The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, set aside an order of absolute confiscation of 26 gold pieces weighing 2401.310 grams valued at Rs.1,53,80,391/- and penalties of Rs.1,50,000/- and Rs.15,00,000/- imposed on two appellants, holding that the Revenue failed to establish the foundational requirement of foreign origin and illicit importation necessary to attract Sections 111(b) and 111(d) of the Customs Act, 1962. The Tribunal emphasized that mere concealment of goods and absence of documents at interception cannot substitute for proof of actual smuggling, particularly where appellants furnished coherent documentary evidence of licit acquisition and the alleged intermediary remained unidentified.
Background & Facts
The Seizure and Initial Allegations
On 12.02.2024, officers of the Anti-Smuggling Unit, Customs Division, Guwahati intercepted Shri Inder Singh (appellant No. 2) at Platform No. 1 of Guwahati Railway Station while he was standing in Train No. 01666 - Rani Kamlapati Special Train. Upon search, 26 pieces of hard yellow-coloured metal wrapped in brown adhesive tape were recovered from inside his black-coloured cotton trousers. The metal was suspected to be gold and subsequently certified by Shri Suresh Kumar Soni of M/s. K.K. Jewellers, Guwahati as 24-carat gold valued at Rs.1,53,80,391/- as on the date of seizure. A Panchanama dated 12.02.2024 and Inventory-cum-Seizure List were prepared. Shri Inder Singh's statement recorded under Section 108 of the Customs Act, 1962 on 12.02.2024 alleged that the gold had been procured from Shri Narpat Soni (appellant No. 1) of Jalore, Rajasthan, and that he had been engaged in concealing and carrying such gold from October 2023, undertaking approximately 11 to 12 trips averaging two to three trips monthly. He stated that the gold was collected from an unidentified person below Hotel Neer, Agartala, pursuant to Shri Narpat Soni's directions, with travel expenses financed by Shri Narpat Soni.
The Appellants' Defence and Documentary Evidence
Shri Narpat Soni (appellant No. 1), proprietor of M/s. Ambe Maa Jewellers, Sarawas, Inside Tilak Dwar, Jalore, Rajasthan, denied any business relationship with Shri Inder Singh and claimed the seized gold originated from his legitimate stock. His defence, supported by documents produced during adjudication, comprised:
- Opening stock of 129.957 grams as on 01.04.2023 reflected in Balance Sheet and Profit & Loss Account for FY 2022-23
- 1,150 grams of pure gold received under a notarised Will dated 02.10.2013 from his grandfather
- 300 grams of gold bar purchased from M/s. Shri Ganesh Jewellers, Bhinmal on 05.02.2024 (GST Invoice No. 1784)
- 48.990 grams of gold bar purchased from M/s. Sudarshan Jewellers, Bhinmal on 05.02.2024 (GST Invoice No. 2378)
- 900.880 grams of pure gold obtained by melting old jewellery on 04.02.2024 (Stock Journal entry) The aggregate quantity totalled 2401.310 grams. Shri Inder Singh's bail application dated 29.02.2024 included a xerox copy of the tax invoice dated 05.02.2024 for 300 grams of gold and stated he had misplaced the copy during his stay at Agartala or return journey. The GST invoices were accompanied by corresponding GSTR-2A reflections for independent verification.
