ANIRUDH VERMA vs Principal Commissioner of Customs (Prev), Mumbai

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH

CUSTOMS APPEAL NO.86782 OF 2026

[Arising out of Order-in-Appeal No.MUM-CSTOM-PAX-APP-847-849/2026-27
dated 07.08.2026 passed by the Commissioner of Customs(Appeals),
Mumbai Zone-III]

ANIRUDH VERMA
RE-8, Raghunathpur Housing Complex, Near Avenue
Nursing Home, VIP Road, Kolkata
West Bengal-700059
Appellant
Vs.
PRINCIPAL COMMISSIONER OF CUSTOMS
(PREV)-MUMBAI
nd
2 Floor, New Custom House, Ballard Estate,
Mumbai-40001
Respondent

Appearance:
Present for the Appellant: Shri Vineet Singh, Advocate
Present for the Respondent:Shri Vipin Jadhav (AR)

CORAM:
HON'BLE MR. AJAY SHARMA, MEMBER ( JUDICIAL )
HON'BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)
FINAL ORDER NO.86374/2026
Date of Hearing: 22.09.2026
Date of Decision:04.11.2026

PER BENCH
This appeal has been filed by the appellant assailing the
impugned Order-in-appeal dated 7.8.2026 whereby the learned
Commissioner upheld the Order-in-Original dated 9.5.2017 passed by
the Additional Commissioner of Customs (Prev.), R&I Division,
Mumbai, was upheld. By the said Order-in-Original, the Adjudicating
Authority ordered for confiscation of the 12 gold bars weighing 12 kg.
in total (valued at Rs. 3,17,16,000/-) u/Ss. 111(b), (d) & (l) of
Customs Act, 1962 and imposed penalty on the appellant under the
provisions of the said Act.
2. The facts leading to the filing of the appeal are stated in brief
as follows. On 20.1.2016, the officers of the Directorate of Revenue

2

Intelligence (hereinafter referred to as ‘DRI’ ), Mumbai Zonal Unit,
intercepted two passengers, namely s/Shri Sitaram Karel and Kailash
Verma, at Mumbai Terminal-2, upon their arrival on a domestic flight
from Kolkata. Their personal search resulted in recovery of 12 gold
bars of foreign origin, weighing 1 kg. each, totally valued at
Rs.3,17,16,000/- and the same was seized under Panchnama dated
20.1.2016.
3. At the time of interception, the passengers were found in
possession of a Stock Issue Memo dated 19.01.2016 issued by M/s.
S.L. Karel & Sons, Kolkata, describing the goods as ‘Fine Gold for
Manufacturing, Purity 99.50 Carat’ in favour of M/s. Safari Bullions
Pvt.Ltd., Mumbai. During the recording of their statements u/s. 108
of the Customs Act, 1962, both of them admitted that the gold was
smuggled from Bangladesh into India and that the Stock Issue Memo
was merely a cover document to facilitate safe domestic transit.
Subsequently, they retracted their respective statements before the
Learned Chief Metropolitan Magistrate (CMM), Mumbai on
22.01.2016, alleging coercion, threat, and force by the investigating
officers.
4. In follow-up operations on 20.01.2016, the DRI searched the
business and residential premises of Shri Anirudh Verma, proprietor
of M/s. Maa Kali Jewelers, Kolkata. Several incriminating documents,
electronic devices, and stock registers were seized. Shri Anirudh
Verma was arrested on 20.01.2016. His statement was recorded u/s.
108 ibid, which was also retracted subsequently by way of an
Affidavit before the Court of Chief Metropolitan Magistrate, Mumbai
on 21.01.2016. Statements of other individuals, including Shri Amar
Kadam (who melted the allegedly smuggled gold ornaments), were
also retracted later on.

3

5. The DRI investigators obtained travel details and flight
manifests from domestic airlines for Shri Sitaram Karel and Shri
Kailash Verma. The department alleged that these carriers had
undertaken various trips in the preceding year. Based on an
extrapolation of 6 Kgs of gold smuggled per trip, the department
estimated that the syndicate had smuggled foreign-origin gold, in the
past also without payment of customs duty by aggregating 103
alleged journeys attributed to the two carriers and multiplying those
journeys by an assumed quantity of 6 kg. per journey.
6. The investigation culminated in the issuance of show cause
notice dated 12.7.2016 to the appellant and other co-noticees,
proposing absolute confiscation of the seized 12 kgs of gold u/Ss.
111(b), (d) & (l) and proposing heavy personal penalties u/Ss.
112(a), (b) and 114AA and also proposed penalties on the alleged
past import of foreign origin gold.
7. The Appellant submitted a detailed reply with documentary
evidence to the Ld. Adjudicating Authority and contested all the
charges in the show cause notice mainly contending that the seized
gold was duly recorded in his books of accounts; and that the source
of procurement of the 12 kg of gold had been submitted during the
investigation itself. The Adjudicating Authority vide Order-in-Original
dated 9.5.2017 ordered the absolute confiscation of the seized 12
Kgs. Of gold u/s.111 ibid and imposed penalties under various
provisions of Customs Act, 1962. The Appeal preferred by the
Appellant before the learned Commissioner (Appeals) vide order
dated 21.9.2023 initially rejected for failure of mandatory pre-deposit
u/s. 129E ibid. On Appeal filed by him before this Tribunal against the
aforesaid order, this Tribunal vide Order dated 27.1.2026 and also

