Gold Confiscation Invalid Without Reasonable Belief of Smuggling: CESTAT Hyderabad

Vikram Kumar Kabra Vs Principal Commissioner of Customs (CESTAT Hyderabad)

Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad, considered an appeal filed by Vikram Kumar Kabra against an order upholding the absolute confiscation of 310.07 grams of gold and a penalty of ₹3,15,000 under Section 112(a) and (b) of the Customs Act, 1962. Customs officers had received intelligence regarding the domestic transportation of allegedly foreign-origin gold through flights from Hyderabad to Mumbai and Jaipur on 2 October 2020. Acting on this information, officers examined consignments at the domestic Air Cargo Complex and recovered gold bars, cut pieces, jewellery and precious stones belonging to different persons, including the appellant. The adjudicating authority ordered confiscation under Sections 111(d), 111(l) and 111(j), which was subsequently upheld by the Commissioner (Appeals). The appellant challenged the order before the Telangana High Court, which permitted him to pursue the statutory appellate remedy.

The Tribunal examined whether Customs had sufficient grounds to invoke the reverse burden of proof under Section 123 of the Customs Act. The assayer’s report confirmed that the seized material was 24-carat gold but expressly stated that its Indian or foreign origin could not be determined. The report covered gold belonging to several persons without separately identifying the appellant’s goods, and neither the show-cause notice nor the seizure records established specific foreign markings on the gold. The Tribunal held that confidential intelligence could justify initiating an investigation but could not, by itself, establish a reasonable belief that the goods were smuggled. Since the technical report also failed to establish foreign origin, the statutory condition for shifting the burden of proof to the appellant was absent. Consequently, the responsibility to establish smuggling remained with the Revenue.

The appellant had consistently denied that the gold was smuggled and explained that it had been received from his nephew, Srikanth Darak, for conversion into jewellery for family marriages. He relied on an invoice dated 14 March 2015, bearing No. 3686, issued by M/s M. Rajendra Kumar Jewellers & Pearls Dealers for the purchase of 300 grams of pure gold valued at ₹7,95,000 by Hari Narayan Ram Prasad, along with a supporting letter from his nephew dated 22 August 2022. Although the lower authorities rejected this explanation and the invoice, the Tribunal found that the departmental case fundamentally rested on a seizure unsupported by reasonable belief and lacked independent evidence of smuggling. It therefore held that Section 123 had been wrongly invoked, set aside the confiscation of the appellant’s gold and the associated penalty, and allowed the appeal with consequential relief.

FULL TEXT OF THE CESTAT HYDERABAD ORDER

This Appeal assails the Order-in-Appeal No.HYD-CUS-000-APP-087 to 1 90 & 116-23-24 (APP-I) dated 29.11.2013 passed by the Commissioner of Customs & Central Tax (Appeals-I), Hyderabad, whereby, he disposed of four appeals filed by different appellants to assail the Order-in-Original 2 No.80/2022-Adjn. Cus. ADC dated 24.06.2022 passed by the Additional Commissioner. The Commissioner (Appeals), by the impugned order, upheld the OIO and dismissed all the appeals. Learned Counsel for the appellant 3 submits that Shri Vikram Kumar Kabra had filed Appeal No.184/2022-Cus before the Commissioner (Appeals), which was also rejected by the impugned order. Thereafter, the appellant had filed Writ Petition No.13050 of 2024 before the Hon’ble High Court of Telangana assailing the impugned order under Article 226 of the Constitution. The Hon’ble High Court declined to entertain the writ petition and allowed the appellant to avail statutory remedy of appeal. Thereafter, this appeal has been filed by the appellant.

2. The facts of the case are that Customs officers of the Air Intelligence Unit (AIU) received specific intelligence that there was domestic transportation of foreign origin gold bars without proper documents through Indigo flight No. 6E6329 from Hyderabad to Mumbai and from Hyderabad to Jaipur through Flight No.6E467 under some specific airway bills dated 02.10.2020.

3. Acting on the intelligence, officers visited the domestic terminal of Air Cargo Complex, identified the consignments and opened them under a Panchanama. It was found that several gold bars, gold jewellery and precious stones were being sent in the consignments. The details of these 4 are listed in Table-II of the Show Cause Notice. These consignments belonged to certain persons including the appellant. Insofar as the appellant is concerned, the consignments which the appellant had despatched and the consignees were as follows:

Quantity (in net Detailed

4. The officers sent the goods to the Government of India approved jeweller Shri V. Vijay Kumar, whose report is placed at Page 126 of the appeal memorandum. As far as the gold bars and cut pieces are concerned, the assayer’s report does not give details of the tests conducted with respect to each of the pieces. It also does not segregate the gold belonging to individual persons. In other words, the gold bars and cut pieces seized under Panchanama belonging to various persons including the appellant herein were all analyzed together and a single report is given. The relevant portion of the report reads as follows:

5. The report states the gold was tested by “scratching on stone (Kasouti) and taken acid results and is confirmed as 24 ct Gold”. It also states “It cannot be determined whether the gold is foreign or Indian origin”. In other words, while all the gold bars and cut pieces were indicated in the particulars as of foreign origin and of 24 ct purity under “particulars”  n the Report, the note below states clearly that the origin of the gold cannot be determined. There is also nothing in the SCN or Panchanama to indicate that there were any specific foreign markings on the gold bars or on gold biscuits.

6. Based on this test report, officers formed an opinion that the gold bars and cut pieces of gold along with other articles were of the foreign origin and since there were no documents to show their licit import, they seized them. Thereafter, a SCN dated 01.04.2021 was issued, which culminated in the issue of the OIO, which was upheld by the impugned order.