Procedural History
- 12.02.2024: Seizure of gold at Guwahati Railway Station; statement of Shri Inder Singh recorded under Section 108; Shri Inder Singh arrested under Section 104
- 13.02.2024: Produced before Hon'ble Chief Judicial Magistrate, Guwahati; remanded to judicial custody up to 27.02.2024
- 06.03.2024: Letter sent to Senior Quality Control Officer, Assam Hallmarking Centre for purity examination
- 11.03.2024: Report from Assam Hallmarking Centre certifying average fineness of 24 carat (998.0-998.8)
- 08.08.2024: Show Cause Notice bearing F. No. GEN/INV/SMLG/GOLD/60/2024-A/S-Cus-Div-GHY-SHG-Commrte-Shillong/I/2192096/2024 issued, proposing confiscation under Sections 111(b)/(d) and penalties under Sections 112(a)/(b)
- 13.03.2026: Order-in-Appeal No. 127/GHY(A)/COM/CUS/SH/2026 passed by Commissioner (Appeals), C.G.S.T., Central Excise and Customs, Guwahati, upholding confiscation and penalties
- 06.08.2026: Date of hearing before CESTAT
- 08.10.2026: Date of decision/judgment
The Parties' Positions
Appellants' Contentions: The seizure was a 'town seizure' at Guwahati Railway Station, not at a notified customs port, airport or land customs station; no foreign markings, inscriptions or identifying features on the gold; purity (998.0-998.8) did not correspond to standard foreign-origin bullion (999.9); absence of evidence identifying foreign source, supplier, border crossing or melting of seized gold; general trends of gold smuggling cannot substitute for case-specific evidence; statement of Shri Inder Singh dated 12.02.2024 was retracted, contradicted by hotel records (only one stay at Hotel Neer on 16.10.2023) and CDR analysis (no intermediary identified), and not examined under Section 138B; documentary evidence of licit acquisition was sufficient to discharge burden under Section 123.
Respondent's Contentions: Shri Inder Singh's statement established modus operandi of smuggling; absence of documents at interception justified reasonable belief; general prevalence of gold smuggling in Indo-Bangladesh border regions and geographical proximity supported inference of foreign origin; penalties were justified due to conscious and deliberate acts in facilitating illicit movement.
Relief Sought
The appellants sought setting aside of: (i) the order of absolute confiscation of 26 gold pieces weighing 2401.310 grams under Sections 111(b) and 112(d); (ii) the penalty of Rs.1,50,000/- imposed on Shri Inder Singh under Sections 112(a) and 112(b); and (iii) the penalty of Rs.15,00,000/- imposed on Shri Narpat Soni under Sections 112(a) and 112(b).
The Legal Issue
The Tribunal framed two principal issues for consideration: (I) Whether the appellants had discharged the burden cast upon them under Section 123 of the Customs Act, 1962 regarding the licit acquisition of the 26 gold pieces weighing 2401.310 grams by satisfactorily accounting for their licit acquisition and possession, and consequently, whether the Revenue was justified in holding the gold liable to absolute confiscation under Sections 111(b) and 112(d) of the Customs Act, 1962; and (II) Whether the statement of Shri Inder Singh, appellant No. 2, recorded on 12.02.2024, upon which the Revenue had placed substantial reliance, constituted sufficient and legally sustainable evidence to establish the involvement of the appellants in the alleged offence of smuggling.
Arguments Presented
For the Appellant/Petitioner
The appellants contended that the Revenue failed to satisfy the statutory precondition of 'reasonable belief' under Section 110 for seizure, as required by Sections 111(b) and 112(d). They emphasized that the seizure occurred at a railway station within India, not at an international border or customs point, shifting the burden to the Revenue to prove foreign origin through cogent evidence. The appellants highlighted the absence of foreign markings, inscriptions, or serial numbers on the gold, and noted that the certified purity (998.0-998.8) fell below the standard for foreign-origin bullion (999.9), undermining the Revenue's claim of smuggled character. They argued that general intelligence about gold smuggling trends or geographical vulnerability of borders could not substitute for specific evidence linking the seized gold to an illicit importation route. Crucially, the appellants asserted they had discharged their burden under Section 123 by producing a coherent documentary trail: opening stock reflected in financial statements, a notarised Will for inherited gold, GST-backed purchase invoices from jewellers, and stock records for gold obtained by melting old jewellery, all aggregating to the seized quantity. They stressed that the Revenue had not verified these documents or disproved their authenticity, and that the subsequent production of documents did not render them unreliable absent independent verification of fabrication. Regarding Shri Inder Singh's statement, the appellants pointed to its retraction in bail proceedings, written communication, and cross-examination, its contradiction by Hotel Neer records (showing only one stay), lack of corroboration for alleged air travel/tickets, and failure to identify the purported intermediary at Agartala. They invoked Section 138B, arguing the statement could not be relied upon as substantive evidence without examination of the declarant as a witness, especially given allegations of coercion during recording.
For the Respondent/State
The Revenue maintained that Shri Inder Singh's statement dated 12.02.2024 clearly outlined a modus operandi wherein Shri Narpat Soni procured foreign-origin gold and Shri Inder Singh transported it via train from Agartala to Jalore to evade customs duty. It contended that the absence of documents evidencing licit procurement at the time of interception, combined with the manner of concealment inside trousers, furnished the requisite 'reasonable belief' under Section 110 to justify seizure. The Revenue relied on the general prevalence of gold smuggling through the Indo-Bangladesh and Indo-Myanmar borders and the alleged practice of melting foreign-origin gold to obliterate markings as contextual support for inferring smuggled character. It asserted that the statement established Shri Narpat Soni's control over the alleged smuggling racket and Shri Inder Singh's role as a carrier, with telephonic communication between their mobile numbers (479 calls, including three on the date of seizure) corroborating their concerted action. The Revenue argued that the appellants' documentary evidence was an afterthought fabricated to lend legitimacy to seized goods, citing the Commissioner (Appeals)' observation that Shri Narpat Soni initially denied any business relationship with Shri Inder Singh despite admitting to sending him to Agartala for selling gold. It maintained that penalties under Sections 112(a) and 112(b) were justified as the appellants had consciously and deliberately facilitated the illicit movement of goods liable to confiscation.
The Court's Analysis
The Tribunal began by examining the foundational requirement for seizure under Section 110, stressing that a 'reasonable belief' of liability to confiscation must precede invocation of Sections 111(b) and 112(d). It held that mere concealment of goods and absence of documents at interception could not, without more, establish foreign origin or illicit importation, observing: "The mere recovery of gold from a person in India, even when concealed upon his person, cannot by itself establish the antecedent fact of illegal importation. There must first be material which reasonably connects the goods with such illegal importation before the statutory machinery of seizure and confiscation can be sustained." The Tribunal found the Revenue's case deficient on multiple fronts: no foreign markings or inscriptions on the gold; varying purity (998.0-998.8) and weight of the seized pieces; the seizure being a 'town seizure' at Guwahati Railway Station; absence of evidence identifying a foreign source, supplier, border crossing, or melting of the seized gold; and reliance on general trends of gold smuggling without case-specific evidentiary nexus. It concluded: "Accordingly, prima facie, we do not find sufficient corroborative material on record to demonstrate that, at the time of seizure, there existed an objectively sustainable and case-specific reasonable belief that the 26 gold pieces weighing 2401.310 grams were smuggled goods of foreign origin."
