CESTAT Hyderabad: Mere Suspicion Cannot Substitute “Reasonable Belief” for Confiscation of Gold Under Customs Act

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 28.09.2026

CESTAT Hyderabad: Mere Suspicion Cannot Substitute “Reasonable Belief” for Confiscation of Gold Under Customs Act

In a significant ruling concerning Section 123 of the Customs Act, 1962 and the reverse burden applicable to notified goods such as gold, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad has set aside the confiscation of 100 grams of gold in the form of a kada/bangle and the penalty imposed upon the appellant.

The Tribunal held that high purity of gold, coupled with transportation through a domestic courier, is not by itself sufficient to establish smuggled origin where there is no clandestine concealment, incriminating admission, foreign marking, falsity of purchase invoices or other reliable evidence linking the seized article with smuggled gold.

Importantly, the Tribunal clarified that although Section 123 creates a stringent reverse burden, it does not authorise confiscation based upon “a presumption upon a presumption.” The Department must first have material capable of supporting the statutory requirement of a reasonable belief that the goods are smuggled; thereafter, the claimant’s explanation and evidence must be objectively evaluated.

The ruling has considerable relevance for jewellers, bullion traders, manufacturers and persons dealing in domestically purchased gold, particularly where Customs proceedings are initiated on the basis of purity, mode of transportation or suspicion regarding provenance.

Background of the Case

• The dispute concerned 100 grams of gold in the form of a kada/bangle, which the appellant, Manik Chand Soni, claimed had been manufactured from gold lawfully purchased in the domestic market.
• The Customs Department treated the gold as being of foreign/smuggled origin, resulting in confiscation of the gold and imposition of penalty.
• The appeal arose from denovo proceedings following an earlier CESTAT remand. The final hearing took place on 18 August 2026, and the Tribunal delivered its decision on 21 September 2026.
• The dispute was therefore not simply whether the gold was of high purity. The central legal issue was whether the circumstances justified invocation of Section 123 and, if so, whether the appellant’s evidence of lawful domestic acquisition sufficiently discharged the statutory burden.

The Appellant’s Case: Gold Was Purchased from Registered Domestic Dealers

The appellant relied upon specific purchase invoices issued by:

• M/s Augmount Enterprises Pvt. Ltd., Hyderabad, and
  M/s Preeti Jewellers, Secunderabad.
• According to the appellant, 999-purity gold purchased under these invoices was used for manufacturing the seized kada/bangle.
• In the earlier round of proceedings, CESTAT had found that neither the Adjudicating Authority nor the Commissioner (Appeals) had properly examined or verified this documentary evidence. The matter had consequently been remanded for fresh adjudication specifically requiring examination of those documents.

Before CESTAT in the subsequent appeal, the appellant contended that:

• he was a registered manufacturer;
• the seized article carried no foreign marking;
• the gold had been purchased from registered domestic dealers against tax invoices;
• the transactions were reflected in books of account/GST records;
• the jewellery was being transported for job-work; and
• purity alone could not establish foreign or smuggled origin.

Customs Department Relied Upon Section 123

• The Department invoked Section 123 of the Customs Act, 1962, which provides for a reverse burden of proof in relation to specified goods once they are seized in the reasonable belief that they are smuggled goods.
• Customs particularly relied upon the Calcutta High Court’s judgment in Commissioner of Customs (Preventive), Kolkata v. Shri Anil Kumar Soni & Shri Anil Kumar Goud, CUSTA Nos. 30 & 31 of 2025, decided on 31 March 2026.
• The Department argued that the absence of foreign markings is not conclusive and that once the requisite reasonable belief exists, the burden falls upon the person concerned to establish lawful acquisition.
• This placed the interpretation and application of Section 123 at the centre of the appeal.

The Core Question Before CESTAT

• The Tribunal framed the principal issue as whether Customs had established the foundational circumstances necessary to invoke the reverse burden under Section 123, and, if so, whether the appellant had satisfactorily discharged that burden.
• This distinction became critical.
• Section 123 does not mean that the mere recovery of gold automatically proves smuggling. There must first be circumstances capable of generating the statutory reasonable belief that the goods are smuggled.

