Balanagu Naga Venkata Raghavendra @Hash Commissioner Of Customs, Vijayawada

These appeals are filed by the appellants against Order-in-Original No.VJD-CUSTM-PRV-COM-08-16-17 dated 28.02.2017 passed by the

Commissioner of Customs, Vijayawada.

Heard both sides and perused the records. On 10.12.2020 when the matter was heard both sides were given additional time to make any written

submissions and submit any documents. Accordingly, both sides made additional written submissions which have also been examined by us.

The facts of the case are that based on some information, Officers of Customs Preventive Commissionerate, Vijayawada kept surveillance in one

town area on 24.06.2016. At about 11 AM, they found a person carrying a big shopper bag moving suspiciously and approached him; he identified

himself as Shri Balanagu Naga Venkata Raghavendra. When Officers asked him if he was carrying non-customs duty paid goods, he said that he was

carrying gold with him and showed three packetswrapped in newspaper tied with rubber bands. On opening, one packet had one big piece, two small

cut pieces and one very small hammered piece of yellow metal in one bag. In another bag were one big piece and one small piece of yellow metal and

in a short packet were one big piece, one small piece and one very small piece of yellow metal. The big yellow metal pieces had marks y.999 inscribed

on them. On verification of the papers available with Shri B.N.V. Raghavendra they found a letter addressed to one Shri Vijay of Trissur, Kerala

requesting him to handover 1700 gms of gold to the bearer of the letter and that Rs. 50 lakhs in cash is being sent to him. Shri B.N.V. Raghavendra

explained that the letter was written by his father to Shri Vijay in Kerala. The Officers informed that they have reasonable belief that the gold being

carried by him is non-custom duty paid and hence liable for confiscation and they seized the same under section 110 of the Customs Act. The seized

metal was analysed at M/s Pavan Gold Check and Hall Marking Centre and their weights were noted. Officers recorded the statements of Shri

B.N.V. Raghavendra, searched the premises of his father Shri B.V.S. Kanaka Ratnam and a few others. In their several statements made during

inverstigation, the case of the appellants was that some of the gold was converted from family jewellery into primary form in one melting shop [run by

Shri Jaggavarapu Nageshwara Rao], some was purchased [from one Shri Pinninti Koti], that the gold was bought and sold several times by them and

it was reflected in their Income Tax Returns. The statements of Shri B.N.V. Raghavendra and Shri BalanaguVenkata Siva Kanaka Ratnam were

found to be contradictory to each other. These contradictions were recorded in para 16 of the Show Cause Notice as follows:-

In view of the above, it appears that there are apparent contradictions in the statements made by Shri B.N.V. Raghavendra and Shri

B.V.S. Kanakaratnam as detailed below: Â

à Shri B.N.V. Raghavendra at the time of drawing mahazar on 24/06/2016 has stated that the letter dated 22/06/2016 seized from him was

written by his father to Shri Vijay in Trissur, Kerala and he has purchased 1700 gms of bullion from him. However, he retracted the

same and deposed that he was in shock at the time and even feigned ignorance as to how the letter written by his father came into his

pockets Â

à Shri B.N.V. Raghavendra in his statement given on 24/06/2016 has deposed that his father gave him 1700 gms of gold on 24/06/2016

and asked him to sell the gold along with 605 gms gold purchased by him whereas in his statement dated 25/07/2016 he stated that his

father is not aware of purchase of 605 gms of gold purchased by him from Shri Pinninti Koti Â

à Shri B.N.V. Raaghavendra in his statement dated 24/06/2016 has deposed that he has purchased 605 gms of gold from Shri Pinninti

Koti whereas Shri Pinninti Koti in his statement dated 24/06/2016 has categorically stated that he he has not sold any gold to Shri

B.N.V. Raghavendra Â

à Shri B.N.V. Raghavendra in his statement dated 24/06/2016 has deposed that he has purchased 605 gms of gold from Shri Pinninti Koti.

