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Commissioner of Customs, Cochin v/s Om Prakash Khatri, Director, Panna Gold Impex Ltd., Mumbai & Others

    Cus. Appeal. Nos. 44 to 47 of 2018

    Decided On, 01 March 2019

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE K. VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON

    For the Appellant: Thomas Mathew Nellimoottil, SC. For the Respondents: B.R. Tripathi, Advocate.



Judgment Text

[Cus.Appeal 44/2018, Cus.Appeal.45/2018, Cus.Appeal.46/2018, Cus.Appeal.47/2018]

Ashok Menon, J.

1. The Commissioner of Customs, Cochin is before us in appeals aggrieved by the common final order dated 19.11.2018 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bangalore.

2. The facts in brief are thus: On 04.02.2014, two persons named Surendra Singh and Dhiraj Kumar Devasi alleged to be the employees of M/s Panna Gold Impex Ltd., Mumbai, were intercepted by the officers of Directorate of Revenue Intelligence (DRI) at Vyttila in Ernakulam; from whose possession were seized gold bars and pieces weighing 4430.730 gms., valued at Rs.1,54,28,372/- and gold ornaments weighing 5536.200 gms. valued at Rs.1,32,78,898/-. That apart, Rs.42,000/- in cash, alleged to be sale proceeds of contraband gold, was also recovered. The confession statements of the apprehended persons revealed involvement of one Om Prakash Khatri, Director of M/s Panna Gold Impex Ltd. Show cause notices were issued to the aforesaid three persons and the company, and after adjudication, the Joint Commissioner as per Annexure A order dated 05.05.2015 ordered absolute confiscation of the gold bars and jewellery under Section 111(a), (d) and (m) read with Section 120(1) of the Customs Act, 1962 (for short “the Act”) and also imposed a penalty of Rs.20 lakhs on Om Prakash Khatri and Rs.10 lakhs on M/s Panna Gold Impex Ltd. under Section 114AA of the Act. The Adjudicating Authority also imposed a penalty of Rs.5 lakhs each on the aforementioned three persons as well as the Company under Section 112 of the Act. The currency was however ordered to be released.

3. The appeals filed before the Commissioner was disposed of vide a common order at Annexure B dated 08.10.2015 modifying the order of the Adjudicating Authority by quashing the confiscation of gold ornaments. The remaining part of the order was sustained. The parties again filed a second appeal before the Tribunal, which vide common impugned order allowed the appeal and set aside the adjudicatory order altogether.

4. The Revenue is aggrieved and hence the appeal, raising the following substantial questions of law, as re-framed by us:

i) Was the Tribunal justified in finding that the Department has failed to establish that the seized gold were smuggled goods ?

ii) Was the Tribunal justified in quashing the entire order of confiscation ?

5. We heard Sri.Thomas Mathew Nellimoottil, Senior Standing Counsel for the Central Board of Indirect Taxes and Customs appearing for the appellant and Sri.B.R.Tripathi, learned Counsel appearing for the respondents.

6. The Tribunal has, in the impugned order, found that the burden on the Department, to prove that the gold bars and jewellery seized from the two persons apprehended at Vyttila were smuggled gold; was not discharged. It is pointed out that under Section 123 of the Act, the burden was entirely on the Department to prove that the seized gold was smuggled. It is observed that the gold bars were not of standard size, shape or weight and that there were no markings on it. The ornaments were of 91.6% purity and therefore, cannot be assumed to have been imported; which finding we immediately notice was irrelevant insofar as the first appellate authority having released the ornaments. It is also observed that the two persons apprehended were not coming out of any Airport or Seaport, nor were they crossing any international border so as to warrant action under Section 110 of the Customs Act. It is also observed that the Adjudicating Authority and the first appellate authority came to a wrong conclusion relying on the statements of the two salesmen, which was subsequently retracted.

7. Reliance was placed on the decision of the Hon'ble Supreme Court in Collector of Customs, Madras v. D.Bhoormall, 1983 (13) ELT 1546 (SC) and in Collector of Customs (Preveventive) v. Shri Ganesh Enterprises, 2006 (199) ELT 208 (Bom) by the Tribunal to hold that the Department had the burden to prove that the contraband gold had entered the Country illegally and were smuggled. The Tribunal also found fault with the Department for not having examined the twelve persons from whom the respondents had been purchasing gold for the purpose of making ornaments. It is also pointed out that no customs duty has been demanded by the Department from the persons apprehended and there was absolutely no material on the basis of which the Department could have reasonably believed that the goods were smuggled, and therefore, the adjudicating as well as appellate authority's orders were quashed.

