Custom, Excise & Service Tax Tribunal
Navnath Zanje vs Chennai Iii on 13 March, 2026
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL, CHENNAI
Customs Appeal No. 41089 of 2025
(All appeals arising out of Order in Appeal Seaport C. Cus. II No. 801
to 806/2025 dated 15.7.2025 passed by the Commissioner of Customs
(Appeals - II), Chennai and Corrigendum dated 04.08.2025 to Order-
in-Appeal Seaport C. Cus. II No. 801 to 806/2025 dated 15.7.2025)
Shri Navnath Zanje Appellant
No. 1/1, Muthiyal Naicken Street
Purasawalkam, Chennai - 600 007.
Vs.
Commissioner of Customs Respondent
Chennai III Commissionerate
Customs House, 60, Rajaji Salai
Chennai - 600 001.
With
(i) Customs Appeal No. 41090/2025 (Shri Nilesh S Patole)
(ii) Customs Appeal No. 41091/2025 (Shri Maruti Halladakeri)
(iii) Customs Appeal No. 41107/2025 (Mrs. Anjana Uttam Patankar -
legal heir of Shri R. Uttam Kumar Patnkar)
(iv) Customs Appeal No. 41108/2025 (Shri Suryakant U Patankar)
(v) Customs Appeal No. 41184/2025 (Shri Shrikant U Patankar)
APPEARANCE:
Shri N. Viswanathan, Advocate for the Appellant
Smt. Anandalakshmi Ganeshram, Authorised Representative for the Respondent
CORAM
Hon'ble Shri M. Ajit Kumar, Member (Technical)
Hon'ble Shri Ajayan T.V., Member (Judicial)
FINAL ORDER NOS. 40349 - 40354/2026
Date of Hearing: 27.02.2026
Date of Decision: 13.03.2026
Per M. Ajit Kumar,
These appeals are filed by the appellants against Order in Appeal
Seaport C. Cus. II No. 801 to 806/2025 dated 15.7.2025 passed by
the Commissioner of Customs (Appeals - II), Chennai (impugned
order).
2. Briefly stated, acting on specific intelligence, officers of the
Directorate of Revenue Intelligence (DRI), Chennai intercepted Shri
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Nilesh Savala Patole, Shri Maruti Halladakeri and Shri Navnath Zhanje
at the premises of M/s. RU Gold, Singhvi Complex, Sowcarpet,
Chennai, on 16.04.2024. They were found carrying 3 gold bars, one
without any marking and two with the marking 'RU999'. A search of
the premises resulted in the recovery of 5 gold bars along with assorted
gold bits etc. and some cash from the safe. The gold bars carried the
markings 'RU999'. No documentary evidence supporting lawful
possession of the gold or cash was allegedly produced by the said
persons. The entire weight of 8 bars of gold along with bits etc. weighed
6,821.85 grams of gold and cash amounting to ₹25,61,200/-, found in
the safe were seized under a mahazar on the reasonable belief that the
same related to smuggled goods and the sale proceeds thereof. A
desktop computer and a scandisk pen drive were also seized. The
seized gold was assayed and found to be of 24 carat purity. After
following due process, the Ld. Adjudicating Authority ordered absolute
confiscation of 6,821.85 grams of gold and confiscated the Indian
currency. Penalties of ₹1,50,00,000/- each were imposed on Shri R.
Uttam Patankar, Shri Shrikant U. Patankar and Shri Suryakanat U.
Patankar, and penalties of ₹15,00,000/- each on Shri Nilesh Savala
Patole, Shri Maruti Halladakeri and Shri Navnath Zhanje under Section
112(a) of the Customs Act, 1962. The appeals filed before the Ld.
Commissioner (Appeals) were dismissed. Hence, the present appeals.
The early hearing petition filed by the appellants was allowed.
3. The learned Advocate Shri N. Viswanathan appeared for the
appellant and Ld. Authorized Representative Smt. Anandalakshmi
Ganeshram, appeared for the respondent.
3.1 Shri N. Viswanathan Ld. Counsel for the appellants, during the
public hearing, submitted that the entire proceedings initiated by the
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DRI are founded on mere presumption and assumption that the seized
gold was of foreign origin, which is both factually and legally
unsustainable. The appellants are migrant workers from Maharashtra
employed by 'RU Gold', a firm engaged in refining impure gold into
24-carat gold, for monthly wages. The seized gold were bearing only
the appellants own brand/ markings 'RU 999'. The officers failed to
consider the statements of the appellants explaining the true facts and
instead wrongly rejected the books of accounts and records produced
by the employer. The Ld. Counsel premised his entire submission on
the ground that the customs authorities incorrectly proceeded as
though the burden under Section 123 of the Customs Act stood shifted
to the appellants, without establishing that the seized gold bore any
foreign markings, which according to him was a prerequisite
consistently laid down in a plethora of judicial decisions. He stated that
the appellants were neither involved in the import of the gold nor in
abetment of any such import. Further the discrepancy found by the Ld.
Adjudicating Authority in the records were minor, caused by the
difficulty to maintain the actual quantity of in and out in terms of
grams, while the Ld. Adjudicating Authority himself admitted to the
appellant maintaining accounts. The show cause notice itself does not
allege any specific role attributable to the appellants in the act of
import. Hence the confiscation of the gold of Indian origin was
improper. Further the seized currency cannot be said to be the sale
proceeds of smuggled gold as the seized gold are only of Indian origin.
In the absence of such allegations, imposition and sustenance of
penalty under Section 112(a) of the Customs Act is wholly improper
and untenable. Moreover, the harsh penalty imposed on the deceased
appellant Shri R. Uttam Kumar Patankar (represented by legal heir Mrs.