However, when asked about which of the individual pieces will add up to 605 gms of gold, he has deposed that he did not remember

how much gold was purchased by him from Pinninti Koti on 23/06/2016 Â

à Shri B.V.S. Kanaka Ratnam in his statement dated 27/06/2016 has stated that 1700 gms of gold available in their family and 600 gms of

ornaments of his wife were got melted nearly one month back. However, the same is not supported by Shri Jaggavarapu Nageswara Rao

who has actually melted the gold for Shri B.V.S. Kanaka Ratnam as he has categorically deposed that he has melted only 600 gms of

gold nearly 2 or 3 months back. Â

à Shri B.V.S. Kanaka Ratnam & Shri B.N.V. Raghavendra have argued that it was their family gold which was shown as asset in their

balance sheets and the same was melted for the purpose of selling the same. However, Shri B.V.S. Kanaka Ratnam in his statement dated

28/07/2016 deposed that the gold available in the family was sold and bought several times over and the same quantity is being

maintained as the quantity of gold sold is bought again. Â

à Shri B.V.S. Kanaka Ratnam in his statement dated 27/06/2016 has deposed that he was in his house only on 23/06/2016 & 24/06/2016

whereas his wife at the time of search operation at his residential premises on 24/06/2016, has stated that he was out of town for the last

2 days and the same was recorded in panchanama Â

à Shri B.V.S. Kanaka Ratnam & Shri B.N.V. Raghavendra have stated that they have not travelled in train number 12625 on 23/06/2016

vide their statements on 07/11/2016 where as their travel was confirmed by the Railway authorities

A show cause notice was issued to the appellants stating that as per Section 123 of the Customs Act when goods were seized in the reasonable

belief that they are smuggled goods, the burden of proof that they are not smuggled goods shall be on the person from whose possession the goods

were seized. Paras 17-20 & 23 of Show Cause Notice were as follows:

As per Section 123 of Customs Act, 1962 “ (1) Where 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 â€

(a) In a case where such seizure is made from the possession of any person,.-

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

(ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other

person;

(b) in any other case, on the person, if any, who claims to be the owner of the goods so seized.

(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, specifyâ€​

As per the above provisions of Section 123 of the Customs Act, 1962 it is not required that gold should contain foreign markings and

even gold in primary form or jewellery could also be covered as per the language of the provision. The onus of proving Indian origin on

any primary gold or jewellery is cast upon the person in possession of such gold and also on the person who claim ownership of the gold.

The seizure of gold from Shri B.N.V. Reghavendra on specific information, recovery of letter dated 22/06/2016 written by Shri B.V.S.

Kanaka Ratnam addressed to Vijay in Trissur and confirmation of their journey from Trissur to Vijayawada appears to confirm the

smuggled nature of the gold. On the other hand, Shri B.N.V. Raghavendra from whose possession the gold was seized and Shri B.V.S.

Kanaka Ratnam who has claimed ownership of the gold have not produced any proof regarding import of the gold through licit channels or

purchase of old gold available in India. They have not produced any sale/purchase voucher towards purchase of the said gold. They have

also contradicted themselves as detailed ibid at para 16. Thus, it appears that they have failed to discharge the responsibility cast on them

under Section 123 of the Customs Act, 1962 to prove that the seized gold is not smuggled into India without payment of duty. Shri B.N.V.

Raghavendra is in possession of the gold and Shri B.V.S. Kanaka Ratnam claiming ownership of the gold appears to be knowingly dealing

in non customs duty paid gold. They have not provided any proof regarding payment of Customs duty in respect of the said Gold.

From the above it appears that Shri B.N.V. Raghavendra and Shri B.V.S. Kanaka Ratnam appears to be involved in trading of smuggled

gold. They could not produce the proof of duty payment on the seized gold as per the provisions of Section 123 of the Customs Act, 1962.

Therefore, Gold in Bullion form weighing 2305.76 gms valued at Rs.68,94,222/- (Rupees Sixty Eight Lakhs Ninety Four Thousand Two

Hundred and twenty two only) seized from Shri B.N.V. Raghavendra on 24/06/2016 appear to be liable for confiscation under Section 111

of the Customs Act, 1962.