CESTAT Examines the Calcutta High Court Judgment

• CESTAT accepted and followed the legal proposition laid down by the Calcutta High Court that a town or inland seizure does not automatically prevent application of Section 123.
• Similarly, the absence of foreign markings does not, by itself, negate a reasonable belief that the goods may be smuggled.
• However, the Tribunal emphasised another equally important part of that principle: reasonable belief must arise from tangible material and the totality of surrounding circumstances and cannot rest merely upon suspicion.
• The Tribunal then distinguished the facts before the Calcutta High Court.
• In that case, approximately 2 kilograms of gold had been carried in a specially stitched waist belt beneath the carrier’s clothes; statements under Section 108 reportedly admitted foreign origin; purity was around 99.5–99.6%; and the explanation regarding melting of old ornaments was unsupported by refinery or melting records.
• Those circumstances were materially different from Manik Chand Soni’s case.

Why the Tribunal Found the Present Case Different

• The seized article in the present dispute was not unmarked bullion secretly concealed on a carrier.
• It was 100 grams of gold in the form of a kada/bangle, transported through a domestic courier together with other jewellery/gold articles.
• More importantly, the appellant had identified the asserted source of the gold from the investigation stage itself and produced purchase invoices from identified domestic suppliers.
• The appellant’s case was that the input itself was 999-purity gold purchased domestically and that the kada was manufactured from that material.
• This factual distinction proved important.

The “Identity Mismatch” Distinction

• The Tribunal carefully analysed why the reasoning adopted in the Calcutta High Court case could not mechanically be applied.
• In that matter, the claim concerned 22-carat jewellery allegedly melted into bullion having purity of 99.5–99.6%, without refinery or melting documentation explaining how the lower-purity jewellery became such high-purity bullion.
• CESTAT described this as an “identity mismatch.”
• By contrast, Manik Chand Soni’s specific case was that the input gold itself was 999 purity and had been purchased against identified domestic GST invoices.
• Therefore, if those invoices genuinely represented purchases of 999-purity gold and were duly accounted for, the unexplained conversion problem present in the Calcutta High Court case did not arise.
• This distinction is one of the most important aspects of the decision.

Section 123 Does Not Permit “Presumption Upon Presumption”

The Tribunal’s observations on Section 123 have wider significance.

It held that although Section 123 undoubtedly places a reverse burden upon the person concerned once notified goods are seized in the reasonable belief that they are smuggled:

• “Section 123 does not permit confiscation on the basis of a presumption upon a presumption.”

Accordingly, two stages must be kept analytically distinct:

• Stage 1 – Customs must possess material capable of supporting the statutory reasonable belief that the goods are smuggled.
• Stage 2 – The claimant’s explanation and evidence must then be objectively evaluated for the purpose of determining whether the reverse burden has been discharged.

The Tribunal rejected both extremes.

• Absence of foreign markings does not automatically take gold outside Section 123. But equally, every piece of high-purity gold found inland cannot automatically be presumed smuggled merely because gold is a notified commodity.

What Factors Should Be Examined?

According to the Tribunal, the decision must depend upon the cumulative evidence, including:

• manner in which the goods were carried;
• nature of the article;
• statements recorded during investigation;
• documentary provenance;
• accounting trail; and
• surrounding circumstances.

This provides an important evidentiary framework for future Section 123 disputes involving gold.

Domestic Courier Transportation Is Not the Same as Clandestine Concealment

• The Tribunal also made an important distinction concerning transportation.
• There was no finding that the kada/bangle carried a foreign inscription or marking. Nor was there an allegation of concealment comparable to the specially stitched waist belt involved in the Calcutta High Court matter.
• The Tribunal observed that transportation through a domestic courier for stated job-work purposes, without further incriminating material, could not be equated with physical concealment designed to avoid detection.
• This is particularly relevant for jewellery businesses that routinely send precious-metal articles between manufacturers, job-workers, artisans and other business locations.

Customs Must Verify Specific GST Invoices Instead of Simply Rejecting Them

• Another significant part of the ruling concerns documentary evidence.
• The appellant did not merely make a vague assertion that the gold had been purchased somewhere in the local market. He identified specific registered suppliers and specific tax invoices.

CESTAT held that once objectively verifiable documents are produced, the Adjudicating Authority is required to examine their:

• genuineness, and
  nexus with the transaction.
• They cannot simply be rejected because the claimant is unable to establish the complete historical movement of every gram of gold.
• This is a practically significant finding because gold is a fungible commodity, and an insistence upon establishing an uninterrupted physical identity of every gram may be commercially unrealistic in ordinary jewellery manufacturing.

Burden Under Section 123 Can Be Discharged on Preponderance of Probability

CESTAT acknowledged that the burden under Section 123 is stringent.

