Court clarifies burden of proof under Section 123 of Customs Act, 1962, emphasizing need for specific and credible evidence to prove lawful acquisition; penal provisions partially upheld with reduced penalties.
In a significant decision delivered on September 2, 2026, the Allahabad High Court (Division Bench, Lucknow Bench) has partly allowed appeals filed by the Commissioner of Customs (Preventive), Lucknow, against orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), thereby restoring the confiscation of three gold bars while setting aside the confiscation of silver bullion and cash.
The case arose from the interception of two individuals, Shri Nagendra Hiralal Tiwari and Shri Purmanand Ramchandra Mishra, found carrying three gold bars marked with foreign stamps such as "Valcambi Suisse 1 KG Gold 995.0," indicating foreign origin. These bars were concealed inside their shoes during travel from Nagpur to Prayagraj. Both admitted to carrying smuggled foreign gold on instructions from the respondent, Shri Anand Navalchand Pugaliya, proprietor of M/s Pugaliya Jewellers.
Subsequent searches at the respondent’s residential and business premises yielded a large quantity of silver bullion and cash. The Directorate of Revenue Intelligence (DRI) seized these goods under the Customs Act, 1962, based on a reasonable belief that they were smuggled or represented proceeds of smuggled goods.
The adjudicating authority ordered absolute confiscation of the gold bars, silver bullion, and cash, along with imposition of penalties. However, the Commissioner (Appeal) and later the CESTAT set aside the confiscation of all three categories of goods, accepting the respondent's submission of GST paid invoices and other documents purportedly proving lawful acquisition.
The Customs Department challenged these orders before the High Court, raising substantial questions of law concerning the interpretation of Sections 111 and 123 of the Customs Act, especially regarding the burden of proof in smuggling cases.
The Court meticulously examined the factual matrix and legal provisions. Section 123 of the Customs Act places the burden on the person from whose possession goods are seized or the owner to prove that the goods are not smuggled, once the revenue establishes seizure under reasonable belief of smuggling.
The Court found that the initial conditions to invoke this burden—seizure of goods under the Act with reasonable belief of smuggling—were satisfied in respect of the gold bars due to their foreign markings, clandestine mode of carriage, and statements of the carriers admitting smuggling.
Critically, the Court observed multiple contradictions and inconsistencies in the respondent’s defense: conflicting statements about the number of gold pieces sent to the refiner, the refiner’s denial of producing the marked bars, lack of specific invoices linking to the seized bars, and the failure to explain the foreign markings on the bars.
The Court noted that mere production of general GST invoices without direct nexus to the seized gold bars does not discharge the burden under Section 123. It emphasized that specific, credible, and genuine documents are required to establish lawful acquisition, not just irrelevant or generalized records.
Consequently, the Court reinstated the confiscation of the gold bars, holding that the respondent failed to discharge the burden of proof. It held that the findings of the Commissioner (Appeal) and CESTAT in accepting the GST invoices without scrutinizing their relevance were perverse and legally unsustainable.
Regarding the silver bullion, the Court found no evidence of foreign origin, smuggling, or clandestine carriage. The silver was seized from residential and business premises without foreign markings or incriminating statements. Therefore, the burden of proof under Section 123 did not shift to the respondent, and the confiscation of silver was set aside.
Similarly, the confiscation of cash in Indian currency was quashed. The Court held that Indian currency is not a notified item under Section 123, and no cogent evidence showed the cash was proceeds of smuggled goods. The presumption of smuggling in respect of cash was untenable.
Penalties imposed on the respondent and the carriers for the gold bars were reduced to 50% of the original amount to bring finality to the dispute.
The judgment underscores the importance of strict adherence to evidentiary standards in customs cases, particularly the need for concrete and specific proof to rebut the presumption of smuggling once goods are seized under reasonable belief.
The Court referenced numerous Supreme Court precedents, including Collector of Customs, Madras vs. D. Bhoormull and Commissioner of Customs vs. Vijay Dasharath Patel, reinforcing the principle that suspicion alone cannot replace proof and that appellate authorities must carefully weigh all material evidence.
This ruling clarifies the proper application of Section 123 of the Customs Act, 1962, and provides valuable guidance for customs enforcement and adjudicatory bodies concerning the burden of proof and confiscation proceedings.
Bottom Line:
Customs Act - Burden of proof under Section 123 of the Customs Act, 1962 requires production of specific, relevant, credible, and genuine documents directly establishing lawful acquisition of seized goods. Mere production of irrelevant documents does not discharge the burden.
Statutory provision(s):
Customs Act, 1962 Sections 110, 111, 112, 123; Prohibition of Benami Property Transactions Act, 1988 Section 24(4)(b)(i)
