate Click Here To Read Order Read More: Exporter Can’t Escape Liability Due to Foreign Seizure of Contraband: CESTAT Upholds Penalty in Ketamine Smuggling

No Gold Seizure Without Proof of Smuggling or Foreign Origin: CESTAT

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