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Anjana Uttam Patankar), is not invokable when it was not shown that
he has imported the gold or otherwise dealt with the gold which is liable
for confiscation. The authorities below failed to appreciate the binding
judgment of the Hon'ble Madras High Court in B. Lakshmichand Vs
GOI - 1983 (12) ELT 322 (Mad.), which clearly holds that unless the
show cause notice specifically alleges the exact sub-clause of Section
112 violated and sets out the manner in which the noticees attracted
the said provision, the notice stands vitiated and hence the impugned
order may be set aside with consequential relief. He prayed that the
matter may be decided early.
3.2 The Ld. A.R. referred to the findings of the OIO and submitted
that the appellant's contention regarding the inapplicability of Section
123 of the Customs Act, 1962, in the absence of foreign markings, is
untenable. As the statutory burden was not discharged, confiscation
and penalties were rightly imposed. She referred to the statutory
provisions as recorded at para 2.8 of the impugned order, which states
as under:
"2.8 The relevant statutory provisions governing the import of
gold state that import/export must comply with the Foreign Trade
(Development and Regulation) Act, 1992 and associated rules,
including restrictions under the Foreign Trade Policy (FTP) 2015-
20. Only nominated agencies authorized by the DGFT and RBI can
import gold, and such imports must occur at notified customs
ports with applicable duties paid. Import of gold in contravention
of these conditions is deemed as import of "prohibited goods"
under Section 2(33) of the Customs Act, 1962 and is liable for
confiscation under Section 111(d). Additionally, violations related
to undeclared or excess goods, improper documentation, and
unauthorized removal from customs areas attract penal
provisions under Sections 111(f), 111(j), 111(l), and 111(m).
Persons involved in handling such goods knowingly are liable for
penalties under Section 112. Concealment attracts Section 119.
sale proceeds of smuggled goods are liable under Section 121,
and under Section 123, the burden of proving non-smuggling lies
on the possessor. Confiscation or penalty actions must follow due
process under Section 124."
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The Ld. A.R. therefore submitted that the impugned order warrants no
interference and that the appeals deserve to be dismissed. As regards
the non-mention of the specific sub-clause of section 112 in the SCN
the Ld. A.R., stated that the acts of the appellants attracted penalties
under Sections 112(a) and 112(b), which was to be finally determined
by the Ld. Adjudicating Authority on the evidence and replies on record
and was hence legal and proper. She further relied on the following
judgments in support of her submissions:
A. M/s. Akash Akash Jha & others (2025 (12) TMI 1683 (Tri.
Allahabad)
B. K Ingole & others (2025 (8) TMI 74(Tri. Hyd))
C. Rajendra Kumar Damani (2024 (19) CENTAX 224 (Cal.))
D. Rajendra Kumar Damani (2025 (32) CENTAX 242 (Cal.)
E. Mohammed Ali Jinnah (2025 (32) CENTAX 168 (Mad.))
3.3 With the Bench's prior permission, Ld. Counsel for appellants, by
email dated 28.02.2026, sought to distinguish the judgments relied
upon by the Revenue, which are discussed below.
4. Having heard the parties and perusing the appeal papers we now
examine the issues involved. The fulcrum on which these appeals
revolves is whether the burden of proof to show the smuggled origin
of the gold is on the department as per law or whether section 123 of
the Customs Act, shifts the burden to the appellant to prove that the
gold in his possession was not smuggled gold.
5. Section 123 of the Customs Act, which is then essential for
examining the issues involved, is reproduced below for ease of
reference.
"123 Burden of proof in certain cases
(1) Where any goods to which this section applies are seized
under this Act in the reasonable belief that they are smuggled
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goods, the burden of proving that they are not smuggled
goods shall be--
(a) in a case where such seizure is made from the
possession of any person,--
(i) on the person from whose possession 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 of goods which the Central
Government may by notification in the Official Gazette specify."
(emphasis added)
6. Learned counsel for the appellant submits that, under Section
123 of the Customs Act, the burden of proving that the gold recovered
from a person is not smuggled arises only after it is established that
the seized gold bears foreign markings, as held in several judicial
decisions. However, no specific case laws were cited in support of this
submission. In any event, the legal issue has been authoritatively
considered and settled by a Constitution Bench consisting of 5 judges
of the Supreme Court in The Collector of Customs, Madras Vs
Nathella Sampathu Chetty and Another [AIR 1962 SC 316 / 1962
Mad LJ (Cri) 1], which bears close similarity to the impugned case, as
far as the legal issues are concerned.
7. In Nathella Sampathu Chetty (supra), the Constitution Bench
tested the constitutional validity of Section 178A of the Sea Customs
Act, 1878--the predecessor to the Customs Act, 1962--particularly
insofar as it placed the burden of proof on the person from whose
possession gold was seized. Section 178A provided the foundational
framework for Section 123 of the Customs Act, albeit with minor
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additions. The decision of the Constitution Bench, therefore,
assumes significant relevance for a decisive determination of
the present dispute, considering the legal principle laid down
therein. The provision is reproduced below for the purposes of
reference and comparison.
"178A. (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 on the person from whose
possession the goods were seized.
(2) This section shall apply to gold, gold manufactures,
diamonds and other precious stones, cigarettes and cosmetics
and any other goods which the Central Government may, by
notification in the Official Gazette, specify in this behalf.
(3) Every notification issued under Sub-section (2) shall be laid
before both Houses of Parliament as soon as may be after it is
issued."
(emphasis added)
The said provision marked the introduction of the concept of reverse
burden of proof in Customs law.
8. Brief facts of the case in Nathella Sampathu Chetty (supra),
was that on the morning of 26 June 1956, an employee of the
respondent, Nandgopalan, arrived at Madras Central Station by the
Bombay Express. He was intercepted and questioned by a Head
Constable of the State Police Service attached to the Prohibition
Intelligence Department. Nandgopalan admitted that he was carrying
gold on behalf of the respondent firm, having brought it from Bombay.