4

Order dated 24.3.2026 has held that since the seized gold valued at
Rs.3.17 Crores was absolutely confiscated and remained in the
physical custody of the department, the value of such gold suffices as
security and should be adjusted as deposit for the purposes of
Section 129 E ibid and while setting aside the rejection order, the
matter was remanded back to the learned Commissioner for a fresh
decision on merits. Whereupon the learned Commissioner (Appeals),
vide impugned order dated 07.8.2026 upheld the Order-in-Original
passed by the Adjudicating Authority of confiscation of the gold bars
totally weighing 12 Kgs. Seized on 20.1.2016 u/Ss. 111(b), (d), & (l)
ibid alongwith penalties under various provisions. Although the
alleged illegally imported gold was not available for confiscation u/Ss.
111(b), (d) & (l) however the same was also held liable for
confiscation. Personal penalties were also imposed under various
provisions.
8. Learned counsel appearing for the appellant submits that the
Revenue failed to establish the 'reasonable belief' to seize the gold
bars weighing 12 kg from the two passengers, Shri Sitaram Karel and
Shri Kailash Verma. He further submits that the evidence on record
failed to prove that the gold bars were smuggled into India from
Bangladesh without any legal documents. According to learned
counsel, on the facts and circumstances of this case, the benefit of
the presumption u/s. 123 of the Customs Act, 1962 was not available
to Revenue. He also submits that the retracted statements of the co-
accused cannot be relied upon to establish the guilt of the Appellants,
when the procedure prescribed under Section 138B of the Customs
Act was not followed. Hence the penalties imposed on the Appellants
u/Ss. 112(a), 112(b) and 114AA of the Customs Act, 1962 are liable
to be set aside.

5

9. Per contra, learned Authorised Representative for Revenue
reiterated the findings recorded in the impugned order and submits
that u/s. 123 of the Customs Act, 1962, it is the responsibility of the
person claiming ownership of the gold to prove that it was not
smuggled. Learned Authorised Representative prayed for dismissal of
the appeal.
10. We have heard learned counsel for the appellant and learned
Authorised Representative appearing for Revenue and perused the
case records including the written submissions/synopsis and the case
laws placed in record. The entire case of Revenue, it seems, solely
based on the statements of the persons recorded u/s. 108 ibid which,
as per learned counsel, were retracted however still relied upon by
the adjudicating authority for confiscation of the gold and imposing
penalties. Now we will examine the provisions of the Customs Act,
which have been applied by the authorities blow, in the facts of these
appeal. We will take the issues one by one in the following
paragraphs.
11. According to learned counsel the department had no reasonable
basis, at the time of seizure, to believe that the gold was smuggled
and that they failed to discharge the onus of proof, whereas the
appellant has discharged the burden of proof u/s.123 ibid and
therefore the gold was not liable to be seized in the first place. He
further submits that the statutory presumption u/s. 123 could not be
invoked without satisfying its foundational requirement. The appellant
also relies upon purchase invoices, stock records, a physical
verification report issued by the Deputy Commissioner of VAT,
Kolkata and documents relating to receipt and melting of old gold
ornaments.

6

The formation of reasonable belief is not a matter of mere subjective
suspicion. It must be founded on circumstances and material capable
of supporting the conclusion that the goods are smuggled. The
existence of such material is open to judicial scrutiny. At the same
time, the law does not require the Department to establish the entire
case for confiscation conclusively before effecting a seizure. The
question is whether the circumstances available at the relevant time
provided a rational basis for the requisite belief.
12. In the present case, the gold was recovered from two persons
travelling on a domestic flight from Kolkata to Mumbai. The bars bore
no foreign markings. The Department has not identified any bill of
entry, international transport document or other independent
material connecting the specific bars to an importation from
Bangladesh. The allegation of smuggling rests substantially upon the
statements attributed to the carriers and other persons during
investigation.
13. The expression “reasonable belief” in Section 123 ibid is a
condition precedent to the shifting of the burden of proof from the
Customs Department to the person from whose possession the goods
are seized. The belief must relate to the goods being smuggled and
must rest on circumstances or material capable of reasonably
supporting that belief. Mere suspicion, conjecture or the inability of a
person to explain possession does not, by itself, satisfy this statutory
requirement. The expression does not refer merely to the personal
suspicion or subjective satisfaction of the seizing officer. The belief
must be that of a reasonable person, founded on reasonable grounds
and the existence of material supporting the belief is open to judicial
scrutiny. The Hon’ble Delhi High Court in Shanti Lal Mehta (supra)
rejected the invocation of the statutory presumption where the

7

circumstances amounted to suspicion or speculation rather than
reasonable belief.
14. The distinction between material available before seizure and
material collected subsequently is material. A statement recorded
after the seizure may form part of the investigation and may, subject
to the applicable law of evidence, be relevant to the ultimate
allegation. It cannot, merely by its subsequent existence,
retrospectively establish that the statutory condition governing the
seizure had already been fulfilled. The record, as placed before us,
does not adequately demonstrate the independent circumstances on
which the requisite belief was founded at the time of seizure.
15. The power conferred by Section 110 ibid carries a pre-condition
for seizure. The proper officer must have reason to believe that the
goods are liable to confiscation under the Act. Once a seizure is
made, Section 123 shifts to the person from whom the goods are
seized the burden of proving that the goods are not smuggled.
Therefore the formation of "reasonable belief" u/s.110, a pre-
condition for seizure and for shifting the burden u/s. 123, must rest
on something more than the bare fact that an item carries a foreign
brand or marking. Reasonable belief as required by Section 110
refers to the point of time when the goods are seized, and not to a
stage subsequent to the act of seizure. The existence of such a
reasonable belief before the seizure is a condition precedent to
invoking the presumption u/s. 123. In the present case, there was no
reasonable belief that the gold bars were smuggled or of foreign
origin, because they bore no foreign marking. The DRI formed its
belief only after recording the statements of the apprehended
persons, who stated that the gold was smuggled from Bangladesh. To
form a 'reasonable belief' that goods are smuggled from Bangladesh,

