The Madras High Court has held that the owners are entitled to current gold value where customs sold seized gold without prior notice.

The bench of Justice M.Dhandapani has observed that where confiscated gold was auctioned by Customs without issuing notice to the owners despite pending legal remedies, the affected persons are entitled to receive the value of the gold based on the rate prevailing on the date of the de novo redemption order, rather than the historical tariff value adopted by the department. 

The petitioners had returned from overseas destinations in July 2013 carrying undeclared gold and certain electronic items. Customs authorities seized the goods and subsequently issued show-cause notices proposing confiscation under Sections 111(d) and 111(l) of the Customs Act, along with penalties under Sections 112 and 114. 

Following adjudication, the authorities ordered absolute confiscation of the gold while permitting redemption of certain electronic items upon payment of redemption fine. Appeals before the Commissioner (Appeals) and subsequent revision petitions before the Central Government were dismissed, with authorities treating the imported gold as prohibited goods. 

However, in an earlier round of litigation, the Madras High Court ruled on January 2, 2025 that gold could not be treated as “prohibited goods” after the repeal of the Gold (Control) Act, 1968. The Court held that imported gold was only a restricted commodity and therefore absolute confiscation was not justified. Consequently, the matter was remanded for fresh consideration and determination of redemption fine under Section 125 of the Customs Act. 

Pursuant to the High Court’s directions, the Joint Commissioner of Customs passed de novo orders in May 2025 permitting redemption of the confiscated gold on payment of redemption fine, customs duty and penalties. The petitioners thereafter approached Customs seeking release of the gold upon payment of the prescribed amounts. 

At this stage, Customs informed the petitioners that the gold had already been transferred to the Government Mint in 2014 and subsequently auctioned. Since physical return of the gold was no longer possible, the department sanctioned refunds by calculating the value of the gold based on CBEC Instruction No. 22/2022, which prescribes determination of refund using the tariff value prevailing on the date the gold was transferred to the Securities Printing and Minting Corporation of India Ltd. (SPMCIL). 

The petitioners challenged these refund orders, arguing that the department had disposed of the gold without informing them despite pending appeals and revisions.

The central question before the Court was whether Customs could restrict compensation to the historical tariff value of the gold under the 2022 CBEC Instruction when the gold had been auctioned without notifying the owners, even though their legal remedies had not been exhausted. 

The Court examined CBEC Circular dated February 14, 2006, which specifically requires authorities to issue notice to the owner before disposing of confiscated goods where appeal or legal remedies are still pending. 

The department contended that notice was not required because the goods had already been confiscated. However, the Court rejected this argument and observed that Paragraph 3 of the 2006 Circular clearly extends the notice requirement even to confiscated goods where appellate remedies have not been exhausted. 

The Court noted that revision proceedings and further legal remedies were available and had in fact been pursued by the petitioners. Yet Customs auctioned the gold in December 2014 without giving any notice to them. The Court held that such conduct violated the departmental circular as well as principles of natural justice. 

The Court observed that had notice been issued, the petitioners could have participated in the auction process and protected their interests. 

The judgment also analysed Section 110(1A) of the Customs Act, which permits early disposal of seized goods in certain situations such as perishable goods, hazardous goods, goods likely to depreciate in value, or goods facing storage constraints. 

The Court emphasized that gold does not fall into any of these categories. Rather, gold is a valuable commodity whose value generally appreciates over time. The department also failed to place before the Court any Central Government notification authorising immediate disposal of seized gold under Section 110(1A). 

A major criticism in the judgment was directed at Customs for selectively relying upon the 2022 Instruction concerning refund valuation while simultaneously ignoring the 2006 Circular mandating prior notice before disposal. 

The Court held that the department cannot choose to follow only those circulars that benefit it while disregarding those that protect the rights of affected persons. Since the auction itself had taken place in violation of the 2006 Circular, the department could not rely upon the 2022 Instruction to limit compensation. 

The Court further observed that once the de novo order granted redemption of the confiscated gold, the department became legally bound either to return the gold itself or compensate the owners with its equivalent value. Redemption necessarily implies restoration of the property or its equivalent value. 

Since the department had already disposed of the gold, the only practical remedy was payment of its value. The Court found it unjust to compensate the petitioners using decade-old tariff values when the department’s own actions had prevented physical redemption of the gold. 

Balancing the equities between the parties, the Court directed Customs to calculate compensation based on the value of 24K crude gold prevailing on 2 May 2025, the date on which the de novo redemption order was passed. From this amount, Customs is permitted to deduct the redemption fine, customs duty and penalties payable under the de novo order. 

The Court set aside the impugned refund orders and directed the department to transfer the revised amounts directly to the petitioners’ bank accounts within six weeks. If payment is delayed, interest at 6% per annum will be payable from 2 May 2025 until actual payment.

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