The Head Constable immediately informed officers of the Preventive
Section of the Customs Department stationed at the Central Station.
Upon interrogation, the Customs officers in the reasonable belief that
they are smuggled goods, seized four gold blocks from Nandgopalan,
weighing approximately 1,000 tolas in total. After conducting enquiries
to verify the source of the gold, the Collector of Customs, issued a
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show-cause notice to the respondent proposing confiscation of the
gold. Although the respondent submitted an explanation, the Collector
held that the respondent had failed to discharge the burden of proving
that the gold was not smuggled under the Customs Act and accordingly
ordered its confiscation.
8.1 On appeal, the Hon'ble Madras High Court held that section 178A
of the Sea Customs Act was void under Art. 13 of the Constitution.
They further, among other issues, held that even if section 178A were
valid, the condition precedent for invoking the rule as to the burden of
proof prescribed by the section had not been complied with, in that the
customs officer who effected the seizure which preceded the
adjudication did not entertain "a reasonable belief that the gold was
smuggled", with the result that the order of confiscation was invalid.
8.2 Learned Counsel for the respondent, Mr. Palkivala, submitted
before the Hon'ble Supreme Court that, the restriction imposed by
Section 178A is unreasonable. The judgment states:
"Mr. Palkivala, learned Counsel for the respondent, explained to
us the special features attaching to gold as a commodity and as
a store of value, and of the difficulties, if not impossibility, of
identifying one piece of gold from another in the absence of a
requirement of marking, and basing himself on this factual
position submitted six grounds in support of his contention that
the restriction imposed by s. 178 A was unreasonable and we
shall deal with these points in the same order :"
His submissions citing six separate grounds attacking the section, are
summarised as under:
1. Though Section 178A ostensibly purports to be a rule of
evidence, in substance it is not so, as it treats the seizing officer's
belief as conclusive proof of smuggling, rather than requiring
such fact to be established on the basis of objective material.
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2. The requirement of "reasonable belief" affords no real safeguard.
If the belief is subjective, it offers no protection; even if tested
objectively at adjudication, the belief is assessed solely on
material gathered ex parte at the time of seizure, without
affording the affected person any opportunity to rebut the same.
3. There is no rational or proximate nexus between the fact to be
proved, namely smuggling, and the fact presumed, namely the
officer's belief, rendering the provision unsustainable as a rule of
evidence.
4. Section 178A operates indiscriminately and is not confined to
persons connected with illegal import, but extends even to bona
fide purchasers who are unable to prove the antecedent source
of the gold.
5. Such presumptions may be justified for inherently dangerous
goods; however, gold is an innocuous commodity, freely tradable
within the country, and imposition of such a burden in respect
thereof is unreasonable.
6. The burden cast is, in most cases, incapable of discharge, as gold
is non-identifiable, large quantities were lawfully imported prior
to 1939, indigenous gold is indistinguishable from imported gold,
and the commodity frequently changes hands and is subject to
melting and re-fusion, with no system of compulsory marking.
8.3 The Constitutional Bench after examining the issues came to the
following conclusion. In every case, the possessor of the gold is
necessarily the person best acquainted with the manner and
circumstances of its acquisition. A seizure based on the officer's
reasonable belief that the goods are smuggled does not, by itself, result
in confiscation or deprivation of property; confiscation follows only
10
upon an order of the adjudicating authority under Section 182 of the
Sea Customs Act, after due inquiry. At that stage, the entirety of the
material available to the seizing officer must be placed before the
adjudicating officer, who is required to examine the reasonableness of
the belief that led to the seizure. The facts forming the basis of such
belief therefore bear a rational nexus to the fact presumed, namely
smuggling, and the argument of lack of rational connection is without
substance. The ground--that the requirement of "reasonable belief"
affords no real safeguard--is equally untenable. A seizure under
Section 178A is merely preliminary to proceedings before a
quasi-judicial authority, which must independently satisfy itself
that the statutory conditions for invoking the presumption are
met. While certain information, including that supplied by informers,
may not be fully disclosed to the affected party, such material must
nevertheless withstand scrutiny as to credibility by an independent
adjudicating officer. The safeguard, therefore, cannot be said to be
illusory. Although gold is an innocuous commodity and widely
held for legitimate purposes, this alone does not invalidate a
law that places the burden of proving lawful possession upon
the possessor. In most cases, the possessor would be able to explain
the mode of acquisition, thereby rebutting the presumption. The
provision is ordinarily invoked only where reasonable suspicion exists,
or where explanations are absent, false, or unacceptable. It may
operate harshly only in marginal cases, such as where a bona fide
purchaser is unable to establish the legality of possession in the chain
of prior ownership. However, the possibility of hardship or abuse in
exceptional cases is no ground for striking down a statutory provision.
Section 178A primarily applies to cases involving persons connected
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with illicit importation, or those unable to satisfactorily account for
possession--categories in which shifting the burden of proof is
admittedly reasonable and constitutionally valid, and is
consistent with the principle underlying Section 106 of the
Evidence Act. These categories account for the vast majority of cases
to which the section applies. Accordingly, the provisions of the section
were held to be constitutionally valid and constituted a reasonable
restriction on the right to hold property or to carry on trade or business,
in most instances, and it is only in rare and marginal cases that it may
arguably operate unreasonably.
9. In the impugned appeal, the appellant similarly contends that
gold lacking foreign markings cannot be presumed to be of foreign
origin and that the burden under section 123 of the Customs Act on
the possessor of gold arises only in cases of foreign-marked gold. It is
further argued that, since the seizure occurred within a town and not
a customs area, no such presumption could arise. We find no such
limitation in section 123. Gold is easily divisible, melted, and altered,
and once melted, generally bears no identifying marks. It is therefore
impossible to determine by mere inspection whether gold is lawfully
imported or smuggled. Smuggling is an illegal activity hatched and
executed in secrecy and it is near impossible to adduce direct evidence
of the same. Recognising this inherent difficulty, the law places the
burden on the possessor to establish the lawful origin of the gold.
Accordingly, section 123 is primarily intended to apply to gold
without foreign markings. The Constitutional Bench in Nathella
Sampathu Chetty (supra) considered similar objections, including the
impossibility for bona fide purchasers to trace the origin of
unidentifiable gold, the existence of large quantities of lawfully
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imported gold prior to 1939, and the frequent melting and circulation
of gold in trade. (Which is also similar to the pleadings in the impugned
case.) The Court rejected these contentions, holding that the
possessor of gold is ordinarily best placed to explain its
acquisition and that the innocuous nature or widespread
possession of gold does not invalidate a statutory provision
shifting the burden of proof. In most cases, the possessor would be
able to establish lawful acquisition, thereby removing the gold from the
category of smuggled goods. The Hon'ble Court held:
"It need hardly be pointed out that in every case without
exception, the possessor of the gold would be the person
acquainted with the manner of his acquisition and the
circumstances attendant on or connected with that acquisition. .
....
It is to be noted that the seizure by the officer in the belief that the goods are smuggled does not by itself operate to effect the confiscation or deprive the owner of his property in the goods. This result, however, follows only on an order of an adjudicating officer who investigates into the complaint regarding the defendant's possession of the smuggled goods. As we shall have occasion to point out later the entire evidence in the, possession of the seizing officer would be and has to be before the officer adjudicating the confiscation under s. 182 of the Sea Customs Act. No doubt, on the language of s. 178A the presumption of the goods being smuggled arises only when the seizure is made by an officer entertaining a reasonable belief that the goods are smuggled, and in that sense the reasonable belief of the seizing officer is a pre-requisite for the statutory onus to arise. It is also true that at the stage of the adjudication the reasonableness of the belief of the officer effecting the seizure that the goods are smuggled would be the subject-matter of investigation by the adjudicating officer. . . . . . Learned Counsel is, no doubt, right in his submission that gold as a commodity is an innocuous article of commerce, that articles made of gold have been used as part of jewellery by the middle and upper classes from the beginning of time, that it, has served as a store of value from ancient times and that the very large number of people in this country are in possession of gold for the purposes just now mentioned. But that however is not any conclusive consideration in support of the invalidity of a law which seeks to throw the burden of establishing possession as legal under the law, upon the possessor. It cannot be seriously disputed that in most of the cases the possessor of the gold would certainly be in a position to establish the mode of his acquisition (subject to the last of the points about the 13 burden of proof being impossible to discharge), which would more often than not take it out of the category of smuggled gold. . . . . .
We shall now proceed to consider the last of the points raised by learned Council in conjunction with point No. 4 which we had reserved for being examined along with it. This point learned Counsel expanded in the following terms. The burden of proof cast by the section is or is almost impossible of discharge, because (1) it extends to facts which would not be in the possession of bona fide purchaser at all, facts which he never knew and which be could never reasonably ascertain ; (2) large quantities of gold have been imported into this country before the introduction of restrictions on their importation by virtue of the legislation brought into force from 1939. . . . . .
We are clearly of the opinion that the argument about the relevance of this matter is incorrect and must be rejected. This Court has held in numerous rulings, to which it is unnecessary to refer, that the possibility of the abuse of the powers under the provisions contained in any statute is no ground for declaring the provision to be unreasonable or void. . . . . .
Section 178-A operates to cast the burden of proof on the person from whose possession goods specified in its sub- s. (2) are seized to establish that the goods are not smuggled. It must be apparent that this will include, in several cases, persons who are concerned in and are charged with being concerned in the act of illicit importation. In their case, as we have already pointed out, learned Counsel admits that the onus is properly shifted and that such a provision would be reasonable and so constitutionally valid, though undoubtedly it might be possible for the State to prove its case even without the aid of the presumption raised by s. 178A. Again there might be some cases where goods are seized from a person who is unable to account satisfactorily for his ownership or possession. In such cases also we did not understand learned counsel for the petitioner to suggest that the shifting of the burden of proof would be unconstitutional, for surely the principle underlying s. 106 of the Evidence Act; which, it is conceded, enunciates a just and reasonable principle would serve to sustain the validity of the impugned provision. The two classes of cases which we have just set out would in themselves constitute most of the cases in which suspicion or information of the type which leads to seizure and the ensuing proceedings would occur. Section 178A however does not exhaust those classes. and that is the ground of complaint by the learned Counsel, and it is precisely on this basis or for this reason that learned Counsel contends that the entire provision is constitutionally invalid. This analysis would show that the provisions of the section are constitutionally valid in the sense of being reasonable restrictions on the right to hold property or to carry on trade or business in the large percentage of cases to which the section would apply, and. it is only in the marginal cases already described that, it can, with any justification, be contended that the restriction is unreasonable."
(emphasis added) Accordingly, the submission that section 123 applies only to foreign-marked gold is untenable. The place of seizure--whether within 14 a town or a customs area--does not dilute the statutory responsibility cast upon the possessor of gold, under section 123 of the Customs Act. Section 123, therefore, operates not as a punitive presumption, but as a rule of evidence designed to address practical realities inherent in certain economic offences.