8

there must be irrefutable evidence of that allegation. In the present
case, no such evidence is available to prove that the goods were of
foreign origin and smuggled into India from Bangladesh.
16. In Assistant Collector of Customs v. Charan Das Malhotra ,
(1971) 1 SCC 697, the Hon’ble Supreme Court considered the
statutory requirement of reasonable belief in the context of the power
of seizure. The principle emerging from the statutory scheme is that
the existence of the requisite belief must be assessed with reference
to the material and circumstances relevant to the exercise of that
power. Suspicion, however strong, cannot be substituted for the
statutory requirement.
17. The gold bars in issue were seized from Shri Sitaram Karel and
Shri Kailash Verma while they were travelling by air from Kolkata to
Mumbai and not from any place abroad. Therefore it was also not
established that they were coming to India from a place outside
India. The seizure took place far from any Customs Station, Air or
Sea port as notified under the Customs Act, 1962. The gold pieces
bore no foreign markings, and their purity was found to be 99.49%
and not 99.99%. Therefore the authorities failed to establish a
reasonable belief before effecting the seizure.
18. A co-ordinate Bench of the Tribunal in Balanagu Naga Venkata
Raghavendra v. CC Vijayawada , 2021 (378) ELT 493 (Tri-Hyd), has
also held that the burden u/s. 123 will not shift to the Appellants
where gold without foreign markings is seized from a city. Relevant
paragraphs of the said decision are extracted hereunder: -
“14. The confiscation of the gold by the adjudicating authority was
set aside by the Tribunal and on appeal by the Revenue the Hon’ble
High Court of Kerala, in the above factual matrix, has overturned the
decision of the Tribunal. Therefore, it was not merely the purity of
the gold in question but also the statements made during the
investigation which formed the basis of the reasonable belief of the
officers. In the present case, none of the statements recorded by the

9

Department admit to or even suggest that the gold was smuggled
gold. It has also not been brought out in the show cause notice that
the purity of the seized gold is such that it could only have been of
foreign origin. It is true that the conduct of the appellants was
suspicious inasmuch as the gold pieces were being carried in
newspapers and a letter was found written to one Shri Vijay in Trissur
for requesting the gold to be handed over to the bearer of the letter.
It is also confirmed by the DCM, Railways that the appellants had
travelled from Trissur to Vijayawada by train. However, we note that
Trissur is not even a port in itself. The gold was apparently collected
from one Shri Vijay in Trissur. There were also several contradictions
between different statements as recorded in para 16 of the show
cause notice. All these would show that Shri Kanaka Ratnam
(Appellant in Appeal No. 30496 of 2017) wrote a letter to Shri Vijay
of Trissur to hand over gold to the bearer of the letter and both the
letter and the gold were recovered from his son Shri Naga Venkata
Raghavendra (Appellant in Appeal No. 30495 of 2017). Both the
appellants had travelled by train from Trissur to Vijayawada. Naga
Venkata Raghavendra was acting suspiciously when the Officers
approached him. Subsequent statements were contradictory to each
other. These factors by themselves cannot, in our considered opinion,
constitute the basis for forming a reasonable belief that the seized
gold was smuggled. Therefore, the Officers did not have a reasonable
belief in the first place to assert that the seized primary gold was
smuggled gold which is essential to shift the burden on to the
accused under Section 123. The case of Om Prakash Khatri (supra)
was different inasmuch as in that case while the foreign markings
were missing on the gold in that case the carriers had admitted that
they were carrying smuggled gold for Shri Khatri and that it was
smuggled through Kerala and they were carrying it to Bombay and
marks and numbers have been deleted to avoid being caught. They
also admitted that they avoid air travel as there is a high risk of
being caught. Coupled with these statements was the fact the gold of
very high purity. The ratio of this judgment does not apply to the
present case and the facts are quite different.
15. In view of the above, we find that the officers of the Department
had no reasonable belief that the gold was smuggled and therefore
they have not discharged their responsibility of forming reasonable
belief under Section 123 without which the burden of proof will not
shift to the person from whom the gold is seized. The impugned
order and show cause notice suffer from this infirmity and therefore
the confiscation as well as the penalties need to be set aside.”

19. We are conscious that the absence of foreign markings, or the
fact that the gold was recovered during domestic travel, is not by
itself conclusive proof of indigenous origin. Nor does the purity of
gold, standing alone, determine its place of origin. These
circumstances must be considered cumulatively with the other
evidence. In the present case, however, the evidentiary deficiency is

10

more fundamental. The Department has not satisfactorily established
the connection between the seized bars and any act of illegal
importation, while the statements relied upon to supply that
connection are themselves subject to serious evidentiary objections
considered below.
20. In the instant matte the purity as per the MINT was 99.47%,
which would not lead any prudent person to accept that the
impugned gold pieces were of foreign origin and smuggled into India.
Department has miserably failed to establish wherefrom the gold bars
have come? Or who smuggled it? How was it brought into India? How
& in which at manner it was handed over to the Appellants or their
agents? Therefore, the claim of reasonable belief is nothing but a
presumption without there being any corroborative evidence. No
document on record establishes that the gold bars were smuggled
into India from a place outside India. Importantly, not even a single
document or payment trail placed on record indicating that the
Appellant, or any other person concerned, was in touch with anyone
abroad and any payment has been made overseas. The impugned
order concluded that the gold bars were smuggled into India only on
the basis of statements, which were retracted, without any evidence
to substantiate the claim.
21. In these circumstances, the material on record does not
establish the foundational requirement for shifting the burden of
proof u/s. 123. The statutory presumption cannot, therefore, be
employed to cure the deficiencies in the Department’s own case. The
appellant’s explanation and documents must consequently be
evaluated on their evidentiary worth, without treating the alleged
smuggled character of the gold as established merely by operation of
that presumption.

