Can Presumption That Seized Goods Are Smuggled Apply To 'Mastermind' Not In Physical Possession? Delhi HC To Examine

The Delhi High Court is set to examine whether the statutory presumption under Section 123 of the Customs Act can apply to a person alleged to be the “mastermind” or financier who is not in physical possession of the seized goods.

The Division Bench of Justices Avneesh Jhingan and Shail Jain has framed the question while hearing appeals filed by the Principal Commissioner of Customs (Preventive) against CESTAT orders.

Section 123 of the Customs Act provides for a statutory shift in the burden of proof in respect of specified goods seized on the reasonable belief that they are smuggled. The person from whose possession such goods are seized is required to establish that they are not smuggled.

The High Court will examine whether this presumption can extend to a person alleged to exercise constructive possession and effective control over smuggled goods through his employees, despite the goods having been physically seized from those employees. It will also consider whether “possession” under Section 123 includes the power to control and dispose of the goods.

The case concerns Bharat Shantilal Shah, a jeweller against whom the Customs Department had alleged that he was the “mastermind” behind the procurement, transportation and sale of foreign-origin smuggled gold and gold jewellery.

The proceedings arose after Directorate of Revenue Intelligence officials intercepted Shah's employees while they were travelling from Chennai to New Delhi on January 19, 2023.

The Customs Commissioner held that the gold bars belonged to Shah and were smuggled into India. He also held Shah to be the “mastermind” who managed activities relating to procurement, transportation and sale of the smuggled gold and jewellery.

The Commissioner imposed penalties of ₹1.50 crore each on Shah under Sections 112(b)(i) and 114AA of the Customs Act.

Shah challenged the findings before the CESTAT, arguing that he had no connection with the gold bars and that the burden under Section 123 could not be shifted onto him as he was neither the person from whose possession the goods were seized nor the person claiming to be their owner.

The Department argued that the circumstances of the seizure triggered Section 123 and that statements of Shah's employees showed that the gold was under his control and was being transported through them.

The CESTAT however set aside the penalties, holding that neither the show cause notice nor the impugned order established Shah's connection with the import. It held that the Department was required to establish that the goods were smuggled without shifting the burden onto Shah.

Relying on the Supreme Court's judgment in Radha Kishan Bhatia v. Union of India, the Tribunal noted that mere possession of smuggled goods does not by itself establish that a person was concerned with their illegal importation; other circumstances connecting the person with the importation have to be established.

The High Court has also framed a question concerning statements recorded under Section 108 of the Customs Act.

The issue is whether the CESTAT was correct in holding that such statements cannot be treated as relevant in adjudication unless the procedure contemplated under Section 138B (relevancy of statements) is followed.

The CESTAT had found that the Department's case against Shah was based on Section 108 statements and that these could not be treated as relevant because the procedure under Section 138B had not been followed.

The appeals have been listed for hearing on January 28, 2027.

For Appellant: Advocates Aditya Singla, SSC, CBIC with Arya Suresh Nair

For Respondent: Senior Advocate Rupesh Kumar, with Advocates Subas Acharya, Harsh Raj Singh, Chanakkya, Ayushman & Sathwika