Section 123’s reverse burden arises only upon objectively founded reasonable belief that gold was smuggled.

The respondent, who managed M/s Varalakshmi Jewellers, purchased 2,062 grams of re-melted 24-carat gold bullion from M/s Aryan Gold, Bangalore, under Tax Invoice No. 194 dated 20 March 2023.

While returning from Coimbatore to Narasaraopet in a Hyundai Verna, the vehicle was intercepted by Customs officers, who seized two pieces of re-melted gold weighing 2,081 grams, along with the vehicle and packing material, alleging that the gold was smuggled foreign-origin gold.

Statements of the respondent and driver were recorded under Section 108 of the Customs Act, 1962, and were subsequently retracted.

The adjudicating authority ordered absolute confiscation of the gold under Sections 111(d) and 111(o), the vehicle under Section 115(2), and the packing material under Section 119, and imposed a penalty of ₹15,00,000 on the respondent under Sections 112(a) and 112(b).

The Commissioner (Appeals) set aside the confiscation and penalties. The Revenue challenged that order before the Tribunal.

The respondent relied on the contemporaneous tax invoice, supplier confirmation, banking records, and FASTag data, which allegedly contradicted the place and time of interception recorded in the Panchanama.

1. Whether the seizure of the gold was founded upon an objectively reasonable belief that it was smuggled, so as to attract the reverse burden under Section 123 of the Customs Act, 1962?

2. Whether the respondent discharged the burden under Section 123 by producing evidence of lawful domestic acquisition?

3. Whether the retracted statements recorded under Section 108 could, without independent corroboration, sustain confiscation and penalties?

4. Whether denial of cross-examination affected the evidentiary value of the statements and other evidence relied upon by the Department?

5. Whether the Commissioner (Appeals) was justified in setting aside the confiscation of the gold, vehicle and packing material, and the penalties imposed on the respondent?

The Tribunal applied Sections 111(d), 111(o), 112(a), 112(b), 115(2), 119, 123 and 138B of the Customs Act, 1962.

Section 123 shifts the burden to the person from whom 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.

Reasonable belief must be based on objective and relevant material, although the Department need not establish smuggling with mathematical precision.

Statements recorded under Section 108 are admissible but, when retracted, their voluntariness and reliability require careful scrutiny and, ordinarily, independent corroboration, as explained in Naresh J. Sukhawani v. Union of India, 1996 (83) E.L.T. 258 (S.C.), and Vinod Solanki v. Union of India, 2009 (233) E.L.T. 157 (S.C.).

Collector of Customs, Madras v. D. Bhoormull, 1983 (13) E.L.T. 1546 (S.C.), permits proof by circumstantial evidence and preponderance of probabilities but does not authorize confiscation based on conjecture.

Under Andaman Timber Industries v. CCE, Kolkata, 2015 (324) E.L.T. 641 (S.C.), denial of cross-examination of witnesses whose statements form the basis of an adverse order may constitute a serious violation of natural justice.

Sections 111 and 112 require proof that the goods were liable to confiscation and that the person had the requisite knowledge or reason to believe; consequential confiscation of the vehicle and packing material cannot survive where the foundational confiscation of the goods fails.

The Tribunal held that the seized gold was re-melted and lacked identifiable foreign refinery, mint or serial markings; its purity and generic markings were equally consistent with lawful domestic refining or recycling and therefore did not, by themselves, establish foreign origin or smuggling.

The retracted Section 108 statements were substantially uncorroborated, and the Department produced no independent evidence of illegal importation, foreign suppliers, border movement, financial trail or smuggling network.

The FASTag records materially contradicted the Panchanama regarding the place and circumstances of interception. Since the Department neither disproved the reliability of the electronic records nor examined the relevant witnesses, the contradiction undermined the credibility of the seizure narrative.

The respondent’s contemporaneous invoice supported the domestic purchase of 2,062 grams of gold, and the supplier confirmed the transaction. Although the seized quantity exceeded the invoiced quantity by 19 grams, that discrepancy did not establish that the entire quantity was smuggled, particularly when the Department failed to show that the invoice was fabricated or investigate the supplier’s stock, books, GST records or procurement chain.

The denial of cross-examination further diminished the evidentiary value of the statements relied upon by the adjudicating authority.

Consequently, the Department failed both to establish a sustainable reasonable belief for applying Section 123 and to rebut the respondent’s evidence of lawful acquisition.

The respondent’s documentary evidence, the material contradiction between the FASTag records and the Panchanama, the retraction and lack of corroboration of the Section 108 statements, and the denial of effective cross-examination rendered the confiscation unsustainable.

As the confiscation of the gold failed, the confiscation of the vehicle and packing material and the penalties under Sections 112(a) and 112(b) also could not survive.

The Revenue’s appeal was accordingly dismissed, and the Commissioner (Appeals)’s order setting aside the confiscation and penalties was upheld.