10. Having regard to the clandestine nature of gold smuggling, intelligence inputs frequently originate from confidential sources, the disclosure of which may compromise human safety or inter-agency mechanisms. The non-disclosure of such inputs, therefore, does not vitiate the formation of belief by the seizing officer. The law proceeds on the presumption that public authorities act properly and bona fide in furtherance of the public interest. As held by the Hon'ble Delhi High Court in Rajveer Millar Vs State [2016 SCC OnLine Del 1880], the presumption of honesty applicable to witnesses extends equally to police officers [see also State Govt. of NCT of Delhi Vs Sunil - (2001) 1 SCC 652]. Hence by parity of reasoning, applies with equal force to revenue officials as well. Hence the statute itself provides a two-tier safeguard firstly by the formation of a 'reason to believe' and secondly the examination of the 'belief' along with facts at the stage of adjudication, after following the principles of natural justice. Both of which are subject to judicial review.
11. In the present case, the seizure was effected based on specific and credible intelligence received by the DRI regarding transportation of foreign gold on a two-wheeler, which stood duly corroborated upon interception of the individuals as stated above. Though the gold had been melted into bar form and its provenance could not be visually ascertained, its exceptionally high purity gives rise to a rebuttable presumption of its smuggled origin. The "reason to believe," founded 15 on intelligence inputs available to the seizing officer, stood affirmed by the findings of the Ld. Adjudicating Authority, who, upon examination of the evidence as per the statutory burden under Section 123, held the gold to be of smuggled origin and ordered confiscation. In fine, we find no merit in the appellant's contention that Section 123 of the Customs Act, 1962 is inapplicable merely due to the absence of foreign markings. Once the seizing officer establishes the foundational fact of possession, the burden squarely shifts to the possessor to demonstrate that the gold was lawfully acquired. In this manner, the law strikes a careful balance between individual liberties, such as the right to hold property and carry on trade, and the imperative of social control, ensuring that individual freedoms ultimately subserve the larger interests of the community.
12. The appellants contend that the show cause notice does not attribute any specific role to them in the alleged import. It is well recognised that offences such as gold smuggling are carried out in secrecy, making 'smoking gun' evidence rare. In Shivnarayan Laxminarayan Joshi and others Vs State of Marashtra [1980 (2) SCC 465] the Apex Court said that it was manifest "that a conspiracy is always hatched in secrecy and it is impossible to adduce direct evidence of the same. The offence can be only proved largely from the inference drawn from acts or illegal omission committed by the conspirators in pursuance of a common design." Again the Hon'ble Supreme Court in State Of Tamil Nadu Through Supdt. Of Police, CBI/SIT Vs Nalini And 25 Others [(1999) 5 SCC 253], held that, "Conspiracy is hatched in private or in secrecy. It is rarely possible to establish a conspiracy by direct evidence. Usually, both the existence of the conspiracy and its objects have to be inferred from the 16 circumstances and the conduct of the accused." The act of smuggling of gold is no different and it is for this reason that a reverse burden of proof has been incorporated into the Customs Act in respect of gold and certain other goods, that are sensitive to smuggling. Hence it is for the appellants to prove licit possession of gold.
13. As regards the evidence produced by the appellant for the licit possession of gold the Ld. Adjudicating Authority has recorded as under
in the OIO:
"vii. Shri Maruti Halladakeri, Shri Nilesh Savala Patole, Shri Zhanje Navanath, Shri Shrikant U Patankar, Shri Suryakant U Patankar and Shri R Uttam Kumar in their voluntary statements had accepted that the seized 6821.85 grams of gold was melted gold and the cash of Rs.25,61,200/- was the sale proceeds of gold. They further contended that the seized 6821.85 grams of 24 Carat gold was not smuggled gold, as they were having purchase documents for the said gold and the same was declared in the Income Tax return by Shri R. Uttam Kumar.
viii. In this regard, Shri R. Uttam Kumar (Proprietor of M/s. RU Gold) submitted copies of certain purchase bills towards evidence for purchase of gold vide letter dated 22.04.2024 along with copies of Income Tax Returns. Further. Shri R. Uttam Kumar vide letter dated 15.05.2024 submitted details of Daily work register etc. Perusal of the said documents, revealed the following;
a. Shri R Uttam Kumar claimed to have purchased 6627.120 grams of gold bars (0.995 purity) for an amount of Rs. 66,75,005/- from M/s Surana Corporation Ltd during the years from 2005 to 2009.
b. On perusal of un-audited balance sheet submitted along with Income Tax returns, it is noticed that Shri R Uttam Kumar had maintained capital stocks of 6627 grams of pure metal (24 Carat) for an amount of Rs.67,07,000/- as assets in his balance sheet as Proprietor of M/s Suriya Touch.
c. However, Shri R Uttam Kumar had not submitted audited balance sheet along with copy of Income Tax returns instead he had submitted only unaudited balance sheet pertaining to his another firm M/s. Suriya Touch (Sowcarpet). However, he had not submitted any documentary proof / balance sheet pertaining to M/s. RU Gold, from whom the gold was seized and whose markings were found on gold.
d. Hence, it appears that the documents submitted by Shri R. Uttam Kumar pertaining to the capital stock of M/s Surya Touch only and not pertaining to the capital stock of M/s RU Gold. No explanation clarification, whatsoever, how capital stock of M/s Suriya Touch was a valid document for gold seized with markings of "RU" & belonging to M/s RU Gold was submitted by Shri R. 17 Utam Kumar. He failed to submit any documentary proof evidencing the purchase possession of Gold bars by M/s RU Gold. Hence, the claim of Shri R. Uttam Kumar that the seized 6821.85 grams of gold was not smuggled gold but the same was purchased by him is untenable.