8. It is seen that the statements of the two salesmen of the Company were recorded under Section 108 of the Act by the DRI. Wherein, they had stated that they collected gold bars and pieces smuggled into India from Kerala and took the same to Mumbai to be handed over to Om Prakash Khatri, who is one of the Directors of M/s Panna Gold Impex Ltd. It is stated by them that an associate of Om Prakash Khatri at Thiruvananthapruam handed over the gold to them. They also admitted having collected gold from Kerala on earlier occasions for being handed over to Khatri. Ornaments were made out of smuggled gold and sold at a very competitive price. The salesmen revealed that they did not travel by flights for the reason that there was security checking and customs checking at the Airport. 5 kgs. of gold ornaments were given to them to be sold in Kerala, without any document or bill. They also admitted that Khatri had cautioned about the possibility of being intercepted by the Police or the Customs, as the ornaments were made out of smuggled gold. They reached Thiruvananthapuram and met a Keralite, described as a fat and dark person, who handed over the gold bars and pieces. It is also stated by them that the markings in the gold had been removed so as to conceal the identity of the smuggled gold and that the gold was also cut into small pieces and melted. They came to Ernakulam by bus and were intending to sell the ornaments and jewellery in and around Ernakulam as also take back the smuggled gold. But they were intercepted while alighting from a bus at Vyttila, and apprehended by the DRI officials, resulting in the contraband gold being seized.

9. Summons were issued to Khatri and on 06.02.2014, the representative of the Company handed over certain documents, including copies of gold ornaments stock register, refined gold register; along with a covering letter purportedly that of Khatri, but not signed by him, which expressed his inability to appear in person before the DRI. Another summons was issued to him on 07.02.2014, to which also he did not respond. Thereafter, he filed an application for anticipatory bail before the Sessions Court, Ernakulam, which got dismissed. He thereafter approached this Court, and the application was disposed of with a direction asking him to surrender before the DRI on 12.03.2014, to produce all documents and also to cooperate with the investigation.

10. Follow up investigation was also conducted by the DRI at Mumbai and the search revealed that the premises of M/s Panna Gold had another company by name “Om Jewellers”, operating in the premises, of which Khatri was the Proprietor. 3790 gms. of gold was seized, but later released, since it was not connected with the seizure at Ernakulam.

11. Khatri's statements were recorded by the DRI on 12.03.2014, 24.03.2014 and 25.03.2014. He also produced certain documents. He was thereafter arrested on 25.03.2014 and produced before the Addl. CJM (Economic Offences), Ernakulam. The Adjudicating Authority found that there was no document to prove the legitimacy of the gold recovered from the two salesmen of M/s Panna Gold Impex Ltd. and in the statements given by them under Section 108 they admitted that the gold handed over to them was smuggled gold and the ornaments seized were made of such smuggled gold. No reliable documentary proof was also produced by the company to prove that they had purchased the gold legally, and therefore, the Adjudicatory Authority ordered confiscation of gold bars and ornaments and also imposed the penalty as stated above. In first appeal, the ornaments were ordered to be released, but the confiscation of gold bars and pieces confirmed.

12. Coming to the finding of the Tribunal regarding the burden of proof, it would be necessary to examine the scope of Section 123 of the Act, which deals with burden of proof in certain cases. Section 123(2) in particular, is pertinent, which reads thus:

“123. Burden of proof in certain cases.- (1) When any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be-

(a) in a case where the seizure is from the possession of any person,-

(i) on the person from whose possession the goods were seized, and

(ii).....

(b)..........

(2) This section shall apply to gold and manufactures thereof, watches and any other class or good which the Central Government may by notification in the Official Gazette, specify.”

