The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the purity of re-melted gold and generic fineness markings, without independent evidence connecting the goods to illegal importation, cannot justify confiscation under the Customs Act, 1962.
The bench of Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) dismissed an appeal filed by the Customs Department and upheld the relief granted to a jeweller in a case involving the seizure of 2,081 grams of gold. It observed that the reverse burden under Section 123 of the Customs Act does not arise merely because the seized commodity is gold.
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The Bench observed that the Department must first establish that the gold was seized on a reasonable belief that it was smuggled. Such belief must be based on objective and relevant material existing at the time of seizure and cannot rest on mere suspicion.
The respondent/assessee was managing the business of Jewellers, a GST-registered concern owned by his late wife. According to him, he travelled to Bengaluru and purchased 2,062 grams of re-melted 24-carat gold bullion on credit from M/s Aryan Gold under a tax invoice dated March 20, 2023.
He thereafter travelled to Coimbatore for getting the bullion converted into ornaments. As the terms of the proposed job work could not be finalised, he began his return journey to Narasaraopet in a Hyundai Verna car.
Customs officers intercepted the vehicle during the intervening night of March 20 and 21, 2023. Two pieces of re-melted gold weighing 1,285 grams and 796 grams, aggregating to 2,081 grams, were recovered. The Department alleged that the gold was of smuggled foreign origin.
Statements of the respondent and the driver were recorded under Section 108 of the Customs Act. The respondent retracted his statement on March 28, 2023, while the driver retracted his statement on April 13, 2023. The respondent also produced the tax invoice issued by the Bengaluru supplier to support his claim of domestic purchase.
The Additional Commissioner ordered absolute confiscation of the gold, the vehicle and the packing material. A penalty of ₹15 lakh was also imposed on the respondent under Sections 112(a) and 112(b) of the Customs Act. Separate penalties were imposed upon the alleged supplier, the driver and the vehicle owner.
The Commissioner (Appeals), however, set aside the adjudication order and granted consequential relief. The Customs Department challenged that decision before the CESTAT.
The Department argued that gold is a notified commodity under Section 123 and, once it was seized on a reasonable belief of being smuggled, the burden of proving lawful acquisition shifted to the respondent.
It relied upon the purity of the gold, its alleged concealment and transportation, the absence of invoices with the persons carrying it and the initial statements recorded under Section 108. The Department also highlighted the difference between the invoice quantity of 2,062 grams and the seized quantity of 2,081 grams.
The Tribunal acknowledged that gold is covered by Section 123. It nevertheless clarified that the provision’s reverse burden is not automatically attracted whenever gold is seized.
The statutory burden shifts only where the seizure is made under the Customs Act on a reasonable belief that the goods are smuggled. Reasonable belief, the Bench explained, must be honest, bona fide and supported by relevant material bearing a rational connection with the alleged smuggling.
“Section 123 does not authorize the department to first seize any quantity of domestically circulating gold and thereafter, call upon its possessor to disprove smuggling,” the Tribunal observed.
The Bench noted that the seized gold consisted of re-melted or irregular pieces. The Department did not establish the presence of any recognised foreign refinery inscription, overseas mint mark or foreign serial number.
The generic inscription “BEST CHOICE NB 9990”, even if accepted as having appeared on the pieces, merely indicated the claimed fineness of the gold. It did not identify any foreign country or illegal channel of origin.
The Tribunal held that high purity is equally compatible with lawful domestic refining, re-melting or recycling. Therefore, purity may constitute one surrounding circumstance, but it cannot, without further evidence, establish that the gold crossed the customs frontier illegally.
The Bench distinguished cases involving the concealment of standard gold bars bearing established foreign refinery markings. In the present case, neither the shape nor the purity of the re-melted pieces conclusively connected them with illegal importation.
The Tribunal accepted that a statement recorded under Section 108 of the Customs Act is admissible and may constitute relevant evidence. It, however, rejected the Department’s contention that every such statement must be treated as conclusive despite its retraction and the absence of supporting evidence.
Referring to the Supreme Court’s ruling in Vinod Solanki v. Union of India, the Bench said that when a confession is retracted, the adjudicating authority must examine whether it was voluntary and look for assurance from independent circumstances.