11

22. Admittedly, when the Appellant's premises was searched on
20.01.2016, stock register of gold, vouchers and other records were
seized, as mentioned in the show cause notice and the adjudication
order. The Adjudication Order records nine tax invoices issued by M/s
Neelkanth Aabhushan Pvt. Ltd. and M/s Anjani Gold Pvt. Ltd.,
evidencing the purchase of 6,019.160 grams of fine gold. The
physical verification report dated 2.12.2016, issued by the Deputy
Commissioner of VAT, Kolkata, categorically records that the
Appellant held a stock of 6,017.400 grams of gold of 99.50% purity
on that date, together with cash of Rs.53,238/- as reflected in the
cash book. However, the Adjudicating Authority discarded the same
on account of minor discrepancy between the weight of gold recorded
during physical verification and that reflected in the stock register. A
discrepancy of this nature cannot, without examination of its
magnitude, cause and surrounding circumstances, justify wholesale
rejection of an official physical verification report. Equally, the
evidentiary significance of the report must be assessed with due
regard to its date and the stock actually verified. The report is
relevant to the appellant’s maintenance of gold stock and business
records; it cannot, by itself, establish the provenance of the particular
bars seized on 20.1.2016 unless the necessary connection is
demonstrated. Such a minor variation could arise from differences in
the weighing equipment used at different places one by the Appellant
and another by the verifying authority.
23. As regards the remaining quantity of gold, the Appellant
submitted documents evidencing receipt of old gold ornaments
weighing 6,600.48 grams from M/s S.L. Karel & Sons under Voucher
dated 19.1.2016. On the same date, the Appellant issued Gold Stock
Receipt No. GOR 002 in favour of M/s S.L. Karel & Sons. These

12

ornaments were sent to M/s Balaji Silver Refinery for melting and
conversion into bars. After melting, the refinery returned six gold
bars containing a total of 6,035.800 grams of fine gold under Challan
No. 80. The existence and relevant particulars of these documents
are acknowledged in the Adjudication Order. It is imperative to
mention that the department did not, on the material placed before
us, satisfactorily investigate the transaction with MM/s. S.L. Karel &
Sons, wherefrom the Appellant had procured the gold ornaments,
notwithstanding the availability of the relevant voucher and stock
receipt. The said documentary evidence was discarded by the
Adjudicating Authority solely on the basis of statement of one Amar
Kadam, a staff member of the refinery, who alleged that his
statement had been obtained by the officers through coercion and
physical abuse and the same was retracted later on. Shri Vijay
Devkar, the owner of M/s Balaji Silver Refinery, also submitted an
affidavit affirming that he had melted the gold ornaments on
19.1.2016 and returned the gold to M/s Maa Kali Jewellers the
proprietary concern of the appellant. The documentary explanation
cannot be rejected merely on the assumption that the appellant’s
financial capacity or ordinary volume of business made the
transaction commercially improbable. Such considerations may justify
verification, however cannot replace evidence.
24. Considering the DC VAT verification report dated 2.12.2016 and
the gold ornaments voucher issued by S.L. Karel & Sons, it is clear
that on 19.1.2016 the stock of gold in hand was 12 kg, which was
sent to Mumbai for manufacturing gold coins through two persons on
20.1.2016.
25. As the existence of reasonable belief was suspect, the onus of
proving otherwise was on the Department. The Appellants have

13

discharged the burden by producing documents and accounts. Once
the persons from whom the gold was seized claimed licit purchase of
the impugned gold, it was incumbent on the investigation to disprove
that claim with evidence, after taking the enquiries to a logical
conclusion. That not having been done, the Revenue cannot say that
the Appellants failed to discharge the burden of proof. We accordingly
find that the documentary evidence has not been satisfactorily
rebutted by the Revenue. This finding is not based upon an
assumption that every document produced by the appellant must
necessarily be accepted, but upon the failure of the investigation to
disprove the material explanation through cogent and legally
admissible evidence.
26. Now the issue concerns the reliance placed upon the
statements recorded u/s.108 ibid without following the procedure
prescribed u/s.138B of the Customs Act, 1962. Learned counsel
submits that the retracted statements do not have evidentiary value.
He submits that the impugned order is entirely based on the
statements of the co-accused, without any independent,
corroborative evidence, and that the lower Authoritys’ orders
confiscating the gold bars and imposing penalty on the Appellant only
on that basis.He further submit that the statements of the co-accused
cannot be considered, in view of the Adjudicating Authority's non-
compliance with the mandate of Section 138B of the Customs Act,
1962, which is pari materia with Section 9D of the Central Excise Act,
1944.
27. Section 108 empowers a Gazetted Customs Officer to summon
persons to give evidence or produce documents in an inquiry. The
existence of that power does not, however, dispense with the
requirements governing the relevance and use of statements in

14

adjudication. Section 138B, by virtue of sub-section (2), extends the
prescribed safeguards to proceedings under the Act other than
proceedings before a court.
28. Identical issue came up for consideration before the co-ordinate
Bench of the Tribunal in Customs Appeal No. 50647 of 2024, Shri
Gourav Jain vs. The Commissioner of Customs wherein the Tribunal
vide Final Order No. 50222/2026 dated 6.2.2026 allowed the appeal
filed by the appellant/noticee.
29. Similarly in Commissioner of Central Excise, Meerut-I v.
Parmarth Iron Pvt. Ltd.; 2010 (260) E.L.T. 514 (All.), Hon'ble High
Court of Judicature at Allahabad held that if the Revenue chooses not
to examine witnesses in adjudication, their statements cannot be
considered as evidence. If they seek to rely upon them, the makers
of the statements must be made available for cross-examination.
30. The same analogy was applied by the Tribunal in Flemingo DFS
Pvt. Ltd. v. Commissioner of Customs, Visakhapatnam , 2018 (363)
ELT 450 (Tri-Hyderabad), by holding that if the Revenue chooses not
to examine any person in the adjudication proceedings, it amounts to
giving up that witness, and such a statement cannot be considered
relevant.
31. In the instant matter, since the co-accused whose statement
has been relied upon in this case was not examined in adjudication
proceedings, his statement could not have been considered by the
Adjudicating Authority. We find that the Adjudicating Authority relied
on the retracted statements, and that too without following the
procedure prescribed u/s. 138B ibid. Section 138 B ibid is extracted
hereunder for ready reference:-

15

"138B. Relevancy of statements under certain circumstances. (1) A
statement made and signed by a person before any Customs Officer
of a gazetted rank during the course of any inquiry or proceeding
under this Act shall be relevant, for the purpose of proving, in any
prosecution for an offence under this Act, the truth of the facts which
it contains,
(a) when the person who made the statement is dead or
cannot be found, or is incapable of giving evidence, or is kept
out of the way by the adverse party, or whose presence cannot
be obtained without an amount of delay or expense which,
under the circumstances of the case, the Court considers
unreasonable; or
(b) when the person who made the statement is examined as
a witness in the case before the Court and the Court is of
opinion that, having regard to the circumstances of the case,
the statement should be admitted in evidence in the interests
of justice.
(2) The provision of sub-section (1) shall, so far as may be, apply in
relation to any proceeding under this Act, other than a proceeding
before a Court, as they apply in relation to a proceeding before a
Court."

