Possessor Must Prove Gold Is Not Smuggled Even If Seizure Occurs Outside Customs Area: CESTAT

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the possessor must prove gold is not smuggled even if seizure occurs outside customs area. The bench of M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) addressed the issue whether the burden of proof to show the smuggled origin of the gold is on the department as per law or whether section 123 of the Customs Act, shifts the burden to the appellant to prove that the gold in his possession was not smuggled gold, irrespective of the seizure being made in a Customs area or a town seizure. The case arose after officers of the Directorate of Revenue Intelligence (DRI), Chennai intercepted certain individuals in April 2024 at a gold refining unit in Chennai and seized eight gold bars weighing 6,821.85 grams along with ₹25.61 lakh in cash. The authorities alleged that the gold was smuggled and ordered confiscation of both the gold and the cash. Before the tribunal, the appellants argued that the seized gold did not carry any foreign markings and therefore the presumption of smuggling could not arise. They contended that the department had failed to prove that the gold was of foreign origin, and hence the burden could not be shifted onto them. It was further argued that since the seizure occurred within a town and not in a customs area, the reverse burden principle should not apply. Rejecting these arguments, the tribunal held that Section 123 of the Customs Act clearly provides that once notified goods such as gold are seized under a reasonable belief that they are smuggled, the burden of proving lawful possession shifts to the person from whose possession the goods are seized. The tribunal emphasised that the statute does not make any distinction between seizures made within a customs area and those made elsewhere. The bench observed that gold is a commodity easily melted, altered and circulated in trade without identifiable markings, making it extremely difficult for authorities to establish smuggling through direct evidence. Recognising this practical difficulty, the law places the responsibility on the possessor to explain the lawful source of acquisition. In reaching this conclusion, the tribunal relied on the landmark Constitution Bench ruling of the Supreme Court of Indiain Collector of Customs v. Nathella Sampathu Chetty, which upheld the validity of reverse burden provisions in customs law. The Supreme Court had held that the possessor of gold is ordinarily the person best placed to explain how it was acquired and therefore shifting the burden to the possessor is reasonable and constitutionally valid. CESTAT observed that the argument that Section 123 applies only to gold bearing foreign markings is legally untenable, as the provision was specifically designed to deal with situations where identifying the origin of gold is difficult. The tribunal further clarified that the location of seizure—whether in a customs area or within a town—does not dilute the statutory responsibility cast upon the possessor to establish lawful acquisition. The tribunal examined the documents produced by the appellants to show lawful possession of the gold. However, it found serious discrepancies in the records of the refining unit, including absence of proper customer details, incomplete transaction records, and inconsistencies in stock registers and computer entries. The tribunal held that large-scale gold transactions without proper documentation do not make commercial sense, and the appellants had failed to discharge the statutory burden placed on them under Section 123. CESTAT upheld the confiscation of 6.82 kg of gold and Rs. 25.61 lakh cash, holding that the appellants failed to establish that the seized gold was lawfully acquired. However, the tribunal set aside the penalties imposed on the appellants due to procedural defects in the show cause notice. Case Details Case Title: Shri Navnath Zanje Versus Customs Commissioner Citation: JURISHOUR-365-CES-2026(CHEN) Case No.: Customs Appeal No. 41089 of 2025 Date: 13/03/2026 Counsel For Appellant: N. Viswanathan, Advocate Counsel For Respondent: Anandalakshmi Ganeshram, Authorised Representative Click Here To Read Order Read More: Maharashtra Professional Tax, Due Date is 15th March Instead Of 31st March

Possessor Must Prove Gold Is Not Smuggled Even If Seizure Occurs Outside Customs Area: CESTAT

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