7. By the impugned order, the Commissioner (Appeals) upheld, qua the appellant, absolute confiscation of 310.07 grams of gold under section 5 111(d), 111(l) & 111(j) of the Customs Act, 1962 and also upheld the imposition of penalty of Rs.3,15,000/- under section 112(a) & 112(b) of the Customs Act.

8. I have heard the learned Counsel for the appellant and learned Authorized Representative for the Revenue and perused the records. The fundamental question which is to be considered before deciding the confiscation of gold and imposition of penalty on the appellant is on whom does the burden of proof lie. As per section 123 of the Customs Act, the burden of proof is shifted under certain circumstances. It reads as follows:

“123. Burden of proof in certain cases.

(1) Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be-

(a) in a case where such seizure is made from the possession of any person,-

(i) on the person from whose possession the goods were seized; and

(ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other person;

(b) in any other case, on the person, if any, who claims to be the owner of the goods so seized.

(2) This section shall apply to gold, [and manufactures thereof, Substituted by Act 40 of 1989, Section 2, for “diamonds, manufacturer of gold or diamonds” watches, and any other class of goods which the Central Government may by notification in the Official Gazette specify.”

9. In cases not covered by section 123, the burden of proving that any goods are smuggled rests on the Revenue because it is Revenue that asserts that they are smuggled. In this case, I find that the belief under which the officers have seized the gold is the information which they had received and the test report. There is nothing on record to show that there is anything else based on which they formed the opinion that the gold and other goods were of smuggled origin. The information which was received by the officers was confidential information and it is not part of the evidence. It helped the Customs Act officers start the investigation and examine the goods. That, by itself, cannot give an officer reasonable belief that any goods were of smuggled origin. The second document which they had was the test report, which categorically states that it cannot be determined if the gold is of foreign origin or of Indian origin. Thus, I find that the officers had, in the first place, no reasonable belief that the goods were smuggled or that they were liable to confiscation at all and should not have seized them at all. Therefore, section 123 was wrongly applied in this case for seizing the goods under Panchanama, for issuing SCN and for confiscating the goods by the Additional Commissioner. The Commissioner (Appeals) has erred in upholding such confiscation and consequential imposition of penalty.

10. It also needs to be noted that it is the case of the appellant and it always maintained that the goods were not of foreign origin and they were not smuggled. The statement of the appellant before the authorities at the time of investigation has been reproduced in the Order of the Additional Commissioner in para 17 & 18, which is quoted below.

“17. Mr. Vikram Kumar Kabra, deposed that he is a Gemmologist and up to last year he was working in Kabra Jewellers, Secunderabad. The gold has been handed over to him by his nephew Mr. Srikanth Darak, who has procured the said gold from their grandparents and it is not foreign origin. His grandfather Mr. Hari Narayan Ram Prasad has purchased the said gold from M/s Rajendra vide Invoice No.3686 dt.14.03.2015. Before his demise he has handed over the said gold to Srikanth. Since he knew few jewellers in Mumbai, Mr. Srikanth has given him the pure gold to convert the same into personal jewellery for Srikanth’s family. There are two marriage ceremonies in Srikanth’s family in this December. Therefore, they thought to make it jewellery and for that purpose he has handed over the said gold to him.

18. The deposition of Mr. Anil Kumar submitted that he does not have any statutory trade license of commercial manufacturer. His earning is the left over gold particles/scrap and end cutting. The gold that is seized by Customs is the same leftover gold cut pieces. The business in Jaipur is badly affected during Covid-19. That’s why he came to Hyderabad for search of some business in the similar line of gold manufacture. Since, carrying gold with him was risky hence, before coming to Hyderabad on 26.09.2020 (travel prrof: PNR No.N5M4GQ, Flight No.151543, Jai-Hyd 26.09.2020, 11.45 hrs) he has handed over the said gold to M/s Air Parcel Service, Jaipur on 25.09.2020 and received the same from them at Nampally, Hyderabad on 26.09.2020. After roaming for four to five days in Hyderabad and did not get any business in Hyderabad then he decided to return to Jaipur and therefore again handed over the said gold to M/s Air Parcel Services, Hyderabad”

11. The statement was then followed up by a letter dt.22.08.2022 from Mr. Srikanth Darak, nephew of the appellant, supporting the statement of the appellant. An invoice No.3686 dt.14.03.2015 showing the purchase of the goods was also produced which is at Page 127 of the appeal memorandum and it reads as follows:

12. Learned Counsel submits that Shri Hari Narayana Ram Prasad mentioned in the Invoice as the customer was the grandfather of his nephew mentioned in the appellant’s statement. Both the lower authorities have rejected the submissions made by the appellant during personal hearing and also at the time of the investigation. They also rejected the invoice submitted by the appellant which matches with the statement made by the appellant.

13. In view of the above, I find that the entire case was built on the basis of seizure without reasonable belief that the goods in question were smuggled goods. Once such belief does not exist, section 123 would not apply and it is for the department to establish that they were smuggled goods. There is no evidence, whatsoever, in the entire case that the seized goods were smuggled goods.

14. In view of the above, the appeal is allowed and the impugned order upholding the OIO, insofar as it pertains to the confiscation of the gold of the appellant and imposition of penalty on the appellant is set aside. The appellant will be entitled to consequential relief.

(Dictated and pronounced in the open Court)

Notes:-

1 Impugned Order

2 OIO

3 Appellant

4 SCN

5 Customs Act