Section 138-B ibid mandates consideration of the relevancy of the
statements of witnesses under certain circumstances. The use of the
word "shall" in Section 138B(1) makes it clear that the provisions of
the sub-section are mandatory. Sub-sections (1) and (2) of Section
138-B stipulate that the statements which are made and signed by
the persons before any Gazetted Officer during the course of inquiry
or proceedings under the Act can be treated as relevant subject to
certain procedure mentioned therein. As far as the provision of clause
(b) is concerned, the same relates to the admissibility of the
statements in evidence in the interest of justice, which are made by
the witness, who is available during the course of inquiry or
proceedings, and has offered for cross-examination. Thus, clause (b)
envisages and introduces the element of cross-examination of the
witness who has given the statement before the officer during the
course of inquiry or proceedings. Unless an opportunity of cross-
examination is given to the person against whom the statement of
such witness is proposed to be used, the same is inadmissible in

16

evidence, since the denial or absence of cross-examination of the
witness, and the admissibility of such statement in evidence will be in
violation of the principles of natural justice and also against fair play
and equity. However, clause (a) exposits a different approach. Clause
(a) authorizes the officer to consider the relevancy of the statements
of that witness, who under the circumstances narrated therein, is a
person/witness, who cannot be produced or is unavailable for cross-
examination. The language of clause (a) is akin to Section 32 of the
Indian Evidence Act, 1872, which prescribes the evidentiary value of
the statement of a witness who is not available to testify. However,
the quintessential feature is that the statement of such witness can
be treated as relevant only when the circumstances mentioned in
clause (a) regarding the non-availability of the person/witness are
established and a finding is recorded to the extent that it is
impossible to secure the presence of the person. At this stage, while
attempting to secure the presence of such a witness, an opportunity
is also required to be offered to the assessee for securing presence of
the witness at his/her expense. The process of securing the witness
should not be delayed as per the provision of clause (a), and effort
should be made for a reasonable time, and the inquiry or the
proceedings should not procrastinated beyond a reasonable time. In
case all attempts have failed to secure the presence of the witness
within a reasonable time, then a finding has to be recorded on this
aspect. After such a finding is recorded by the officer, the officer has
to give an opportunity to the assessee to respond to the statement of
such witness. The statement of such witness, recorded during the
course of inquiry or proceedings, cannot be used against the assessee
unless he is confronted with the statement and has been afforded full
opportunity to deal with the same. The officer cannot blindly rely on

17

the bare statement of the witness unless some corroborative material
is produced to support such statement, and the assessee is offered
an opportunity to rebut the same. The officer has to record reasons,
based upon the material placed before him, for arriving at a definite
finding. In our opinion, in either of the scenarios envisaged in clause
(a) or clause (b), the evidence has to pass the test of admissibility in
the interest of justice. The rationale for the precaution i/s. 138B is
obvious. A statement recorded during inquiry or investigation by the
Gazetted Customs Officer has every chance of having been recorded
under coercion or compulsion. It is a matter of common knowledge
that, on many occasions, the officer concerned resorts to various
things in order to extract the confessional statements and therefore
in order to overcome this possibility, before admitting such a
statement in evidence, clause (b) of Section 138B(1) mandates that
the evidence of the witness be recorded before the adjudicating
authority, as in such an atmosphere there would be no occasion for
any trepidation on the part of the witness concerned.
32. Admittedly no such procedure has been followed by the
Adjudicating Authority before or at the time of passing the order.
None of the makers of the relied-upon statements were examined as
a witness before the said authority. Unless an exceptional
circumstance as mentioned in clause (a) exists, a statement recorded
u/s.108 can be relied upon only after the maker is examined as a
witness and the Adjudicating Authority forms the statutory opinion as
contemplated by clause (b).
33. In Additional Director General v. It's My Name Pvt. Ltd. , 2021
(375) E.L.T. 545 (Del.) the Hon’ble Delhi High Court examined the
provisions of sections 108 and 138B of the Customs Act. The

18

department therein placed reliance upon the statements recorded
under section 108 of the Customs Act. The Hon’ble High Court held
that the procedure contemplated under section 138B(1)(b) has to be
followed before the statements recorded under section 108 of the
Customs Act can be considered as relevant. The relevant paragraphs
of the said decision are reproduced hereunder:

“76. We are not persuaded to change our view, on the basis of the
various statements, recorded under section 108 of the Act, on which
the Learned ASG sought to rely, statements, under section 108 of the
Act, we may note, though admissible in evidence, acquire relevance
only when they are, in fact, admitted in evidence, by the adjudicating
authority and, if the affected assesse so chooses, tested by cross-
examination. We may, in this context, reproduce, for ready
reference, Section 138B of the Act….
A Division Bench of this Court has, speaking through A.K.Sikri, J. (as
he then was) held, in J & K Cigarettes Ltd. v. Collector of
Central Excise [2009 (242) E.L.T.189 (Del)] that, by virtue of sub-
section (2), Section 138B (1) of the Act would apply, with as much
force, to adjudication proceedings, as to criminal proceedings.
Xxx xxx xxx
We express our respectful concurrence with the above elucidation of
the law which, in our view, directly flows from Section 138B (1) of
the Act – or, for that matter, Section 9D of the Central Excise Act,
1944.
77. The framers of the law having, thus, subjected statements,
recorded under section 108 of the Act, to such a searching and
detailed procedure, before they are treated as relevant in
adjudication proceedings, we are of the firm view that such
statements, which are yet to suffer such processual filtering, cannot
be used, straightaway, to oppose a request for provisional release of
seized goods. The reliance, in the appeal before us, on various
statements recorded during the course of investigation in the present
case cannot, therefore, in our view, invalidate the decision, of the
Learned Tribunal, to allow provisional release of the seized 25400.06
grams of gold jewellery, covered by Bill of Entry No.107190, dated
th
20 April, 2019.”