ix. Shri R Uttam Kumar, Shri Shrikant U Patankar and Shri Suryakant U Patankar have admitted in their voluntary statements that the details of the customers had never been maintained by M/s RU Gold. Further, they claimed that they were making some entries for receipt of impure gold and for issuance of pure gold in one "Kacha FT' installed in the computer seized by DRI Chennai. Hence, forensic image of the said computer was generated and analysis of the forensic extraction indicated that during the period from 01.04.2024 to 15.04.2024, 66,668.76 grams of impure gold was received by M/s RU Gold and 57,449.73 grams of pure gold (of 24 Carat Purity) was issued to the customers. However, no details of customers were available in the system / the software "Kacha FT" and no documentary proof for the said receipt/issuance were maintained by M/s RU Gold at the shop which was also admitted by Shri R Uttam Kumar in his voluntary statement. During the forensic analysis, difference in receipt and issuance were noticed for the period from 01.04.2024 to 15.04.2024. In this regard Shri R Uttam Kumar, Shri Shrikant U Patankar and Shri Suryakant U Patankar in their voluntary statements contended that certain outward transactions have not been entered, even though the pure gold has been issued to the customers. M/s RU Gold had never maintained any detailed record of receipt of impure gold and issuance of pure gold, however they claimed to have maintained in "Kacha FT"
which is factually incorrect as evident from the forensic analysis. The fact that the entries maintained in "Kach FT" were not complete was admitted by them in their further voluntary statements. Thus, they were unable to prove source of the gold found in their possession. In absence of any documentary proof, it is seen that Shri R Uttam Kumar was receiving the smuggled gold which was melted and refined to 24 Carat pure gold and sold to the customers for monetary consideration without maintaining any documentary proof.
x. Further, as per Kacha FT (installed in the system used by M/s RU Gold) 66,668.76 grams of impure gold (K.weight) having pure quantity of gold of 57,437.447 grams was received by M/s RU Gold during the period from 01.04.2024 to 15.04.2024 and 57,449.73 grams of pure gold was issued to the customers. As per the said receipt and issuance of gold, a total of 6,614.837 grams of pure gold should have to be available at the premises of Mis RU Gold on 16.04.2024, however the officers of DRI Chennai on 16.04.2024 had sized 6821.85 grams of Pure Gold from the premises of M/s RU Gold, the difference in quantity of pure gold could not be explained by Shri R. Uttam Kumar or any of his authorised persons.
xi. On perusal of the daily work register i.e. receipt and issuance details of impure and pure gold, it is noticed that as on 01.04.2024, M/s RU Gold was having an opening stock of 6627.12 grams of pure gold. Further, from 01.04.2024 to 15.04.2024, a total of 66,668.76 grams of impure gold was received by M/s RU Gold and a total of 57,449.73 grams of pure gold was issued to 18 the customers. However, no details of the customers were produced by Shri R Uttam Kumar. During the various search proceedings, no data / documents / records found to be maintained at the premises and no daily work register were found to be maintained at the premises. However, during the course of investigation. Shri R Uttam Kumar submitted xerox copy of daily work register showing opening balance of pure gold as 6627.120 grams as on 01.04.2024 along with certain entries of receipt / issuance, which is not acceptable since it has been admitted by Shri R Uttam Kumar & others that they had never maintained any customer profile towards daily work registers for movement of gold from their shop and most importantly no documents were found during the various search proceedings. Hence, the said documents are fabricated ones and submitted on later date with the sole intention to mis-lead the investigation.
xii. Hence, I find that the seized 6821.85 grams of gold are smuggled gold kept for further sales without any legal / valid documents. But for the timely interception of DRI-CZU, M/s RU Gold would have successfully sold the smuggled 6821.85 grams of melted gold."
14. We find the Ld. Adjudicating Authority has done a detailed examination of the accounts, produced by the appellants to prove the licit nature of the gold. However he found that they had failed in doing so due to the unresolved discrepancies stated above. Transacting in such large quantities of gold without maintaining proper records of the persons from whom the gold was purchased and to whom it was sold does not make commercial sense. Moreover the standard of proof in Customs cases is based on a preponderance of probabilities. In RVE Venkatachala Gounder Vs Arulmigu Viswesaraswami and VP Temple [(2003) 8 SCC 752], the Hon'ble Supreme Court has examined the legal terms 'proved'. It held:
"28. Whether a civil or a criminal case, the anvil for testing of 'proved', 'disproved' and 'not proved', as defined in Section 3 of the Indian Evidence Act, 1872 is one and the same. A fact is said to be 'proved' when, if considering the matters before it, the Court either believes it to exist, or considers its existence so probable that a prudent man ought, under the circumstances of a particular case, to act upon the supposition that it exists.
(emphasis added) 19
15. The contention that the seizure was based on mere suspicion or effected in a non-customs area is untenable, since the whole matter has been properly examined and rejected by the Adjudicating Authority, in terms of the legal provisions. The appellants failed to produce any credible evidence of lawful acquisition of the seized gold. The allegation of non-application of mind is unfounded, as the impugned order duly addresses stock discrepancies, unreliable unaudited documents, manipulation of "Kacha FT" records, fabrication of the alleged daily register, and the absence of customer-level documentation. In the absence of discharge of the statutory burden by the appellants, the confiscation warrants no interference.
16. As regards the confiscation of currency, Section 121 of the Customs Act, 1962 provides that where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled, the sale proceeds thereof shall be liable to confiscation. The Ld. Adjudicating Authority did not find any primary records such as a cash book, sale registers, or other contemporaneous accounting records produced before him to substantiate the source of the cash. He found that the unaudited trial balance statements of family members bear no nexus with the cash seized from the business premises of M/s RU Gold and cannot be relied upon as proof of lawful possession. The contention that the seized cash is reflected in Income Tax Returns was not found acceptable, as the Income Tax Returns merely indicate taxable income and tax paid. Further, the Income Tax Returns and balance sheets of family members could not be correlated with the cash seized from the premises of M/s RU Gold. Consequently, the appellant's challenge to the confiscation of currency on the ground that it represents sale proceeds of smuggled gold, is devoid of merit. 20
17. It is well settled that appellate scrutiny of discretion exercised by a lower authority is confined to examining whether such discretion has been exercised judicially, in accordance with established legal principles, and whether the decision-making process suffers from illegality, procedural impropriety, or perversity. Unless the decision is illogical or shocks the conscience, the merits of the decision itself are not open to re-appreciation. In the present case, the reasons recorded by the Ld. Adjudicating Authority for rejecting the evidence do not suffer from illegality, procedural impropriety, or irrationality. Consequently, it is not for us to substitute our own opinion for that of the Adjudicating Authority. [See: V. Ramana Vs S.P. SRTC and Others - (2005) 7 SCC 338 / Caretel Infotech Ltd. Vs Hindustan Petroleum Corpn. Ltd., - (2019) 14 SCC 81]. The appellants arguments are hence found to be without merit.
18. From the discussions above we are of the opinion that the confiscation of the gold and currency is legal and proper and does not brook any interference.
19. The Ld. Counsel pressed only one judgment at the bar, confined to the issue of penalty, namely B. Lakshmichand (supra), which shall be examined while dealing with the issue of penalty. However, in the appeal memorandum, reliance has also been placed on certain other judgments in support of the appellant's case.
(i) The judgment of the Hon'ble Delhi High Court in Commissioner of Customs Vs Rajesh Bhola [CUSAA No. 66/2024 dated 30.07.2024], wherein it was held that retracted statements cannot, by themselves, form the sole basis for action under the Customs Act in the absence of independent corroborative evidence. We find that the 21 said principle does not arise for consideration in the facts of the present case.
(ii) The decision of the Chennai Tribunal in R. Mahaveer Pipada Vs Commissioner of Customs [Final Order Nos. 40734-40735/2023 dated 31.08.2023], whereby confiscation of gold was set aside, did not have the benefit of considering the Constitution Bench judgment of the Hon'ble Supreme Court in Nathella Sampathu Chetty (supra) and among others, placed reliance on the order of CESTAT, Chennai in Commissioner of Customs Vs Mohammed Ali Jinnah [Final Order No. 40289/2023 dated 20.04.2023], which has since been reversed by the Hon'ble Madras High Court. The same is discussed below.
(iii) In Shri Nanda Kishore Shah Vs CC (Prev.), Kolkata, confiscation was set aside on the ground that the Revenue had failed to establish a reasonable belief regarding the foreign origin of the gold. However, we find that the facts and circumstances of the present case are clearly distinguishable from the said decision. All the contentions raised by the appellant with regard to the confiscation of gold have been duly addressed in the foregoing discussion. In any event, the Constitution Bench judgment of the Hon'ble Supreme Court has laid down the law in Nathella Sampathu Chetty (supra), after exhaustively examining the validity of the reverse burden provisions across six distinct challenges, which squarely covers the limited issues raised in the present appeal and would prevail.
20. The judgments cited by the Ld. A.R. and discussed next:
(i) In the case of Akash K Ingole (supra), took into consideration section 123 of the Customs Act. It held that the appellants have failed to establish that the seized gold was acquired by them through any 22 legal means. The Ld. Counsel has distinguished the facts of the case since the gold seized in the Akash K Ingole case bore foreign markings.
(ii) In Akash Jha & others (supra), it was held that gold is a notified item under Section 123 of the Customs Act, 1962, and the burden to prove licit possession lies on the claimant. The Ld. Counsel for the appellants stated that the gold referred in the judgment was concealed in a specially constructed cavity of a car, and the persons involved admitted to smuggling foreign-origin gold without producing any documents. That in the impugned case, the appellants are engaged in gold refining and have denied the smuggled nature of the gold. We however find that the assay certificate, by a Govt. approved gold assessor dated 01.08.2024, submitted at page 135 of the Appeal Memorandum, categorically identifies the gold as being of 'foreign origin' and having a purity of 24 carat as reproduced below.23
The certificate has not been challenged by the appellant on any occasion and has in fact been produced as evidence in their case to show that the gold bars had no markings. A certificate cannot be relied only in part, more so when the other part has not been challenged. Further mere admission or denial is not decisive of possessing smuggled gold. In this case the Adjudicating Authority has independently established grounds for confiscation.
(iii) In Rajendra Kumar Damani (supra), the Calcutta High Court held that once Section 123 applies, it does not compel the officers to record reasons, and absence of reasons does not invalidate authorization, even where seized gold (99.5% purity) lacks foreign markings. The court relied on the Supreme Court's ruling in Om Prakash Katari Vs Commissioner [2019 (368) ELT A155 (SC)], affirming that failure of the possessor to explain the source of confiscated gold justifies confiscation. The appellant's counsel focused on the question of law in para 2 of the High Court judgment, which is not material to this case, while ignoring paras 10-13 and 24 that clearly address the burden of proof under section 123 and its implications. The judgment therefore squarely supports the Revenue's position that Section 123 applies to melted gold without foreign markings.
iv) In Mohammed Ali Jinnah (supra), the Hon'ble Madras High Court held that where crude gold without foreign markings is seized by the DRI on reasonable belief of smuggling, the burden shifts to the persons specified under Section 123 of the Customs Act. Although the learned counsel for the appellant relied on factual observations in the headnotes--such as the individual being a mere carrier with poor antecedents and funded by smugglers--those facts only distinguish the parties, not the legal principle. Each case turns on its own facts, 24 but the ratio of the judgment is decisive. The judgment clearly affirms that Section 123 applies even to gold that has been melted and bears no foreign markings, thereby negating the appellants' contention that the provision applies only to foreign-marked gold. The Hon'ble Court held:
"71. As per Section 123 of the Customs Act, 1962, the burden of proof in certain cases, where any goods to which the Section applies are seized in the reasonable belief that they are smuggled goods then the burden of proving that they are not smuggled goods shall be, in a case where such seizure is made from the possession of any person, the burden of proof would be on the person from whose possession the goods were seized and 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.
*****. *****. *****
73. A perusal of the aforesaid Section would reveal that where any goods, namely gold, watches or any other class of goods as specified in the Section are seized under the Act in the reasonable belief that the said goods are smuggled goods then the burden of proving that they are not smuggled goods shall be on the person from whose possession the seizure was made or if any other person claims ownership of the said goods, the burden of proof is shifted on the person in case he claims to be the owner of the goods so seized.
74. In "Kewal Krishan Vs. State of Punjab", AIR 1967 SC 737, the Hon'ble Supreme Court, while dealing with Section 123 of the Customs Act, 1962 regarding burden of proof in certain cases, held that when goods are seized under the reasonable belief that they are smuggled goods, then the onus of proving that they are not smuggled goods and is not of foreign origin is on the person from whose possession the goods were seized. Relevant portion of the aforesaid Judgment of the Hon'ble Supreme Court is as follows:-
"When goods are seized by the Customs Officer in the reasonable belief that they are smuggled goods then under Section 178A of the Sea Customs Act the onus of proving that they are not smuggled goods, that is, not of foreign origin on which duty is not paid, is on the person from whose possession the goods are seized. The onus is not on the prosecution to show that the goods are not of Indian origin".25
75. The Hon'ble Supreme Court in "Union of India Vs. Shyamsunder", AIR 1994 SC 485, held that the persons from whom the contraband articles were seized had not satisfactorily discharged the burden of proof cast on them as required by Section 123 of the Customs Act, 1962 that they are not smuggled.
76. Applying the decisions of the Hon'ble Supreme Court to the facts of the case, it is clear that that if the goods are seized on a reasonable belief that they are smuggled goods, then the burden is shifted on persons as specified in the aforesaid Section."
(emphasis added)
21. Having examined the issues pertaining to the confiscation of gold and currency, we now examine the issue of penalties imposed on the appellants.
22. The appellant has drawn our attention to the SCN which does not specify under which sub-clause of section 112 of the Customs Act, penalty is proposed to be imposed on the appellants. He submitted that the judgment of the Hon'ble High Court of Madras in Lakshmichand Vs GOI (supra), inter alia states that penalty proceedings must clearly invoke Section 112(a), 112(b), or both, failing which they are liable to be quashed. He hence prayed accordingly.
23. We find that the Hon'ble Supreme Court in Collector of Central Excise Vs Pradyumna Steel Ltd. [(2003) 9 SCC 234] has held that mere citation of an incorrect provision, when the power exists under law, does not invalidate the action. [Also see: JK Steel Vs Union of India - 1978 (2) E.L.T. (J355) / Sanjana Vs Elphinestone Spinning & Weaving Mills - 1978 (2) E.L.T. (J399)]. The Supreme Court in Dharampal Satyapal Ltd. Vs Dy. Commissioner of Central Excise [2015 (320) ELT 3 (SC)] clarified that not every procedural lapse vitiates proceedings; the decisive test is whether prejudice is caused. As stated by the Ld. A.R.at the SCN stage, the appellants' alleged acts rendered the goods liable to confiscation and attracted penalty under 26 Section 112(a), while also involving carrying, keeping, and selling of goods, attracting Section 112(b). These interconnected acts were to be examined by the Ld. Adjudicating Authority on the evidence and replies on record, before taking action under the appropriate sub- clause. However we find that the Hon'ble High Court of Madras has in Lakshmichand Vs GOI (supra), has stated as under:
"3.I have been taken through the show cause notice and as well as the orders passed by the authorities under the in the present case. There is only the bare quoting of S. 112 of the and there is no reference to either to clause (a) or (b) or both of S. 112 of the. The essential ingredients have not been specifically set out with reference to either of the clauses. Hence, it has got to be held that there was no making up of mind either at the earlier stage or at the subsequent stage of the prosecution of the proceedings and the passing of the orders thereon as to which of the clauses would be attracted in the instant case. The whole matter has been dealt with in a sphere of ambiguity. The present case is not a case where a wrong provision has been quoted, so that it can be stated that it was due to a bona fide error, which did not vitiate the jurisdiction of the Authority. As stated above, this is a case where there had been a failure to apply the mind as to which of the clauses is relevant and would be attracted. The power and the discretion given to the Authority functioning under S. 112 of the are judicial in character and are open to judicial review, and if they are found to have been exercised on irrational and ambiguous basis, the court will strike down the orders."
(emphasis added) In keeping with judicial discipline, we follow the judgment of the jurisdictional High Court and accordingly drop the penalty proceedings against all appellants. In respect of Shri R. Uttam Kumar Patankar, who passed away during the pendency of the appeal and is represented by his legal heir Mrs. Anjana Uttam Patankar, it is settled law as held by the Hon'ble Madras High Court in Chief Commissioner Vs Kannan Karuppasamy (WA Nos. 792 & 793 of 2011, dated 12.07.2016),that penalties under the Customs Act are personal and cannot be enforced 27 against legal heirs or the estate of a deceased person. The penalty imposed on him is therefore set aside on this ground as well.
24. In view of the foregoing discussion, the confiscation of the gold and currency is upheld. However, the penalties imposed upon all the appellants are set aside. The appellants shall be entitled to consequential relief in accordance with law. The appeals are disposed of in the above terms.
(Order pronounced in open court on 13.03.2026)
Sd/- Sd/-
(AJAYAN T.V.) (M. AJIT KUMAR)
Member (Judicial) Member (Technical)
Rex