Therefore, Shri B.N.V. Raghavendra and Shri B..S. Kanaka Ratnam, D.N0.24-3-56, R. Agraharam, 7th Line Street, Guntur â€" 522003,

are hereby called upon to show cause to the Commissioner of Customs, Customs Preventive Commissionerate, Vijayawada, Autonagar,

Vijayawada-520002, within 30 days from the date of receipt of this Show Cause Notice as to why:

i) Gold in Bullion form weighing 2305.76 gms valued at Rs.68,94,222/- (Rupees Sixty Eight Lakhs Ninety Four Thousand Two Hundred and

twenty two only) seized from Shri B.N.V. Raghavendra on 24/06/2016, should not be confiscated under Section 111 of Customs Act, 1962,

as the appropriate Customs duty has not been paid on those goods.

ii) Penalty under Section 112 of Customs Act, 1962 should not be imposed on them for improper importation of goods.

iii) Penalty under Section 117 of Customs Act, 1962 should not be imposed on them for being in possession and dealing with non customs

duty paid gold in bullion form. 5. The appellants contested the show cause notice. They sought cross examination of the Senior DCM of the

South Central Railway who gave a confirmation based on official records that both Shri B.N.V. Raghavendra and Shri B.V.S. Kanaka

Ratnam had travelled in the train from Trissur to Vijayawada. In the impugned order, the Learned Commissioner did not allow cross

examination of Senior DCM rejecting the contention of the appellants that Railway Authorities cannot confirm the travel or non-travel of

the passengers. After examining the submissions made by the appellants, the Learned Commissioner absolutely confiscated the seized gold

under Section 111 of the Customs Acts and imposed penalties upon Shri B.N.V. Raghavendra and Shri B.V.S. Kanaka Ratnam under Section

112 and 117 of the Customs Act.

Aggrieved by this order, the present appeal is filed on the following grounds:-

i) The principles of natural justice is violated as the letter of Senior DCM of Railways confirming the travel of both the appellants was taken into

account but they were not allowed to cross examine the Senior DCM.

ii) The Commissioner did not study the facts and records the case and came to wrong conclusions.

iii) The Commissioner should have given them an option to redeem the confiscated gold under Section 125 of the Customs Act even if the gold was to

be confiscated.

In the additional written submissions made after the hearing the appellants again asserted that they should have been allowed to cross-examine the

Senior DCM who confirmed their travel from Trissur to Vijayawada. They also further contested that the Department has failed to discharge the

obligation cast upon it. It is the case of Department that the gold is smuggled one. To prove the same to be smuggled, the Department has not

extended the investigation to reach to the root of the matter. The Department has completely failed to go into the root of the matter as to how the

goods were smuggled in nature nor has it based any evidence to this effect. By no stretch of imagination can the goods be termed as smuggled ones.

Therefore, the impugned order needs to be set aside. In the factual matrix of the case the findings arrived at by the adjudicating authority can only

raises suspicion about the nature of the seized gold but however suspicions, cannot take the place of evidence.

On the other hand, Learned Departmental Representative supported the impugned order during hearing and in his written submissions and additional

written submissions. His arguments were as follows:

i) The Railway Authorities have only given a statement based on the official records available with them. The appellants’ argument that their

tickets were waitlisted has no force because the Railway records show not only whether the tickets were confirmed but the Travelling Ticket

Examiner (TTE) of the Railways examines whether the passengers have travelled on the tickets and this information goes into their records. It is not

an opinion expressed by the Senior DCM but is a mere statement of the details available in Railway records. Therefore, these records must be trusted

unless the appellant can prove otherwise. Therefore the lower adjudicating authority was correct and not allowing cross examination of the Senior

DCM.

ii) On the question of whether the gold could have been, as asserted by the appellants, being converted from ornaments and the relevant records

shown in their IT returns, it is argued that the IT Returns show the same quantity of gold is being shown as sold and again purchased several times

during the year. Therefore, there is no force in the argument that the gold was made out of old ornaments by melting.

iii) On the question of whether the Department had reasonable belief that the seized gold was smuggled in the absence of remarks and numbers on the

seized gold pieces indicating their foreign origin, he relies upon the judgment of the Hon’ble High Court of Kerala in the case of Commissioner of

Customs, Cochin Vs Om Prakash Khatri [2019 (366) ELT 402 (KER)] in which it is held as follows:

