The Allahabad High Court on 3 September held that an owner of seized goods does not discharge the burden under Section 123 of the Customs Act, 1962 merely by producing documents relating to his business generally, and must instead produce documents that specifically and traceably establish lawful acquisition of the seized goods.

A Division Bench comprising Justices Shekhar B. Saraf and Abdhesh Kumar Chaudhary held that the burden shifted to the owner after the revenue satisfied the conditions for invoking Section 123, and restored the confiscation of three gold bars weighing 2,997 grams. The judges held:

“… the discharge of the onus under Section 123 of the Act does not mean the mere production of any document or set of documents relating generally to the business activities of the owner of the smuggled goods. It means the production of specific, relevant, credible, and genuine documents that directly and traceably establish the lawful acquisition of the gold that are the subject matter of seizure. The mere production of documents which are irrelevant adds nothing to the discharge of the burden and does not shift the evidentiary obligation towards the revenue.”

Section 123 of the Customs Act places the burden of proving that seized goods are not smuggled on the person from whose possession they were seized and on any person claiming to own them. The provision applies to gold and manufactures of gold, watches and other goods notified by the Central Government.

On 28 November 2020, officers of the Directorate of Revenue Intelligence, Lucknow Zonal Unit, stopped two men travelling by bus from Nagpur at Prayagraj. They found three metal bars weighing 2,997 grams, bearing foreign markings, taped and concealed inside their shoes.

The men stated that they were carrying smuggled foreign-origin gold to Prayagraj on the instructions of Anand Navalchand Pugaliya, proprietor of Pugaliya Jewellers. They also stated that they had no documents for its purchase or import. The officers seized the bars under Section 110 of the Act, which permits seizure of goods suspected to be liable to confiscation. Testing by the Central Revenue Control Laboratory, New Delhi, found their purity to be between 99.35% and 99.67%. The same day, officers searched Pugaliya's house and shop and seized 2,43,640.64 grams of silver bullion and cash of Rs. 29,71,270.

Pugaliya claimed ownership of the gold and produced GST returns, purchase invoices, a gift deed, a delivery note, a receipt for labour charges paid to a refiner, balance sheets, ledgers, stock statements and bank statements.

The refiner, however, stated that Pugaliya had given him 38 pieces of gold to convert into three bars, whereas Pugaliya's case was that he had sent 35 pieces. The refiner also stated that he did not have a one-kilogram dye and had not supplied any bar bearing the markings found on the seized gold to anyone during the preceding two years. Pugaliya initially named two sellers as the source of the gold but later named only one.

The adjudicating authority ordered absolute confiscation of the gold and silver under Section 111(a), (b), (h) and (m) of the Act, which covers specified goods liable to confiscation, and of the cash under Section 121, which provides for confiscation of sale proceeds of smuggled goods. It also imposed penalties under Section 112(b).

The Commissioner (Appeals) set aside the confiscation. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) affirmed that order on 23 April 2025, holding that the GST-paid invoices certified by a chartered accountant discharged the burden and that it was for the revenue to displace them.

The revenue challenged the CESTAT's order under Section 130 of the Act, which provides for appeals to the High Court on substantial questions of law. The Court admitted the appeal on whether the CESTAT had misread Section 2(39) read with Section 111 of the Act in relation to smuggling and confiscation, and whether its finding that the burden had been discharged was perverse.

The Court observed that Section 123 places an initial burden on the revenue, which must be discharged before the statutory presumption against the owner can operate. It held:

“Three conditions must be fulfilled by the revenue for discharging their onus before applicability of Section 123 of the Act, that is, firstly seizure of goods to which this section applies, secondly, seizure must be under the Customs Act and thirdly, seizure on the reasonable belief that they are smuggled goods.”

The Bench held that all three conditions were satisfied in relation to the gold. It found that the reasonable belief arose from the foreign markings on the bars, the manner in which they were being carried and the statements of the two carriers. The burden therefore shifted to Pugaliya. It found that Pugaliya's versions were irreconcilable with each other and with the refiner's account. It noted:

“The dichotomy between the statements of respondent taken on different occasions and with the statement of the refiner clearly establishes that the gold that was seized was not the gold that had been received after refining by the refiner.”

Further, the Court noted that the invoices relied upon by the Commissioner (Appeals) did not establish any connection between the purchased gold and the foreign markings on the seized bars. It also noted that Pugaliya had offered no explanation for those markings. The judges remarked:

“It is flabbergasting to note the perfunctory manner in which the Commissioner (Appeal) as well as the CESTAT have dealt with the entire matter.”

The Bench also held that the appellate authorities had shifted the burden back to the revenue on the strength of the invoices alone, without considering the carriers' statements, the refiner's account, the contradictions in Pugaliya's own version and the absence of any entry in his books corresponding to the seized bars. It stated:

“The observation of the Tribunal with regard to accepting the GST invoices without regard to whether the same had a nexus to the specific seized gold bars as sufficient to discharge the burden under Section 123 is a patent error of law. This approach is a fundamental misunderstanding of the nature and scope of the burden of proof under Section 123 of the Act. It conflates the mere production of documents with the discharge of burden.”

On its power to interfere with the Tribunal's findings of fact, the Court relied on Commissioner of Customs vs. Vijay Dasharath Patel, Arulvelu vs. State and S.R. Tewari vs. Union of India. It also relied on the Calcutta High Court's decision in Commissioner of Customs Preventive Kolkata vs. Shri Anil Kumar Soni to hold that a finding of fact by the Tribunal gives rise to a substantial question of law where vital evidence has been overlooked, there is a patent error in appreciating the evidence, or the finding could not reasonably have been reached on the material before it.

The Bench answered both substantial questions in the affirmative insofar as the three gold bars were concerned and directed restoration of the adjudicating authority's order confiscating them. It declined to interfere with the setting aside of the confiscation of the silver and cash. Since only the confiscation of the gold was upheld, it reduced the penalties imposed by the adjudicating authority to 50%.

Accordingly, the High Court partly allowed the appeals.

Counsel for Appellant(s): Saurabh Yadava,

Counsel for Respondent(s): Jameel Ahmad, Vineet Kumar Sing 

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Case Title :  Commissioner of Customs (Preventive) Lko. v. Anand Navalchand PugaliyaCase Number :  CUSTOM APPEAL No. - 1 of 2026CITATION :  2026 LLBiz HC (ALL) 71
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