Confiscation of re-melted gold cannot rest on purity and uncorroborated retracted statements alone.

The respondent, proprietor of M/s Sri Karthikeya Traders, claimed to have purchased 2 kg of re-melted gold bullion on credit from M/s SRR Traders, Chennai, under two tax invoices and entrusted approximately 500 gm each to four carriers for transport to Guntur.

Customs officers intercepted the carriers and seized 1,998.780 gm of gold under two पंचनामा proceedings.

Statements recorded under Section 108 of the Customs Act, 1962 allegedly indicated that the gold was of smuggled foreign origin; however, the carriers subsequently retracted those statements, alleging coercion.

The respondent claimed ownership and produced tax invoices, supplier confirmation, GST particulars and evidence of subsequent payment through banking channels.

The adjudicating authority ordered absolute confiscation of the gold under Sections 111(d) and 111(o), confiscation of the vehicle and packing material, and imposed a penalty of ₹8,00,000 on the respondent under Section 112.

The Commissioner (Appeals) set aside the order in its entirety, following which the Revenue filed the present appeal.

Whether the seizure of the gold was based on an objectively sustainable and reasonable belief that it was smuggled, so as to attract the reverse burden under Section 123 of the Customs Act, 1962?

Whether the respondent discharged the burden under Section 123 by producing invoices, supplier confirmation and banking records evidencing domestic procurement?

Whether the retracted statements recorded under Section 108, without independent corroboration, could sustain confiscation of the gold?

Whether denial of cross-examination of material witnesses violated natural justice and affected the evidentiary value of the statements relied upon by the department?

Whether confiscation of the gold, vehicle and packing material, and the penalty under Section 112, could be sustained?

Section 123 of the Customs Act, 1962 shifts the burden to the person from whose possession notified goods are seized only when the seizure is made under a reasonable belief that the goods are smuggled; mere possession of gold or suspicion is insufficient.

The court relied on Naresh J. Sukhawani v. Union of India, 1996 (83) ELT 258 (SC), for the proposition that statements recorded under Section 108 may constitute substantive evidence, but read that principle with Vinod Solanki v. Union of India, 2009 (233) ELT 157 (SC), which requires scrutiny of the voluntariness of a retracted confession and assurance from independent circumstances.

Collector of Customs, Madras v. D. Bhoormull, 1983 (13) ELT 1546 (SC), establishes that smuggling may be proved on a preponderance of probabilities and need not be established with mathematical precision, but confiscation cannot rest on conjecture or unsupported suspicion.

Under Andaman Timber Industries v. CCE, Kolkata, 2015 (324) ELT 641 (SC), denial of cross-examination where witness statements form the basis of an adverse order constitutes a serious violation of natural justice.

Section 138B further regulates the circumstances in which statements made before customs officers may be used to prove the truth of their contents.

Confiscation under Sections 111(d) and 111(o) requires proof of prohibited or unlawfully imported goods, while penalties under Section 112 require knowledge or reason to believe that the goods were liable to confiscation.

The Tribunal held that the gold consisted of re-melted or regular pieces without identifiable foreign refinery marks, overseas mint markings or foreign serial numbers. The generic purity marking “999/H 999 R” established, at most, fineness and did not establish foreign origin or unlawful importation; purity was equally consistent with domestic refining or recycling.

Although the Section 108 statements were admissible in principle, they had been promptly retracted and were not supported by evidence of a foreign supplier, illegal border movement, smuggling network, financial trail, cash recovery or other independent proof of illicit importation.

The respondent’s invoices covered approximately the same quantity as the seized gold, and the supplier confirmed the credit sale and subsequent banking-channel payment.

The absence of invoices with the carriers and the unusual division of the gold among four persons could justify investigation but did not establish smuggling.

The respondent therefore discharged the Section 123 burden on a preponderance of probabilities, while the department failed to rebut the documentary evidence through investigation of the supplier’s books, stock, GST returns or procurement chain.

Further, denial of cross-examination materially prejudiced the respondent because the statements were relied upon to establish foreign origin, ownership and identity of the goods.

In the absence of sustainable confiscation of the gold, the consequential confiscation of the vehicle and packing material and the penalty under Section 112 also could not survive.

The retracted and substantially uncorroborated statements, coupled with the denial of cross-examination, could not sustain the adverse findings.

The Commissioner (Appeals) was therefore justified in setting aside the confiscation of the gold, vehicle and packing material and the penalty imposed on the respondent.

The Revenue’s appeal was dismissed.