Smuggling - Gold - Burden of proof - Reasonable belief - Unmarked gold recovered from the possession of two persons and their statements

as to the source of the gold sufficient to have a reasonable belief that gold is smuggled - No satisfactory explanation given to prove the

legitimacy of the gold carried by intercepted persons - Burden of proof under Section 123 of Customs Act, 1962 being only of a reasonable

belief, effectively discharged by Department - Mere fact that interception and seizure not affected in an international border or near an

airport or seaport irrelevant - Onus to prove that the gold was not smuggled, so as to upset the reasonable belief entertained by Department

shifted and squarely rested on owner - Gold bars and pieces found to be of 99.8% purity but this fact ignored by Tribunal - Registers

produced and the transactions alleged as well as the quantity seized and that seen from the alleged Travel Authorisation Vouchers not

tallying - Therefore, appellants clearly failed to discharge the onus of proof cast on them by Section 123 ibid - Tribunal not justified in

upsetting the findings of the first appellate authority - Confiscation upheld - Sections 111(a), (d) and (m) read with Section 120(1) of

Customs Act, 1962.

This judgment was upheld by the Hon’ble Supreme Court.

iv) On the question of the gold being not allowed for redemption after confiscation, he relies on the judgment of the Hon’ble Supreme Court in the

case of Shri Om Prakash Bhatia Vs Commissioner of Customs, Delhi [2003 (155) ELT 423 (SC)] to assert that prohibited goods need not be allowed

for redemption under Section 125 of the Customs Act.

We have gone through the records of the case and considered the submissions made on both sides. The issues to be decided by us are:-

i) whether the Commissioner has erred in not allowing cross examination of the Senior DCM of the Railways while accepting his letter confirming that

the appellants had travelled in train from Trissur to Vijayawada.

ii) whether the Department had a reasonable belief that the seized gold to be smuggled so as to shift the burden upon the appellants to prove that they

are not smuggled goods

iii) whether the confiscation of the seized gold needs to be upheld in the factual matrix

iv) whether the redemption of the seized gold should have been or can be allowed in the factual matrix

v) whether the penalties on the appellants were correctly imposed under sections 112 & 117 of the Customs Act.

As far as issue (i) of cross examination of the Senior DCM on a letter merely stating the facts available in official records is concerned, we find

that as per Section 80 of Indian Evidence Act there is a presumption as to genuineness of the documents produced as a record of evidence. It is a

standard practice of the Indian Railways to finalise the status of waitlisted tickets while preparing the chart of passengers before departure of the train

which shows whether the tickets of waitlisted passengers are confirmed or otherwise. After the journey begins, the Travelling Ticket Examiner (TTE)

checks whether all the passengers had valid tickets and whether all reserved passengers have travelled and this information also goes into their official

records. The letter produced by the Senior DCM merely reflects what the official records state and it is not his personal opinion. He did not make any

statement regarding the nature of gold or that the passengers travelled with the gold, etc. All that was said in his letter was that the appellants had

travelled in the train from Trissur to Vijayawada on the particular date. This was not his statement as an eye witness but a statement based on official

records. There is nothing which the appellants can disprove by cross examination of the Senior DCM. Therefore, we find that the Learned

Commissioner was correct in not allowing cross examination of the Senior DCM.

The next issue (ii) to be decided is whether the Department had a reasonable belief as required under Section 123.This Section reads as follows:-

A Section 123 “ (1) Where 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 â€

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

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

(ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other

person;

(b) in any other case, on the person, if any, who claims to be the owner of the goods so seized.

(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, specifyâ€​

According to the Show Cause Notice the reasonable belief that the seized gold was smuggled gold has come from the following:-

i) Specific information (although nature of the information is not indicated in the show cause notice)

ii) Recovery of letter dated 22.06.2016 written by Shri B.V.S. Kanaka Ratnam to one Shri Vijay in Trissur asking him to give the gold to the

bearer of the letter; and iii) The confirmation of appellant journey from Trissur to Vijayawada by the Railway Authorities.

The assertion of the appellants is that Revenue has not discharged its onus and therefore had no reasonable belief that the gold was smuggled

gold. In none of the statements has anyone admitted or even suggested that the gold was smuggled. Investigations conducted by the Department as

detailed in the Show Cause Notice also do not show that the gold was smuggled. There were no foreign marks on the gold to indicate that it was

foreign gold. On the other hand, Learned DR relies on the judgment of the Hon’ble High Court of Kerala in the case of Shri Om Prakash Khatri

(supra) to assert that whether the gold appears and pieces are found to be of 99.9% purity even unmarked gold seized by the Customs Authorities is

sufficient to constitute reasonable belief that the gold is smuggled.