19

Similarly in Jindal Drugs Pvt. Ltd. v. Union of India , 2016 (340) E.L.T.
67 (P&H), the Hon’ble Punjab & Haryana High Court also laid down
the same principle.

34. The principle relevant here is that such statements cannot be
treated as substantive proof of the facts asserted merely because
they were recorded by a Customs Officer. The procedure prescribed
under Section 138B must be followed where the statements are
sought to be relied upon in adjudication.

35. Section 108 of the Customs Act deals with power to summon
persons to give evidence and produce documents. It provides that
any Gazetted Officer of customs shall have the power to summon any
person whose attendance he considers necessary either to give
evidence or to produce a document or any other thing in any inquiry
which such officer is making under the Customs Act. Section 138B of
the Customs Act deals with relevancy of statements under certain
circumstances. It would be seen that Section 108 enables the
concerned Officers to summon any person whose attendance they
consider necessary to give evidence in any inquiry which such
Officers are making. The statements of the persons so summoned are
then recorded under this provisions. It is these statements which are
referred to in section 138B of the Customs Act. A bare perusal of sub-
section (1) of section 138B makes it evident that the statement
recorded the concerned officer during the course of any inquiry or
proceeding shall be relevant for the purpose of proving the truth of
the facts which contains only when the person who made the
statement is examined as witness before the Court and such Court is
of the opinion that having regard to the circumstances of the case,
the statement should be admitted in evidence, in the interests of
justice, except where the person who tendered the statement is dead
or cannot be found. In view of the provisions of sub-sections of (2) of
section 138B of the Customs Act, the provisions of sub-section (1) of
Customs Act shall apply to any proceedings under the Customs Act as
they apply in relation to proceedings before a Court. What, therefore,
follows is that a person who makes a statement during the course of
an inquiry has to be first examined as a witness before the
adjudicating authority and thereafter the adjudicating authority has
to form an opinion whether having regard to the circumstances of the

20

case the statement should be admitted in evidence, in the interests of
justice. Once this determination regarding admissibility of the
statement of a witness is made by the adjudicating authority, the
statement will be admitted as an evidence and an opportunity of
cross-examination of the witness is then required to be given to the
person against whom such statement has been made. It is only when
this procedure is followed that the statements of the persons making
them would be of relevance for the purpose of proving the facts
which they contain.

36. Although the Appellant had asked for cross-examination of both
the apprehended persons and of Amar Kadam, which has been duly
recorded in Order, however the same was not granted by the
Adjudicating Authority. In our view, the department cannot rely upon
such statements and those have no evidentiary value. If the
testimony of these witnesses is discredited, there was no material
with the Department on the basis of which it could proceed against
the appellant because the inference about the smuggled nature of the
gold pieces has been made only on the basis of the statements. In
arriving at this conclusion we find support from the law laid down by
the Hon’ble Supreme Court in Andaman Timber Industries v.
Commissioner of Central Excise, Kolkata-II , 2015 (324) E.L.T. 641
(S.C.), the relevant paragraphs of which are extracted hereunder:-
“ xxx xxx xxx
6. According to us, not allowing the assessee to cross-examine the
witnesses by the Adjudicating Authority though the statements of
those witnesses were made the basis of the impugned order is a
serious flaw which makes the order nullity inasmuch as it amounted
to violation of principles of natural justice because of which the
assessee was adversely affected. It is to be borne in mind that the
order of the Commissioner was based upon the statements given by
the aforesaid two witnesses. Even when the assessee disputed the
correctness of the statements and wanted to cross-examine, the
Adjudicating Authority did not grant this opportunity to the assessee.
It would be pertinent to note that in the impugned order passed by
the Adjudicating Authority he has specifically mentioned that such an
opportunity was sought by the assessee. However, no such
opportunity was granted and the aforesaid plea is not even dealt with
by the Adjudicating Authority. As far as the Tribunal is concerned, we
find that rejection of this plea is totally untenable. The Tribunal has
simply stated that cross-examination of the said dealers could not
have brought out any material which would not be in possession of
the appellant themselves to explain as to why their ex-factory prices
remain static. It was not for the Tribunal to have guess work as to for
what purposes the appellant wanted to cross-examine those dealers
and what extraction the appellant wanted from them.
7. As mentioned above, the appellant had contested the truthfulness
of the statements of these two witnesses and wanted to discredit
their testimony for which purpose it wanted to avail the opportunity

21

of cross-examination. That apart, the Adjudicating Authority simply
relied upon the price list as maintained at the depot to determine the
price for the purpose of levy of excise duty. Whether the goods were,
in fact, sold to the said dealers/witnesses at the price which is
mentioned in the price list itself could be the subject matter of cross-
examination. Therefore, it was not for the Adjudicating Authority to
presuppose as to what could be the subject matter of the cross-
examination and make the remarks as mentioned above. We may
also point out that on an earlier occasion when the matter came
before this Court in Civil Appeal No. 2216 of 2000, order dated 17-3-
2005 [2005 (187) E.L.T. A33 (S.C.)] was passed remitting the case
back to the Tribunal with the directions to decide the appeal on
merits giving its reasons for accepting or rejecting the submissions.
8. In view the above, we are of the opinion that if the testimony of
these two witnesses is discredited, there was no material with the
Department on the basis of which it could justify its action, as the
statement of the aforesaid two witnesses was the only basis of
issuing the show cause notice.
9. We, thus, set aside the impugned order as passed by the Tribunal
and allow this appeal.”

