The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside the confiscation of gold weighing 3.723 kg and the penalty of ₹25 lakh imposed under the Customs Act, 1962, holding that the retracted statements can’t be relied upon without cross-examination.
The bench of Ajay Sharma (Judicial Member) and M.M. Parthiban (Technical Member) allowed the appeal filed against an order of the Commissioner (Appeals) which had upheld the confiscation of gold and the imposition of penalty in connection with a wider Directorate of Revenue Intelligence (DRI) investigation into an alleged international gold smuggling syndicate.
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The case originated from a DRI investigation launched on the basis of specific intelligence regarding an organized syndicate allegedly smuggling foreign-origin gold into India through the Nepal route. According to the investigation, Sudanese nationals were allegedly transporting smuggled gold from Nepal to Mumbai, where it was subsequently delivered to various handlers and processors.
During the operation conducted on 20 February 2023, DRI officers intercepted passengers arriving in Mumbai and recovered substantial quantities of gold concealed in specially designed waistcoats and baggage. The investigation subsequently expanded to include foreign exchange operators, bullion traders, and gold refining facilities allegedly connected to the movement and processing of the gold.
As part of the follow-up investigation, DRI searched several premises in Mumbai’s bullion market and seized various quantities of gold. Gold weighing 3,723.650 grams was seized from the premises of a bullion refining unit on the allegation that it was linked to the smuggling network.
Following completion of the investigation, a show cause notice was issued to nine noticees, including alleged carriers, receivers, bullion traders and refiners. The adjudicating authority ultimately ordered absolute confiscation of gold recovered from various persons and imposed penalties under Sections 112(a) and 112(b) of the Customs Act, 1962.
In relation to the appellant, the adjudicating authority ordered confiscation of Gold weighing 871.120 grams valued at ₹50.50 lakh; Gold weighing 831.060 grams valued at ₹44.29 lakh; and Gold weighing 2,021.470 grams valued at ₹1.18 crore.
Additionally, a penalty of ₹25 lakh was imposed under Sections 112(a) and 112(b) of the Customs Act.
The Commissioner (Appeals) subsequently upheld both the confiscation and the penalty, prompting the appeal before the Tribunal.
The central issue before the Tribunal was whether the confiscation of the seized gold and the penalty could survive when the department’s case relied substantially upon statements of witnesses who were not made available for cross-examination despite specific requests by the appellant.
The appellant argued that the case was primarily based on statements of certain persons, particularly a bullion trader whose statement had subsequently been retracted. Cross-examination of key witnesses was denied. Such statements could not be treated as admissible evidence under Section 138B of the Customs Act. Reliance on those statements violated principles of natural justice.
The Tribunal examined Section 138B of the Customs Act, which governs the admissibility of statements recorded before customs officers. It observed that where a statement is retracted and the maker of the statement is not offered for cross-examination despite a specific request, such statement cannot be treated as reliable evidence against another person.
The Bench emphasized that denial of cross-examination in such circumstances is not merely a procedural irregularity but strikes at the root of fair adjudication and violates both statutory requirements and the principles of natural justice.
Relying upon earlier Tribunal decisions and the Supreme Court’s landmark judgment in Andaman Timber Industries, the Tribunal reiterated that statements forming the foundation of a case cannot be used against a noticee if the witness is not subjected to cross-examination when demanded.
The Tribunal noted that the findings against the appellant were substantially based on statements of individuals who allegedly implicated him in receiving and refining smuggled gold. However, one of those statements had been retracted, while the makers of the statements were not produced for cross-examination.
According to the Bench, once those statements were excluded from consideration, the remaining evidence was insufficient to establish that the specific gold recovered from the appellant’s premises was smuggled gold or that the appellant possessed the requisite knowledge regarding its alleged illicit origin.
The Tribunal observed that the existence of a larger smuggling investigation could not automatically establish involvement of a particular individual without legally admissible evidence directly linking that person to the smuggling activity.
The Tribunal concluded that the denial of cross-examination, coupled with reliance upon retracted statements, rendered the findings against the appellant legally unsustainable. Consequently, the confiscation of the gold and the penalty imposed under Section 112 of the Customs Act were set aside in their entirety.
The Tribunal held that the impugned appellate order could not survive judicial scrutiny and granted consequential relief in accordance with law.
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