From a reading of the section, it is explicit that, when any goods to which the Section applies are seized under the Act under the reasonable belief that they were smuggled goods, the burden of proof as to they were not smuggled goods, shall be on the person from whose possession the goods were seized. As far as gold and watches are concerned, the Section applies directly, and regarding other goods, the Central Government may by notification in the official gazette specify. Hence, the finding of the Tribunal that the burden is on the Department to prove that the gold was smuggled, cannot be accepted. The Tribunal has relied on the decision on D.Bhoormall (supra) to justify that the burden is on the Department. A reading of paragraph 34 of the judgment would be pertinent, where, it is stated that it would be enough, if the Department furnishes prima facie proof of the goods being smuggled stock. A reading of Section 123 also require only a reasonable belief as far as gold is concerned, that it was smuggled. The gold was recovered from the possession of the two individuals intercepted by the DRI, who were not able to give a satisfactory explanation to upset the reasonable belief entertained by the DRI officials who recovered huge quantity of unmarked gold from the persons intercepted. In fact the statements made by the intercepted individuals further fortified the belief entertained by the officials. The statement of the carriers of the gold under Section 108 of the Act, can be safely relied upon by the Department to proceed against them. The decision in Shri Ganesh Enterprises (supra) relied on by the Tribunal is not applicable to the case, because the said decision deals with confiscation of non-notified goods and not gold or other notified goods.

13. The learned Counsel for the Department relies on the decision in Labhchand Dhanpat Singh Jain v. State of Maharashtra, AIR 1975 SC 182, wherein the Hon'ble Supreme held as follows:

“9. xx xx xx The appellant admitted, in his statement under Section 108 of the Act that H transporting of these pieces of gold was an offence. If the gold had been legally imported before 1948 it could not be an offence to carry it. The appellant had not proved who Pannalal, the person who was alleged by him to have given him the gold to carry, was. Atleast, the burden of proving an innocent receipt of gold lay upon the appellant under Section 106 Evidence Act. The totality of facts proved was enough, in our opinion, to raise a presumption under Section 114 Evidence Act that the gold had been illegally imported into the country so as to be covered by Section 111(d) of the Act. The appellant had not offered any other reasonable explanation of the manner in which it was being carried.”

14. In the aforesaid decision, the Hon'ble Supreme Court has held that the appellant in that case was fully aware of the allegations made against him, and had given an inculpatory statement under Section 108 of the Act regarding the circumstances in which he was arrested with the gold bars.

15. In Sailash Amulakh Jogani v. Union of India, 2009 (241) ELT 348 (Bom) relied on by the learned Counsel for the Department, the goods involved were diamonds, which were not notified under Section 123 of the Act and it was held that in view of the fact that there was no notification, the onus of proving the diamonds are of foreign origin and are smuggled to India was on the Department. It was, however, held that the burden on the Department is very slight and since the diamonds were not covered by vouchers, the circumstance was sufficient to substantiate the case of the Department that those diamonds were smuggled.

16. In Shah Guman Mal v. State of Andhra Pradesh, 1983 (13) ELT 1631 (SC), the Hon'ble Supreme Court has held that the Department cannot press into service the presumption arising from Section 123 of the Act, since there was no seizure made under Section 111 of the Act; which is not applicable in the facts of this case.

17. Per contra, Sri.B.R.Tripathi, the learned Counsel appearing for the respondents, submits that there were no foreign markings on the gold and therefore no presumption, whatsoever, could have been drawn regarding the seized gold being smuggled. The onus on the authority to establish that the articles were smuggled was not discharged and the Tribunal was justified in holding that there was no proof in favour of the Department against the carriers so as to proceed against them.

18. We have considered the decisions relied on by both sides and are of the opinion that in case of seizure of gold, even without markings, the burden is upon the person, who has custody of the gold, under Section 123 of the Act, to prove that the gold was legally acquired. The statement recorded under Section 108 of the Act could be safely relied upon in the proceedings against respondents. In K.I.Pavunny v. Assistant Collector, (1997) 3 SCC 721 the Hon'ble Supreme Court has held that a person summoned under Section 108 of the Act is “not the person accused of an offence” for the purpose of Section 24 of the Evidence Act. The primary question for consideration in that case was whether the retracted confession statement of the appellant is inadmissible in evidence under Section 24 of the Evidence Act. It is observed that even though the customs officers have been invested with many of the powers, which an officer-in-charge of a police station exercises, while investigating a congnizable offence, they do not, thereby become police officers within the meaning of Section 25 of the Evidence Act and so the confessional statement by the accused persons to customs officials would be admissible in evidence against them and it was ultimately held by the Hon'ble Supreme Court that the prosecution has proved the case based on the confession of the appellant given in Ext.P4 under Section 108 of the Evidence Act.

