Absence of Foreign Markings and Purity Below Standard: CESTAT Quashes Penalties in Alleged Gold Smuggling Case [Read Order]

The Kolkata Bench of the Customs, Excise, andService Tax Appellate Tribunal (CESTAT) ruled that penalties for alleged smuggling of gold could not be sustained when the seized gold bars had no foreign markings and their purity was below the standard associated with foreign origin.

Shri Kailash Sharma Pareek, Shri Shankar Lal, and Shri Jyotish Pareek, the appellants, were penalized under Section 112(b)(i) of the Customs Act, 1962 after the DRI intercepted a truck in Guwahati carrying 40 gold bars weighing 6.6 kg.

The adjudicating authority confiscated the gold, imposed a redemption fine on the truck, and levied penalties of Rs. 21.8 lakh each on five individuals including the appellants. The Commissioner (Appeals) upheld the penalties, leading to the present appeals before the CESTAT.

Read More: Payment to Consultant Doctors not salary in absence of FixedPay, TDS Deductible u/s 194J: Bombay HC [Read Order]

The appellants’ counsel argued that they were implicated only on the basis of statements recorded by DRI, which were later retracted. They further argued that the gold bars had no foreign markings, their purity was in the range of 995-996 mille rather than 999.9 mille associated with foreign origin, and no evidence established that the bars were smuggled.

They submitted that Section 123 of the Customs Act was wrongly invoked because the department had not first proved the foreign origin of the gold.

The revenue’s counsel argued that gold is a notified item under Section 123 and the burden lay on the appellants to prove licit origin. They relied on the statements of the accused, including admissions made during the investigation and submitted that penalties were rightly imposed.

Read More: Accountant’s Clerical Error in ST-3 Returns: CESTAT Holds OnlyTwo Instances of Delay Valid, Grants Partial Relief on Interest Demand [Read Order]

The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed that apart from statements, there was no corroborative evidence against the appellants. The tribunal observed that the statements were retracted and were not tested in accordance with Section 138B of the Customs Act.

The tribunal observed further that the seized gold had no foreign markings, and the purity did not prove foreign origin. In such circumstances, the tribunal explained that the burden under Section 123 did not shift to the appellants since they had not claimed ownership of the gold.

The tribunal pointed out that suspicion alone could not substitute for evidence of smuggling, and without proof of foreign origin, penalties under Section 112(b)(i) were not sustainable. The tribunal explained that when gold is not established as prohibited goods, the provisions of Section 112(b)(i) cannot be invoked. The appeals were allowed and the penalties set aside.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates