Customs, Excise and Gold Tribunal - Mumbai
S.K. Chains vs Commissioner Of Customs (Prev.) on 28 September, 2000
Equivalent citations: 2001(127)ELT415(TRI-MUMBAI)
ORDER J.H. Joglekar, Member (T)
1. These two appeals arise out of the same order. These are therefore being disposed off in a single order.
2. M/s. S.K. Chains, manufacture gold chains by using machines. Shri Madan S. Kothari, the 2nd appellant is a partner of S.K. Chains. In a search at their premises on 27-10-97, the officers of Customs recovered 20 foreign marked gold biscuits, and 1 piece of foreign marked gold totally valued at Rs. 10,10,0007- and 26304 gms. of gold chains and Indian currency of Rs. 8,64,000/-. Investigations were made. Statements were recorded. Show Cause Notice was issued alleging liability to confiscation of the foreign marked gold and gold chains weighing 10583 gms. allegedly manufactured out of illegally acquired foreign marked gold. In the Show Cause Notice, Section 123 of the Customs Act, 1962 was invoked. During the investigations and during the hearing before the adjudicating authority, the appellants pleaded that the gold was lawfully acquired during the course of their business. Supporting evidence was produced. The Commissioner did not accept the various pleas made by the appellants. He confiscated the gold and chains absolutely and imposed penalty of Rs. 10,00,000/- on Shri Madan S. Kothari. Hence these appeals.
3. We have heard Shri V.S. Nankani, Advocate for the appellants and Shri K.M. Patwari for the Revenue.
4. Section 123 of the Act is an exception to the normal rule of the burden being upon the prosecution to establish the guilt of the accused. Ordinarily every element that constitutes the offence has to be proved by the prosecution and this burden never shifts. But the burden shifts on the accused when Section 123 of the Act is invoked. After the initial burden of acquiring reasonable belief is discharged by the Customs, it is the offender who has to establish the lawful importation and acquisition of the gold. The appellants in this case have not questioned the existence of reasonable belief. They, however, consistently claimed that the gold was legally acquired.
5. Gold occupies a special position in the Indian psyche. Gold is the most liquid investment capable of being encashed at any time in any society or locality. Gold is routinely presented to temples and to relatives on ceremonial occasions. It is customary, even mandatory that a bride is given away with gold ornaments. The demand for gold in India is perennial. There was only one gold mine operating at Kolar near Mysore which would produce about 2 tons of gold every year. That has also stopped functioning. The gap between rising demand and scant supply was invariably filled by smuggling. Estimates vary but it is expected that during the 80s on an average 250 Tons of gold was smuggled into India every year. Any smuggling is bad for the economic health of the country as it would defeat the very purpose behind imposition of restriction on import. The case of gold is more acute. Unchecked smuggling of gold would threaten the very stability of the country's currency. There was a time when the paper currency in the country was backed fully by the gold held by the Govt. Over the last century the basis and the support for the currency has shifted from Gold reserves to the country's assets. But every Central Bank still keeps a gold reserve called Monetary Reserve. Thus, gold in the hands of the Central Govt. would make the currency strong and conversely the gold in the hands of the public would weaken the currency. To wean away the Indian public from the craze of the gold and also to ensure stability of the currency the Gold (Control) Act, 1968 was enacted. In fact, the provisions had existed earlier in the Defence of India Rules also. Notifications were issued prohibiting entirely import of gold except by the Govt. Provisions such as Section 120 were incorporated in the Customs Act which continued the liability to confiscation of any gold illegally imported notwithstanding any change in its composition and identity. Provisions of Gold (Control) Act restricted the activity of refining of gold limiting it to the Govt. of India Mint. Making of gold of purity higher than 995 was also prohibited since the imported gold generally is of the purity of 999. This prohibition would make it easy to establish the imported character of the gold. The combined effect of all the acts and prohibitions was to prevent smuggling, to make disposal of the smuggled gold difficult and to make it difficult for smugglers to defend themselves. In those days seizure of gold with foreign marking and of purity of 999 would generally suffice to establish the smuggled nature of the gold. Certain exceptions were made in the early 80s to these rigours. Licences were given to the manufacturers of gold jewellery for import of gold for manufacture into jewellery for export. At a later date, the rigidity of administration of these exemptions was reduced substantially. The banks were permitted to import and sell gold. At a later date passengers of Indian origin arriving into India after a prescribed period of stay abroad were permitted to import 5 kgs. of gold. Gold can also be imported on Special Import Licences. No restrictions were placed upon the disposal of gold so imported on payment of duty. According to official statistics the legal import of gold through these Schemes was of the following magnitude :
Year Import of Gold in Metric tones
OGL BAGGAGE SIL TOTAL
1996 - 256 42 298
1997 62 398 68 548
1998 532 93 19 644
1999 513 39 18 570
2000 158 2 1 163
(Up to June)
6. As a result of such liberalisation there was ample availability of foreign marked gold in the market. In the absence of any serial numbers on the gold bars it became impossible to distinguish the gold imported legally and that imported illegally.
7. Thus, today there exists a very peculiar situation. On the one hand the Customs Act considers it necessary to ask a person to establish the legality of the origin of the gold seized from him while on the other hand in pursuance of the relaxations made in the Import Policy and the Baggage Rules framed under that very Act, there is a flood of foreign marked gold in the town. Such gold changes hands several times on importation. Since the repeal of the Gold (Control) Act in 1968, there is no legal requirement for the buyers and sellers of gold to maintain any registers nor is there any requirement to issue invoices under any Central Act.