19. The unmarked gold recovered from the possession of two persons and their statements as to the source of the gold was sufficient to have a reasonable belief that the gold is smuggled. The two persons who were carrying the gold had nothing in their possession to prove the legitimacy of the gold they carried. The fact that the gold bars and pieces did not have any marking on them is suspicious and it points to a concerted effort to erase the markings on them. The burden under Section 123 which is only of a reasonable belief; is effectively discharged by the Department who initiated action on the basis of the seizure and the recorded statements of the detained persons. The mere fact that the interception and seizure was not affected in an international border or near an airport or seaport is irrelevant, since the statements of the intercepted persons clearly indicate that they were asked to avoid such means of transport and stick to the normal modes of public transport. There can also be no presumption drawn that the carriers of smuggled gold after the gold reaches the country would only resort to commutation by air or sea. The persons from whom the gold was seized disowned the same and said that they were mere carriers of Om Prakash Khatri, who accepted that the gold seized belonged to his Company. Then the onus to prove that the gold was not smuggled, so as to upset the reasonable belief entertained by the Department shifted and squarely rested on his shoulders. The gold bars and pieces were subjected to chemical examination which revealed that they were of 99.8% purity. The Tribunal ignored this aspect and referred to the purity of the ornaments; which was not an issue before it.

20. There was a Travel Authorisation Voucher, produced subsequently, before the DRI indicating one of the persons detained having been authorised to carry 4002.33 grams of gold, belonging to Penna Gold Impex; but the actual gold seized was 4430.730 grams. An explanation was offered as to the gold seized included gold released from Nagercovil Court out of which certain ornaments were also made. However the quantity of the gold stated to be handed over by the Company and that released from a Court, as initially stated, further changed in the retraction and later asserted in the reply to the show-cause notice, did not tally. In explaining the exact quantity of the gold as available in the voucher it was also admitted that certain vouchers were subsequently prepared with an earlier date. The signature of the carrier in the Voucher also did not tally with that in his statement recorded and the admitted ones in his PAN card, driving license, passport etc. Apart from the fact that the vouchers were not carried with the gold and was not shown to the intercepting officials; there is also no explanation as to how the quantity of gold released from the Nagercovil Court was disclosed in the Voucher, since it was not handed over at Mumbai, where the gold was asserted to have been handed over. The location details of the mobile of the carrier was found to be in Trivandrum when he is said to have visited Mumbai, to receive the gold. There was also no documents filed under the sales tax laws for the inter-state transfer of gold and ornaments.

21. The assertion was that the gold found on the two employees were that purchased by the Company at Mumbai; which details are available in the registers maintained by the Company. The stock of refined gold and gold

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ornaments as seen from the stock register produced at the time of investigation substantially varied from the abstracts of the stock registers produced before this Court, where Om Prakash Khatri approached for anticipatory bail. The explanation offered for the anomalies was that some gold possessed by sales men were not accounted for. This clearly belies the veracity of the registers produced in the course of investigation. Further the specific statement in the reply was that the gold seized were purchased from 12 authorised bullion dealers in Mumbai. On examination of the records produced, the adjudicating authority found that the gold purchased from these parties were accounted in the stock register for standard gold, while the gold seized was seen to have been released from the stock register for refined gold. However there was no transfer of gold from the stock register for standard gold to that of refined gold. There was also no gold sourced from outside as entered in the stock register for refined gold. This totally demolish the contention of the appellants that the gold seized was that purchased at Mumbai. The registers produced and the transactions alleged did not tally nor did the quantity seized and that seen from the alleged Travel Authorisation Vouchers. The records maintained were vague, incomplete and incorrect justifying the allegation of the Department that they were fabricated. The transactions were shrouded in mystery and were not transparent and exact, especially considering the business of precious metal. The appellants hence clearly failed to discharge the onus of proof cast on them by Section 123. 22. Taking the totality of the evidence analyzed by the Department, as produced by the appellants themselves and the attendant circumstances resulting in the seizure, we find that the Tribunal was not justified in upsetting the findings of the first appellate authority, and therefore, the appeals are allowed, and the impugned order is set aside and the order of the first appellate authority is restored. No order as to costs.
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