We have carefully studied the judgment of the Hon’ble High Court of Kerala in the case of Shri Om Prakash Khatri (supra). In that case two

persons were intercepted by the Officers of DRI and gold bars and pieces were seized from them along with some cash. The statements of the

apprehended persons revealed involvement of on Shri Om Prakash Khatri director of M/s Panna Gold Impex Ltd. Apprehended persons indicated that

these gold bars and pieces were smuggled into India from Kerala and they were to take them to Mumbai to be hand over to Shri Om Prakash Khatri.

They also admitted having collected gold from Kerala on earlier occasions to deliver to Shri Om Prakash Khatri. Further, they said that they did not

travel by flights to avoid security checking and customs checking. They further described in detail how they reached Kerala and who handed over the

gold bars and pieces to them. They further asserted that the markings in the gold have been removed so as to conceal the identity of the smuggled

gold and gold was also cut into small pieces and melted. Hon’ble High Court of Kerala held as follows:-

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.

The confiscation of the gold by the adjudicating authority was set aside by the Tribunal and on appeal by the Revenue the Hon’ble High Court

of Kerala, in the above factual matrix, has over turned the decision of the Tribunal. Therefore, it was not merely the purity of the gold in question but

also the statements made during the investigation which formed the basis of the reasonable belief of the officers. In the present case, none of the

statements recorded by the Department admit to or even suggest that the gold was smuggled gold. It has also not been brought out in the Show Cause

Notice that the purity of the seized gold is such that it could only have been of foreign origin. It is true that the conduct of the appellants was

suspicious inasmuch as the gold pieces were being carried in newspapers and a letter was found written to one Shri Vijay in Trissur for requesting the

gold tobe handed over to the bearer of the letter. It is also confirmed by the DCM, Railways that the appellants had travelled from Trissur to

Vijayawada by train. However, we note that Trissur is not even a port in itself. The gold was apparently collected from one Shri Vijay in Trissur.

There were also several contradictions between different statements as recorded in para 16 of the Show Cause Notice. All these would show that

Shri Kanaka Ratnam (Appellant in Appeal No. 30496 of 2017) wrote a letter to Shri Vijay of Trissur to hand over gold to the bearer of the letter and

both the letter and the gold were recovered from his son Shri Naga Venkata Raghavendra (Appellant in Appeal No. 30495 of 2017). Both the

appellants had travelled by train from Trissur to Vijayawada. Naga Venkata Raghavendra was acting suspiciously when the Officers approached him.

Subsequent statements were contradictory to each other. These factors by themselves cannot, in our considered opinion, constitute the basis for

forming a reasonable belief that the seized gold was smuggled. Therefore, the Officers did not have a reasonable belief in the first place to assert that

the seized primary gold was smuggled gold which is essential to shift the burden on to the accused under Section 123. The case of Om Prakash Khatri

(supra) was different inasmuch as in that case while the foreign markings were missing on the gold in that case the carriers had admitted that they

were carrying smuggled gold for Shri Khatri and that it was smuggled through Kerala and they were carrying it to Bombay and marks and numbers

have been deleted to avoid being caught. They also admitted that they avoid air travel as there is a high risk of being caught. Coupled with these

statements was the fact the gold of very high purity. The ratio of this judgment does not apply to the present case and the facts are quite different.

In view of the above, we find that the officers of the Department had no reasonable belief that the gold was smuggled and therefore they have not

discharged their responsibility of forming reasonable belief under Section 123 without which the burden of proof will not shift to the person from whom

the gold is seized. The impugned order and show cause notice suffer from this infirmity and therefore the confiscation as well as the penalties need to

be set aside. In view of the above, we answer the issues framed by us in para 9 above as follows:-

(i) The Learned Commissioner was correct in not allowing cross examination of the Senior DCM of Railways since he only communicated what is in

the official records;

(ii) The Department had no reasonable belief that the seized gold was smuggled gold as required under Section 123;

(iii) The confiscation cannot be sustained and needs to be set aside;

(iv) Redemption becomes irrelevant in view of (iii) above;

(v) Penalties need to be set aside in view of (iii) above.

Appeals are allowed and the impugned order is set aside with consequential relief, if any.

(Order pronounced on_15.02.2021_ in open court)