Gold imported in violation of RBI restrictions is “prohibited goods” under Customs Act, Calcutta HC holds; penalties upheld

Acting on intelligence, the Directorate of Revenue Intelligence intercepted and seized 272 pieces of gold weighing 36.856 kg and valued at approximately ₹10.07 crore on 8 April 2013. Statements of persons from whom the gold was recovered allegedly identified Ajgar Sheikh as the supplier and Gopal Saha as the intended recipient or mastermind; call-detail and subscriber records were also relied upon by the Department.

A show-cause notice was issued under Section 124 of the Customs Act, 1962. After considering the replies and granting personal hearings, the Commissioner of Customs (Preventive), by order dated 24 November 2015, confiscated the gold under Section 111(b) and imposed penalties of ₹10.07 crore on each writ petitioner under Section 112.

The writ petitioners challenged the adjudication order under Article 226 despite the statutory appellate remedy under Section 129A. The learned Single Judge held that the gold was not “prohibited goods” and set aside the penalty under Section 112(i), remanding the matter for determination of another permissible quantum of penalty. The writ petitioners appealed against the penalty, while Customs appealed against the finding that the gold was not prohibited goods.

1. Whether gold illegally imported into India, contrary to the regulatory restrictions governing its import, constitutes “prohibited goods” under Section 2(33) of the Customs Act, 1962?

2. Whether the adjudicating authority was correct in imposing penalties under Section 112(i) of the Customs Act, 1962?

3. Whether the adjudication order was vitiated because it did not separately specify the precise clause of Section 112 under which the penalty was imposed?

The Court applied Sections 2(25), 2(33) and 2(39) of the Customs Act, 1962, defining imported goods, prohibited goods and smuggling, respectively; Sections 11 and 11B, concerning governmental prohibition and notification of goods; Section 111, providing for confiscation of improperly imported goods; and Section 112, prescribing penalties for improper importation, including the enhanced penalty applicable to goods in respect of which a prohibition is in force.

Under Section 2(33), goods are “prohibited goods” not only when prohibited under the Customs Act but also when their import is prohibited under any other law for the time being in force.

The Court relied, inter alia, on Nidhi Kapoor v. Principal Commissioner of Customs, Rameshwar Tiwari v. Union of India, Om Prakash Soni v. Union of India, Commissioner of Customs (Preventive), Mumbai v. M. Ambala & Co., Malabar Diamond Gallery Pvt. Ltd. v. Additional Director General, DRI, and Collector of Customs, Bombay v. Elephanta Oil & Industries Ltd., holding that restrictions imposed through applicable regulatory instruments can render goods prohibited and that penalty under Section 112 operates independently of confiscation and redemption proceedings.

The Court also held that an adjudication order is not invalid merely because it fails to quote the precise statutory clause, provided the authority possessed jurisdiction and the order adequately disclosed the basis of the penalty.

The Court rejected the writ petitioners’ contention that gold could be “prohibited goods” only if expressly prohibited by a notification issued under Section 11 of the Customs Act. Section 2(33) expressly extends the definition to goods whose import is prohibited under any other law. The import of gold was subject to RBI notifications and circulars, the Foreign Trade Policy and the applicable Baggage Rules; bulk import was restricted to authorised agencies, while passenger imports were regulated by prescribed conditions.

Neither writ petitioner was an authorised agency permitted to import gold in bulk, nor was the case one of lawful passenger import within the permissible baggage limits. Accordingly, the seized gold fell within Section 2(33), and the persons involved attracted the penalty category under Section 112(i).

The Court further held that the adjudicating authority’s failure to identify the precise clause of Section 112 in a separate or elaborate manner did not create a jurisdictional defect. The order was a speaking order, identified the goods as prohibited and imposed the penalty applicable to prohibited goods. Since the authority had jurisdiction under the Customs Act, any deficiency in statutory citation did not invalidate the adjudication.

The appeals filed by Gopal Saha and Ajgar Sheikh, APO Nos. 139 and 140 of 2018, were dismissed. The Customs Department’s appeals, APO Nos. 143 and 144 of 2018, were allowed; the Single Judge’s judgment was set aside, and the Commissioner’s adjudication order was upheld.