However, the Tribunal held that it is a burden capable of being discharged by:

• preponderance of probability, together with
  reliable documentary and circumstantial evidence.
• The Tribunal expressly observed that a jewellery manufacturer is not required to establish an impossible, uninterrupted physical identity of fungible gold from the stage of purchase through manufacture unless the circumstances of the particular case reasonably require such proof.
• This aspect of the judgment may have substantial importance in future gold-confiscation proceedings.

Department Must Examine Whether the Invoices Are False or Fabricated

• The earlier remand had specifically required verification of the purchase documents.
• CESTAT therefore observed that if, despite that remand, there was no positive finding based upon enquiry from the issuing dealers that the invoices were false or fabricated or that the transactions recorded in them never occurred, the documentary evidence could not simply be brushed aside.
• In other words, Customs cannot merely demand documents and then disregard them without conducting the verification necessary to determine their authenticity and evidentiary value.

High Purity Alone Is Insufficient

Ultimately, the Tribunal found that the evidentiary circumstances supporting confiscation in the Calcutta High Court matter were absent in this appeal.

It held that:

mere purity of gold + transportation through domestic courier, without evidence of:

• clandestine concealment;
• incriminating admission;
• foreign markings;
• falsity of purchase invoices; or
• other reliable material connecting the seized article with smuggled gold,

was insufficient to sustain the Department’s conclusion.

This does not mean purity is irrelevant. Rather, the ruling establishes that purity must be assessed alongside the complete factual and documentary matrix.

CESTAT Sets Aside Confiscation and Penalty

CESTAT concluded that the appellant’s documentary explanation regarding domestic acquisition could not be rejected merely on conjecture.

Consequently, it held that the findings sustaining confiscation and penalty were unsustainable.

The Tribunal therefore:

• set aside the impugned order insofar as it related to Manik Chand Soni;
• set aside the confiscation of the 100 grams of gold/kada-bangle;
• set aside the penalty imposed upon the appellant; and
• allowed the appeal with consequential relief, if any, in accordance with law.

Why This Judgment Matters for the Jewellery and Bullion Industry

• The ruling has practical importance beyond the facts of one seizure.
• Gold and precious-metal businesses commonly operate through chains involving bullion suppliers, manufacturers, artisans, job-workers, couriers and retailers. Gold purchased in one form may subsequently undergo manufacturing, conversion or incorporation into jewellery.
• Against that commercial background, requiring a dealer or manufacturer to prove an uninterrupted physical identity of every gram of fungible gold could create an evidentiary burden substantially different from proving its legitimate commercial provenance.
• CESTAT’s ruling recognises this distinction while preserving the statutory operation of Section 123.
• The judgment therefore does not dilute Section 123. Instead, it emphasises disciplined application of the provision: Customs must examine the circumstances giving rise to reasonable belief, while the claimant must support lawful acquisition through credible documentary and circumstantial evidence.

Practical Compliance Lessons for Jewellers and Gold Traders

• Businesses dealing in gold should treat this decision as a reminder of the importance of maintaining a strong documentary trail. In particular, jewellers, bullion dealers and manufacturers should preserve purchase invoices, GST records, stock registers, accounting entries, job-work documentation, courier records, manufacturing records and supplier details in a manner capable of establishing a coherent nexus between legitimate purchases and business stock.
• Where Customs questions the origin of gold, a defence based simply upon the absence of foreign markings may not be sufficient. Conversely, where identifiable domestic suppliers, tax invoices and accounting records establish legitimate provenance, those documents should be specifically placed before the adjudicating authority and their verification sought.
• The evidentiary strength lies not in any single document but in the consistency of the commercial and accounting trail.

Conclusion

• The decision in Manik Chand Soni v. Commissioner of Customs, Hyderabad provides an important clarification on the evidentiary operation of Section 123 of the Customs Act, 1962.
• CESTAT Hyderabad has recognised that Section 123 creates a stringent reverse burden, but that burden does not eliminate the requirement for an objective examination of evidence.
• The decision draws a crucial distinction between reasonable belief and mere suspicion.
• High purity, inland recovery or domestic transportation may form part of an investigation, but confiscation cannot automatically follow merely because the commodity involved is gold. Where a claimant produces specific domestic purchase invoices and supporting commercial records, those documents must be objectively tested for genuineness and nexus.

The Tribunal’s ultimate conclusion is particularly significant: in the absence of clandestine concealment, incriminating admissions, foreign markings, falsified purchase invoices or other reliable material linking the article to smuggled gold, mere purity and domestic courier transportation were insufficient to sustain confiscation and penalty.

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Source: CESTAT Hyderabad

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Ravi Shekhar Jha – Advocate, Bar Council of Delhi