8. The defence of the present Appellants is that they had acquired foreign marked gold during normal course of trade. The gold was raw material for manufacture of gold chain. Gold jewellery is excisable under sub-heading 7101.40 of the Central Excise tariff but is exempted from payment of duty in terms of Notification No. 167/86-C.E. dated 1-3-1986 as amended when made without aid of power. Where it is made with power it enjoys exemption under Sr. No. 191 of Notification No. 4 of 99 dated 28-2-1999 as amended. Under the earlier Notifications also such benefit was available. Such manufacturers are exempt from licensing controls and are not required to maintain any registers or to issue invoices under the Central Excise Act also.
9. In this background we would examine the discharge of the burden placed upon the Appellants. Shri Kothari in his statement claimed that foreign marked gold under seizure was duly recorded is the firm's stock register. He named two sources of acquisition. One was a gold dealer's firm by the name, Sanghavi Dandrup Devji & Co., and the other was one passenger by the name of Dilip Bhulchandani. The representative of the dealers deposed that 33 foreign marked gold pieces were sold by them under four invoices to the Appellants. Although the Show Cause Notice says no documents were produced by M/s. Sanghavi D. Devji & Co., to show the legal import of this gold sold to the present Appellants, curiously they have not been made the noticees to the Show Cause Notice. The Show Cause Notice does not allege that the transaction between the appellant and the dealer was fake or questionable. However, the allegation is made that the appellant, Shri Kothari failed to produce the licit importation of this gold purchased by him from M/s. Sanghavi. Therefore, it has to be held that as far as this quantity is concerned the burden of proof on the appellants stands discharged.
10. Shri Kothari also claimed to have purchased 85 gold biscuits on 17-10-97 from one Bhulchandani for which payment was made by 3 cheques. The Show Cause Notice makes the claim that these cheques were not debited in the account of the appellants. Shri Nankani submits that at that time also one cheque was realised and later the total realisation was made. The Show Cause Notice in para 8 admits to one of the 3 cheques being realised. The Show Cause Notice also alleges that such long credit to a buyer is questionable. While this observation might have had merit in the earlier days when there was no import of gold or where the import was totally controlled, in the present days when the market is flooded with gold imported through baggage it is not unusual that a seller may have to wait for sometime before realisation of the consideration. Therefore, late realisation of the consideration to Shri Bhulchandani does not establish mala fide on behalf of the appellants nor does it establish the smuggled nature of the gold. It is nowhere alleged in the Show Cause Notice that Bhulchandani did not exist or that the baggage receipts under which Bhulchandani had imported the gold was not a genuine baggage receipt. Bhulchandani has not been made a noticee to the Show Cause Notice. Therefore, it has to be held that by proving lawful acquisition, the burden cast upon the appellants has been discharged.
11. Para 8 of the Show Cause Notice raises some questions and doubts about the time lag between the acquisition of the gold and its use for manufacture in the chains. The para speaks of only the gold acquired from Bhulchandani as well as from M/s. Sanghavi. But it is not that the source of the appellants were limited to these two parties. The weight of the chains in stock on the date of search was over 26 kgs. The scale of operation of the appellants firm as given in the statement of their employees as well as of Shri Kothari. The gold came in daily and got converted into chains. Therefore there was no need to establish one to one co-relation between the gold biscuits received and the chains manufactured. Therefore, the allegation in the Show Cause Notice that there was a period of 5 months between receipt and the disposal and that such delay would defeat the claim of the appellants, has no merit.
12. We are necessarily to concentrate on the allegations made in the Show Cause Notice because the Commissioner in the impugned order has merely reiterated the various contentions made in the notice and has not at all discussed the various claims made before him.
13. In establishing the guilt of the Appellants the Show Cause Notice in para 3 reproduces the statement of Ajit Jain, Manager of the Appellant firm to the effect that they were purchasing foreign marked gold biscuits from the open market without receipt. This admission by itself is no indication that the gold under seizure was not legally imported. As we have observed above, no Central Act in existence required maintenance of any documents indicating such receipts. The statement of Shri Kothari at all times are exculpatory. Therefore the statement of Jain does not assist the Revenue.
14. Out of the manufactured gold chains totally weighing 26304.390 gms. gold chains totally weighing 10583.39 gms have been confiscated under Section 111(d) of the Customs Act, also invoking Section 123. The remaining chains totally weighing 15721 gms were released since they were shown in the stock register. As we have observed earlier, in the absence of any requirement of showing the stock of manufactured gold chains, the mere non-entry of the-chains would not automatically result in the belief that the unrecorded chains were manufactured out of the gold illegally imported. It is given in the statement of the concerned persons that the chains were manufactured from the gold received by the appellants under vouchers. The investigating officers were in possession of the vouchers as well as the register. There are no investigations indicating that the gold out of which these chains were made was imported illegally or also that the chains which were seized but not subjected to confiscation were made from gold legally imported.
15. Thus, as far as the gold chains are concerned even the existence of reasonable belief has not been shown by the Customs. Therefore, the orders of confiscation of these chains do not sustain.
16. As far as the foreign marked gold is concerned, we find that the onus as placed by virtue of Section 123 has been discharged by the Appellants to the required extent.
17. We thus find that the orders of confiscation of the gold and chains do not survive and are set aside. Consequently orders of penalty imposed on the Appellants also do not survive. The appeals are allowed with consequential reliefs.