37. Apart from above, we are aghast to see the reasoning of the
Adjudicating Authority for not taking the retraction of the statements
into consideration and still relying upon them while fastening the
liability on the appellant. The findings of the lower authority are as
under:-
“Authenticity of Statement
48.1 I find that some of the Noticees have contended that they have
retracted their statements recorded under Section 108 of the
Customs Act, 1962 as the same were obtained under
coercion/duress/threat/ force. I have gone through their contentions.
47.2 I find that Noticee No 3 Shri Anirudh Verma has contended
that he has retracted his statement dated 20.01.2016 by his Affidavit
dated 21.03.2016stating there that the said statement was taken
forcefully and is involuntary and not true and correct reflection of
facts. From the statement dated 20.01 2016 recorded under Section
108 of the Customs Act, 1962, I find that Shri Anurudh Verma has
himself in his own handwriting admitted that the said statement has
been given voluntarily without any threat/pressure or coercion; that
it is true to the best of his knowledge and that he agrees to the
content of the statement. Further, the noticee has not produced any
evidence to substantiate his claim that his statement was taken
forcefully. I, therefore, do not find any merit in the subsequent
retraction and accordingly hold that the statement dated 20.01.2016
of Shri Anurudh Verma is true and of voluntary nature.
48.3 I find that Shri Uttam Malakar, Noticee No. 4, in his written
reply dated 08.08.2016 has claimed that his statement dated
20.01.2016 may not be treated as his voluntary statement as it was

22

given under coercion and was completely instructed by the officers of
DRI. I find that the retraction has been made after more than 6
months of recording of his statement and appeal's to be an
afterthought. I find that in the concluding para of his statement, Shri
Uttam specifically admitted that the statement was given by him
voluntarily without any pressure or fear and is true and correct.
Further, no evidence has been brought on record by him in support of
his claim of his statement having been recorded under coercion. I
therefore hold that the statement dated 20.01.2016 of Shri Uttam
Malakar is of voluntary nature.
48.4 I find that Shri Subal Addhya, Noticee No. 5, in his written
reply dated 08.08.2016 has claimed that statement of Uttam Malakar
has no evidentiary value because he has filed an Affidavit before the
Ld. Chief Metropolitan Magistrate, Kolkata, where he disagreed
regarding his voluntary statement. However, I find that no such
affidavit claimed to have been filed by Shri Uttam Malakar has been
brought on record either by Shri Uttam Malakar or by Shri Subal
Addhya. I am therefore not inclined to accept his claim and hold that
the statement of Shri Uttam Malakar is to be considered as an
evidence in this case.
48.5 I find that the SCN mentions at para 12 that Shri Sitaram Karel
(Noticee No. 9) and Shri Kailash Verma (Noticee No. 10) filed
retraction of their statements before the Hon'ble Additional Chief
Metropolitan Magistrate, Mumbai on 22.01.2016, stating that their
statements were recorded by the officers by force, threat and
coercion. A combined rebuttal stating all allegations made by Sitaram
Karel and Kailash Verma, as false and baseless was filed by the
Department before the Hon'ble Additional Chief Metropolitan
Magistrate, Mumbai and the same was taken on record by the
Hon'ble Court. I find that both Shri Sitaram Karel and Shri Kailash
Verma have not submitted a copy of retraction along with their
written reply to the SCN nor have they offered any defense in their
written reply with regard to the rebuttal filed by the department.
Further, I find that in their statement recorded on 25.02.2016, both
Shri Sitaram Karel and Shri Kailash Verma have stated that the
contents of their statement dated 20.01.2016 are true and correct
and the said statement was given by them voluntarily Further, in
their statement dated 25.02.2016 they have confirmed their
statement dated 20.01.2016 of being true and voluntary. They also
admitted that the application for retraction of their statement was
prepared by their advocate, that they had not read the said
application, that they had signed it as per advice of their advocate

23

and that while signing the same they were not aware of the contents
of the application Moreover, in their statements dated 20.01.2016
and 25.02.2016 Shri Sitaram Karel and Shri Kailash Verma
themselves in their own handwriting have acknowledged that the said
statements have been given by them voluntarily without any
force/threat/coercion. I am therefore of the considered view that
subsequent retraction by them is only an afterthought. Also, their
subsequent statements find mention that they were giving their true
and correct statement. Further, I find that Shri Sitaram Karel and
Shri Kailash Verma have failed to bring on record any piece of
evidence to substantiate their claim that their statement dated
20.01.2016 and 25.02.2016 and also the subsequent statements
were recorded under threat/force/coercion. It has also come record
that they have frequently travelled from Kolkata to Mumbai and back
by air as is established from their travel details provided by the
airlines which are corroborative evidences. Hence, I hold that the
statements of Shri Sitaram Karel and Shri Kailash Verma recorded
under Section 108 of the Customs Act, 1962 are true and voluntary
statements.
48.6 I find that Shri Anirudh Verma, Noticee No. 3, in his written
reply dated 27.10.2016 has contended that the statement dated
02.02.2016 of Shri Amar Kadam, employee of M/s. Balaji Silver
Refinery Shop, was recorded forcefully; that after being released by
DRI he treated him self before a Hospital and thereafter retracted his
statement dated02.02.2016. He submitted Affidavit dated
03.02.2016 of Shri AmarKadam retracting his statement and certain
medical papers. I find that the said medical papers only show bill for
ultrasonography of the abdomen and some medicines were given.
These papers do not indicate any medical legal examination report.
The noticee has not submitted any such report during the
adjudication proceedings. In the absence of medical legal
examination report on record, I find that subsequent retraction is an
afterthought and I hold that the statement of Shri Amar Kadam is
true and of voluntary nature.”

38. A statement recorded during investigation cannot be admitted
against a noticee merely by declaring it voluntary in the adjudication
order. The reasoning given by the adjudicating authority in discarding
the retraction is without any basis and against the principle of law.