Turning to Section 123, the Tribunal held that the burden to prove licit acquisition shifted to the appellants only after the Revenue established reasonable belief of smuggling - a threshold it found unmet. Nevertheless, it evaluated the appellants' defence and found their documentary evidence sufficient to discharge the burden: "The appellants have not merely produced a bare assertion of lawful ownership; they have placed before the adjudicating authorities a chain of documents and records accounting for quantities of gold, comprising opening stock, inheritance under a notarised Will, identifiable GST-backed purchases from two jewellers and gold obtained through melting of old jewellery, together with stock records and financial statements." Critically, the Tribunal noted the Revenue had not undertaken verification of the GST invoices with the issuing jewellers or scrutinised the stock register to disprove authenticity, and that mere suspicion about delayed production could not establish fabrication without independent verification. Regarding Shri Inder Singh's statement, the Tribunal found it materially impaired by contradictions: Hotel Neer records showed only one stay (16.10.2023) versus the claimed 11-12 visits; no evidence of air tickets/boarding passes for alleged repeated journeys; failure to identify the purported intermediary despite CDR analysis; and the statement's retraction in bail proceedings, written communication, and cross-examination where Shri Inder Singh denied prior trips and claimed the gold belonged to Shri Narpat Soni. The Tribunal emphasized: "The settled principle emerging from judicial pronouncements relied upon by the appellants is that a retracted statement cannot be treated as an unquestionable foundation of penal or confiscatory proceedings merely because it was recorded under Section 108. Its voluntariness, correctness and credibility have necessarily to be appreciated in the light of the other evidence available on record." It further held that the Statement could not be relied upon as substantive evidence without compliance with Section 138B, which requires examination of the declarant as a witness - a step not taken by the adjudicating authority. Consequently, the Tribunal found the Revenue had failed to dislodge the appellants' licit acquisition explanation, and the foundational requirement for Sections 111(b) and 112(d) remained unfulfilled. On penalties, it held that liability under Section 112 could not be imposed absent proof of the appellants' conscious involvement in an act rendering goods liable to confiscation, which was unsupported given the lack of established smuggling.
The Verdict
The Tribunal allowed both appeals, setting aside the order of absolute confiscation of 26 gold pieces weighing 2401.310 grams valued at Rs.1,53,80,391/- under Sections 111(b) and 112(d) of the Customs Act, 1962. It further set aside the penalty of Rs.1,50,000/- imposed on Shri Inder Singh and the penalty of Rs.15,00,000/- imposed on Shri Narpat Soni under Sections 112(a) and 112(b) of the Act. The Tribunal concluded that in the absence of cogent and affirmative evidence establishing foreign origin and illicit importation, the mere manner of concealment or circumstances of recovery could not sustain confiscation or penal consequences.
What This Means For Similar Cases
Reasonable Belief Requires Specific, Case-Specific Evidence
Practitioners must note that the Tribunal rejected reliance on general trends, geographical vulnerability, or alleged modus operandi from other cases to establish reasonable belief under Section 110. The judgment makes clear that for town seizures (not at borders/customs points), the Revenue must furnish specific evidence connecting the seized goods to an illicit importation route - such as identification of foreign source, supplier, border crossing proof, or melting evidence. Mere concealment, absence of documents, or general intelligence about smuggling is insufficient. This elevates the evidentiary burden in customs proceedings, requiring proactive investigation beyond initial interception facts.
Documentary Evidence of Licit Acquisition Shifts the Burden Back to Revenue
The judgment confirms that when appellants produce a coherent, verifiable documentary trail for gold acquisition - such as financial statements, notarised wills, GST invoices with GSTR-2A reflections, and stock records - the Revenue cannot dismiss it as an 'afterthought' without independent verification of fabrication. Practitioners should ensure such evidence is produced early and accompanied by verification requests (e.g., to issuing jewellers for GST validation). The Tribunal’s reliance on cases like Manidipa Debroy Chowdhary v. Commissioner of Customs, Shillong [(2020) (374) E.L.T. 133 (Tri.-Kolkata)] signals that late production of documents does not per se undermine authenticity if the Revenue fails to disprove them.
Retracted Statements Require Section 138B Compliance for Evidentiary Value
The Tribunal stressed that a statement recorded under Section 108 cannot serve as substantive evidence if retracted and contradicted by independent material, unless examined under Section 138B. For customs practitioners, this means: (i) promptly challenging the voluntariness and reliability of such statements; (ii) seeking examination of the declarant as a witness under Section 138B; and (iii) corroborating contradictions with independent evidence (e.g., hotel records, CDR analysis, forensic device examination). The judgment aligns with Supreme Court principles in Vinod Solanki [2009 (223) E.L.T. 157 (S.C.)] that retracted confessions require independent corroboration, reinforcing procedural safeguards in customs adjudication.
