Section 123 presumption cannot arise without objective evidence establishing gold’s foreign origin and smuggled character.

The respondent, proprietor of M/s Dattatreya Associates, claimed ownership of 1,703.790 grams of re-melted gold seized while being transported for conversion into ornaments.

He asserted that the gold had been purchased domestically from M/s Chaitanya Retails Pvt. Ltd. under tax invoice dated 17 March 2023, and produced the supplier’s confirmation and banking records.

The Original Authority ordered absolute confiscation of the gold under Sections 111(d) and 111(o) of the Customs Act, 1962, confiscation of packing material under Section 119, and imposed penalties under Sections 112(a) and 112(b).

The Commissioner (Appeals), after considering the invoice, FASTag records, banking transactions, retractions, and other material, set aside the adjudication order.

The Revenue appealed to the CESTAT.

1. Whether the Revenue established that the seized gold was of foreign origin and had been smuggled into India so as to justify confiscation under Sections 111(d) and 111(o) of the Customs Act, 1962?

2. Whether the statements recorded under Section 108, the Panchanama, and the other departmental evidence were sufficiently reliable to sustain confiscation and penalties, particularly in view of the retractions, FASTag discrepancies, and denial of cross-examination?

3. Whether the respondent discharged the burden under Section 123 of the Customs Act by establishing lawful domestic acquisition of the gold?

4. Whether the penalties imposed under Sections 112(a) and 112(b) could survive in the absence of proof that the goods were liable to confiscation and that the respondent had the requisite knowledge or reason to believe?

Section 123 of the Customs Act places the burden on the person from whose possession notified goods are seized, or on the claimant, to prove that they are not smuggled; however, the seizure must initially be founded on a reasonable belief supported by objective material and not merely on the fact that the goods are gold.

Section 111(d) applies where goods are imported or attempted to be imported contrary to a statutory prohibition, while Section 111(o) concerns breach of a condition attached to an exemption from duty or prohibition in respect of imported goods.

Penalties under Sections 112(a) and 112(b) require proof of the relevant act or omission and the requisite knowledge or reason to believe that the goods were liable to confiscation.

Statements under Section 108 may be admissible, but their reliability and voluntariness must be independently assessed; a retracted confession requires corroboration, consistent with Vinod Solanki v. Union of India, 2009 (233) E.L.T. 157 (S.C.).

The principle in Naresh J. Sukhawani v. Union of India, 1996 (83) E.L.T. 258 (S.C.), does not make every retracted statement conclusive.

Where statements are relied upon against a noticee, denial of effective cross-examination may violate natural justice, as held in Andaman Timber Industries v. CCE, Kolkata, 2015 (324) E.L.T. 641 (S.C.).

The Tribunal found that the Department had not produced objective evidence establishing the foreign origin or illicit importation of the gold.

The seized articles were irregular, re-melted pieces without foreign refinery marks, overseas mint markings, or identifying serial numbers, and there was no evidence identifying the country of origin, route of importation, customs frontier, foreign supplier, or person responsible for smuggling.

The FASTag records materially contradicted the place and timing of interception and the completion of the seizure proceedings recorded in the Panchanama; the Revenue offered no satisfactory reconciliation of these discrepancies.

The Section 108 statements had been retracted and were not corroborated by recovery of purchase money, identification of the alleged Chennai supplier, communications, or evidence tracing the gold to an illicit import.

Conversely, the respondent produced a contemporaneous tax invoice, supplier confirmation, and banking evidence, and the Revenue did not establish that these documents were forged or fictitious.

The denial of cross-examination further prejudiced the respondent where the disputed statements and Panchanama were relied upon.

Since the foundational fact of illicit importation was not proved, Sections 111(d) and 111(o) were inapplicable, and the consequential penalties also could not be sustained.

The respondent satisfactorily discharged the burden under Section 123 through the domestic purchase invoice, supplier confirmation, and banking records.

The confiscation under Sections 111(d) and 111(o), the related confiscation under Section 119, and the penalties under Sections 112(a) and 112(b) were therefore unsustainable.

The Tribunal found no infirmity in the Commissioner (Appeals)’s order and dismissed the Revenue’s appeal, thereby confirming the consequential relief granted to the respondent.