24

37. We do not hold that a statement becomes inadmissible merely
because it has been retracted. Retraction is a circumstance to be
assessed with the timing of the retraction, the explanation offered,
the surrounding circumstances and the corroborative material.
Equally, the fact that a person initially recorded a statement as
voluntary does not render the subsequent retraction legally irrelevant
or relieve the adjudicating authority of its statutory obligations.

39. The adjudicating authority rejected the retractions substantially
on the ground that the persons concerned had initially acknowledged
their statements as voluntary, had not produced sufficient evidence
of coercion, or had retracted after a period of time. Those
considerations, even if relevant to assessing the credibility of the
statements, do not answer the separate question whether the
statements were legally available for reliance in adjudication in
compliance with Section 138B. Nor do they justify denial of cross-
examination where the statements are relied upon as material
evidence and their correctness is specifically disputed.

40. The deficiency assumes particular significance because the
statements are not merely corroborative of an otherwise established
case. They constitute the principal basis for concluding that the
seized gold was smuggled and that the appellant was connected with
its illegal importation. There is no adequate independent evidence
connecting the seized bars with a specific act of importation from
Bangladesh. The statement-based inference is therefore not
supported by the necessary evidentiary foundation.
41. We accordingly hold that the statements, in the manner in
which they were relied upon in the impugned proceedings, cannot
sustain the findings of smuggling and culpability against the

25

appellant. This conclusion rests on the failure to follow the statutory
procedure and the absence of sufficient independent corroboration,
and not on the mere fact of retraction.
42. The department has also alleged that the carriers transported
approximately 618 kgs. of smuggled gold on earlier occasions. This
conclusion rests merely upon an arithmetical extrapolation. The
adjudicating authority added 63 alleged journeys attributed to Shri
Sitaram Karel and 40 alleged journeys attributed to Shri Kailash
Verma, and multiplied the total of 103 journeys by an assumed
quantity of 6 kg per journey. This calculation presupposes that every
journey was undertaken by the person concerned and involved the
transportation of 6 kg of smuggled gold.
43. Such a calculation is sustainable only if its underlying factual
premises are established. Proof that a person undertook a journey
does not establish that gold was carried on that journey; nor does
proof of a journey establish the quantity or the smuggled character of
any goods allegedly transported. Each of these essential links
requires evidence.
44. In the present case, no independent evidence has been
identified establishing that each of the alleged journeys involved
transportation of 6 kg of gold. The record does not disclose
corresponding seizures, transaction records or other reliable material
connecting the alleged journeys to the transportation of smuggled
gold. The calculation is thus founded upon an assumption repeated
across the alleged journeys rather than proof of the individual
transactions.
45. The identification of the persons to whom the travel records
relate also raises a material concern. The adjudicating authority
noticed that certain international travel entries were attributed to Shri
Kailash Verma, who did not possess a passport, and acknowledged
the possibility of persons bearing identical names. Having noticed
that discrepancy, the authority was required to establish the identity
of the persons concerned through reliable material before drawing
adverse conclusions from the remaining entries.
46. Even assuming that the domestic journeys were undertaken by
the carriers, the further inference that each journey involved 6 kg of

26

smuggled gold remains unproved. The alleged transportation of 618
kg cannot be sustained by arithmetic alone when the facts necessary
to support the calculation have not been established. The finding
relating to the alleged past transportation is therefore unsustainable.
47. Confiscation under Sections 111(b), 111(d) and 111(l) must
rest upon the ingredients of the respective statutory clauses being
established by evidence. The fact that the gold was recovered from
persons travelling domestically, without more, does not establish the
necessary connection with improper importation or the other conduct
contemplated by those provisions.
48. For the reasons already recorded, the Revenue has not
established through legally sustainable evidence that the seized gold
was smuggled into India or that the conditions for confiscation under
the provisions invoked in the impugned order were satisfied. The
statutory presumption u/s. 123 cannot supply the missing foundation,
and the disputed statements, relied upon without compliance with
Section 138B, cannot independently sustain the finding.
49. The penalties u/Ss. 112(a) and 112(b) likewise cannot be
sustained in the absence of evidence establishing the requisite
connection between the appellant’s conduct and goods liable to
confiscation. The retracted statements, which were recorded without
following the proper produced and without adequate corroboration,
do not establish the statutory basis for the penalties.

50. Penalty under Section 114AA requires proof of the statutory
ingredients relating to the making, signing or use of a false or
incorrect declaration, statement or document in the circumstances
contemplated by that provision. The impugned findings do not
establish, through reliable evidence, that the appellant knowingly or
intentionally made, signed or used such a declaration, statement or
document in relation to the alleged smuggling. The mere allegation
that the gold was smuggled cannot, without proof of the requisite
conduct, sustain a penalty under Section 114AA.

51. The deficiencies in the evidence are not confined to a
procedural irregularity capable of being severed from an otherwise

27

established case. They go to the foundation of the allegation that the
gold was smuggled, the invocation of the statutory presumption, the
proposed confiscation and the consequential penalties. The impugned
findings therefore cannot be sustained.

52. In view of the foregoing discussion, we hold that the Revenue
has failed to establish, on the evidence available on record, that the
12 kg of gold seized on 20.1.2016 was smuggled or was liable to
confiscation under Sections 111(b), 111(d) and 111(l) of the Customs
Act, 1962. The allegation of past transportation of 618 kg of gold
merely on the basis of adding 63 alleged journey to Sitaram Karel
and 40 alleged journey to Kailash Verma and multiplying these total
103 alleged journeys by an assumed quantity of bringing 6 kg. of
gold per journey, is also without any corroborative evidence. The
consequential penalties imposed u/Ss. 112(a), 112(b) and 114AA
therefore cannot survive.

53. Accordingly, the impugned order is set aside by allowing the
appeal.

(pronounced in open court on 04.11.2026)
(AJAY SHARMA)
MEMBER (JUDICIAL)


(M.M. PARTHIBAN)
MEMBER (TECHNICAL)
mk