In the present matter, the statements were retracted within a reasonably proximate period. More importantly, the Department failed to produce independent evidence regarding the point or mode of illegal importation, a foreign seller, a smuggling carrier, border movement, financial trail or any network engaged in supplying foreign-origin gold.
The Department also did not recover the substantial cash allegedly carried for purchasing the gold. There were no cash bags, withdrawal records or other contemporaneous materials supporting the allegation of large cash payments.
The CESTAT consequently agreed with the Commissioner (Appeals) that the retracted statements, standing substantially alone, were insufficient to establish smuggling.
A significant part of the dispute concerned the time and place at which the vehicle was intercepted.
The Department claimed that the vehicle was stopped at the Tanguturu toll plaza at approximately 5:30 am on March 21, 2023. The respondent relied upon FASTag records indicating that the vehicle crossed the Pallikonda toll plaza at 9:17 pm on March 20 and reached the Gadanki toll plaza at 12:51 am on March 21.
On examining these records, the Commissioner (Appeals) concluded that the interception occurred near the Andhra Pradesh-Tamil Nadu border and not at Tanguturu in the manner recorded in the seizure panchanama.
The Tribunal refused to treat the contradiction as a minor procedural discrepancy. It held that while a small variation in time or distance might not invalidate a search, an unexplained difference concerning the place, time and circumstances of the interception materially affected the reliability of the Department’s case.
FASTag entries were independent electronic records generated in the ordinary course of toll operations. The Department neither demonstrated that those records were fabricated or unreliable nor satisfactorily explained the travel interval reflected in them.
The Bench observed that the panchanama is the principal contemporaneous record of a seizure. When objective electronic records materially contradict its foundational narrative, it becomes unsafe to accept the document without examining the panch witnesses and the officers concerned.
The respondent produced a tax invoice dated March 20, 2023, issued by M/s Aryan Gold, Bengaluru, covering 2,062 grams of gold. The invoice predated the seizure, and the supplier confirmed the transaction.
The Tribunal acknowledged that the difference of 19 grams between the invoiced quantity and the seized quantity required an explanation. However, that discrepancy could not, by itself, establish that the entire 2,081 grams of gold was smuggled.
The principal quantity was supported by a contemporaneous invoice and confirmation of the commercial transaction. The Department failed to establish that the invoice was fabricated, that the supplier was fictitious or that the document was subsequently inserted into the supplier’s records.
Accordingly, the Bench held that even if Section 123 was assumed to apply, the respondent had discharged the burden on the standard of preponderance of probabilities by producing the tax invoice, supplier confirmation and banking evidence.
The Department did not rebut the documents through an effective investigation of the supplier’s stock, books of account, GST returns or procurement chain.
The Tribunal also found fault with the denial of an effective opportunity to cross-examine the witnesses whose statements were relied upon by the adjudicating authority.
Relying on the Supreme Court’s decision in Andaman Timber Industries v. Commissioner of Central Excise, the Bench held that where witness statements form the basis of an adverse order, refusal to permit cross-examination constitutes a serious violation of natural justice.
The principle was not confined to the statements of dealers. Its application depended upon whether a person’s statement was being used to prove a disputed material fact.
Where the Department relied upon a supplier’s statement to dispute the identity of the goods or upon panch witnesses to prove a contested panchanama, the request for cross-examination could not be rejected merely by describing it as a delaying tactic.
The Tribunal also referred to Section 138B of the Customs Act, which specifies the conditions under which a statement recorded before a gazetted customs officer may be treated as relevant for proving the truth of its contents.
In the absence of the statutory exceptional circumstances, a person whose statement is relied upon must ordinarily be examined during adjudication and made available for cross-examination. The denial of that opportunity materially prejudiced the respondent and diminished the evidentiary value of the disputed statements.
The Bench concluded that the Department failed to identify any specific act of illegal importation or breach of a condition attached to lawful importation that could sustain confiscation under Sections 111(d) and 111(o).
Once the confiscation of the gold was found unsustainable, the consequential confiscation of the vehicle and packing material could not survive.
Similarly, penalties under Sections 112(a) and 112(b) required proof that the person concerned knew or had reason to believe that the goods were liable to confiscation. Such knowledge could not be presumed when the foundational allegation of smuggling itself had not been established.
Finding no perversity, omission of material evidence or incorrect application of law in the appellate order, the CESTAT dismissed the Customs Department’s appeal and upheld the setting aside of the confiscation and penalties.
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