CESTAT Delhi Quashes Gold Smuggling Penalties

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 09.02.2026

CESTAT Delhi Quashes Gold Smuggling Penalties

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, recently delivered a significant judgment in the case of Customs Appeal No. ​ 50837 of 2024. ​ This case, involving allegations of gold smuggling, highlights critical aspects of the Customs Act, 1962, particularly sections 108, 112(b)(i), 114AA, and 123, as well as the procedural requirements under section 138B. ​ The judgment, pronounced on February 6, 2026, by Hon’ble Justice, sets a precedent for the admissibility of evidence and the burden of proof in customs-related cases.

Background of the Case

The appellant, a partner in M/s. ​ S.R. & Co., filed an appeal to quash the order dated October 11, 2023, passed by the Commissioner (Appeals) Customs, CGST, Central Excise, Indore. ​ The order had upheld penalties imposed on the appellant under sections 112(b)(i) and 114AA of the Customs Act, 1962, for alleged involvement in gold smuggling activities. ​

The case revolved around the seizure of 69 kg of gold bars by the Directorate of Revenue Intelligence (DRI) on March 20, 2021, from two individuals, who were transporting the gold to Indore. ​ The DRI alleged that the gold was of foreign origin and smuggled into India, and accused the appellant of being a mastermind behind the smuggling operation. ​

Key Allegations Against the Appellant ​

The show cause notice issued to the appellant alleged the following:

1. The appellant was involved in smuggling foreign-origin gold, converting it into bars resembling domestic origin gold, and supplying it to M/s. ​ Pulak Ornaments LLP.
2. The appellant was aware of the smuggling activities and had telephonically received orders for foreign-origin gold on previous occasions. ​
3. The appellant failed to prove that the seized gold was not smuggled, as required under section 123 of the Customs Act. ​
4. The appellant allegedly fabricated backdated invoices to legitimize the possession of the smuggled gold. ​

Key Legal Issues

The case raised several important legal questions:

1. Admissibility of Statements Under Section 108 of the Customs Act: The appellant argued that the statements recorded under section 108 were inadmissible as the procedure under section 138B was not followed. ​ Section 138B mandates that statements recorded during an inquiry are relevant only if the person who made the statement is examined as a witness and the adjudicating authority forms an opinion that the statement should be admitted in evidence in the interest of justice. ​
2. Burden of Proof Under Section 123 of the Customs Act: The appellant contended that the burden of proving the gold was not smuggled did not lie on him, as the gold was neither seized from his possession nor did he claim ownership of it. ​
3. Legitimacy of Invoices: The Commissioner (Appeals) rejected the invoices produced by the appellant, alleging they were fabricated and created after the seizure of the gold. ​ The appellant argued that the invoices were valid and demonstrated legitimate purchase and sale of the gold bars. ​

Key Findings of the Tribunal ​

The Tribunal made several critical observations in its judgment:

1. Non-Adherence to Section 138B: The Tribunal held that the statements recorded under section 108 of the Customs Act could not be relied upon as evidence because the mandatory procedure under section 138B was not followed. ​ The Tribunal emphasized that the statements must be admitted in evidence only after the person making the statement is examined as a witness and the adjudicating authority forms an opinion on their admissibility. ​
2. Burden of Proof Under Section 123: The Tribunal clarified that the burden of proving the gold was not smuggled lies with the person from whose possession the goods were seized. ​ Since the gold bars were not seized from the appellant’s possession, the burden of proof did not lie on him. ​ The Tribunal also noted that the gold bars did not have foreign markings and their purity was below 99.9%, which further weakened the department’s case. ​
3. Validity of Invoices: The Tribunal observed that invoices produced at a later stage are permissible under the law and cannot be dismissed solely because they were not presented at the time of the search. ​ The Tribunal cited previous judgments to support this view, emphasizing that the burden of proving the smuggled nature of goods lies with the department.

Final Decision

The Tribunal set aside the penalties imposed on the appellant under sections 112(b)(i) and 114AA of the Customs Act, 1962, and allowed the appeal. ​ The judgment underscored the importance of adhering to procedural requirements under section 138B and clarified the application of section 123 in cases involving the seizure of goods. ​

Key Takeaways

1. Admissibility of Statements: Statements recorded under section 108 of the Customs Act are not automatically admissible as evidence. ​ The procedure under section 138B must be strictly followed, including the examination of the person making the statement and providing an opportunity for cross-examination. ​
2. Burden of Proof: Section 123 of the Customs Act places the burden of proof on the person from whose possession the goods are seized. ​ If the goods are not seized from the appellant’s possession, the burden does not lie on them. ​
3. Legitimacy of Documents: Invoices and other documents produced at a later stage are valid under the law and cannot be dismissed without proper verification. ​

Conclusion

The judgment in Customs Appeal No. 50837 of 2024 serves as a reminder of the importance of following due process in customs-related cases. It highlights the need for adjudicating authorities to adhere to statutory provisions and ensure fairness in proceedings. ​ This case also reinforces the principle that the burden of proof lies with the department in cases where goods are not seized from the possession of the accused. ​ As the legal landscape continues to evolve, this decision will undoubtedly serve as a guiding precedent for similar cases in the future.

Source: CESTAT Delhi

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