Customs Must Establish Foreign Origin Before Presuming Goods Were Smuggled: Allahabad High Court
The Allahabad High Court at Lucknow has recently held that the burden of proof under Section 123 of the Customs Act, 1962, does not shift to the person from whom goods are seized unless the customs authorities first establish that the goods are of foreign origin and were smuggled into India.
it held that where nothing on the record connects the goods to smuggling, the presumption cannot be pressed into service at all.
The Court applied the rule to silver bullion and to Indian currency seized from a jeweller's house and shop, while in the same judgment upholding the confiscation of three foreign-marked gold bars recovered from his two employees.
The bench of Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary held
“The Customs authorities must first establish the foreign origin before invoking the presumption of smuggling.”
On 28th November 2020, officers of the Directorate of Revenue Intelligence, Lucknow Zonal Unit, intercepted two men at Prayagraj carrying three gold bars weighing 2,997 grams concealed in their shoes. Acting on their statements, the officers searched the house and shop of Anand Navalchand Pugaliya, proprietor of M/s Pugaliya Jewellers, the same day and found 2,43,640.64 grams of silver bullion and cash of Rs. 29,71,270/-. Both were seized under Section 110 of the Act on the belief that the silver had been smuggled into India without payment of duty and that the cash represented the sale proceeds of smuggled gold and silver.
The adjudicating authority ordered confiscation of the silver under Section 111 and of the cash under Section 121. The Commissioner (Appeals) set both aside and the CESTAT affirmed that order, against which the revenue appealed to the High Court under Section 130 of the Act.
On the silver, the Court recorded that the sole ground for the seizure was that the quantity found exceeded what the stock ledger showed. Nothing else pointed to smuggling.
“Neither the silver was seized when it was being transported in a surreptitious manner nor the carriers, who were intercepted, had tendered any statements with regard to smuggling of silver. Furthermore, there was no foreign mark on the silver that was seized.”
“unless the customs authorities are able to clearly bring a nexus between the silver and its smuggling, the burden of proof under Section 123 of the Act would not shift on the respondent”
The Court referred to the Constitution Bench decisions in Gian Chand vs. State of Punjab and Collector of Customs vs. Nathella Sampathu Chetty, rendered on Section 178-A of the Sea Customs Act, 1878, which it described as akin to Section 123 of the Customs Act, 1962, and which settled that reasonable belief is a condition precedent to the power of seizure.
“Reasonable belief must be backed by sufficient evidence of smuggling and mere suspicion is not sufficient to justify seizure, and the prosecution must provide substantive evidence of foreign origin. If there are no foreign markings or documentation, the Customs authorities cannot simply assume that the silver in question were smuggled goods.”
It also drew on the Delhi High Court's judgment in Shanti Lal Mehta vs. Union of India, where it was held that reasonable belief must rest on some material and not on suspicion. Since the initial burden had never been discharged by the revenue, the Court held that it remained on the department to show that the silver had been brought into the country without payment of the appropriate customs duty, and that the department had failed to do so.
The cash was dealt with separately. It had been held liable to confiscation on the footing that it was the sale proceeds of smuggled gold and silver, having regard to the pendency of proceedings against Pugaliya under the Prohibition of Benami Property Transactions Act, 1988.
“In the instant case, the cash seized was in Indian currency, which falls outside the ambit of Section 123 of the Customs Act, being a non-notified item.”
“The Revenue seized the cash merely on the basis of suspicion, without there being any cogent evidence to establish that it represented the sale proceeds of smuggled gold and silver. Neither was the cash recovered in a clandestine or secretive manner, nor was there any evidence to suggest that the cash constituted the sale proceeds of smuggled goods.”
Holding that the orders of the Commissioner (Appeals) and the CESTAT on the silver and the cash rested on adequate material, including the stock ledger and GST paid purchase invoices certified by a chartered accountant, the Court answered both substantial questions in the negative so far as those two items were concerned. The confiscation of the three gold bars was upheld, the order of the adjudicating authority to that extent was restored, and the penalties imposed by the adjudicating officer were reduced to 50%. The appeals were partly allowed.
For Appellant: Saurabh Yadava
For Respondent: Jameel Ahmad, Vineet Kumar Singh