1. These appeals are against the order of the Commissioner of customs imposing penalties of Rs. 25,000/- each on the appellants under Section 112(b) of Customs Act. The bare facts necessary fro the disposal of these appeals will be stated below.
2. A team of preventive officers of Customs intercepted a 'Maruti Gypsy' at Safedabad on the Barabanki-Lucknow road on 24.12.99. The vehicle had three occupants, namely Raj Kumar Sharma (driver), Shambu Nath (appellant in Appeal No. C/7/2001) and Lal Bahadur (appellant in Appeal No. C/11/2001). The vehicle and its occupants were taken to the office of the Commissioner of Customs, Lucknow and the vehicle was searched in the presence of independent witnesses. The search revealed secret cavities on either sides of the rear seats. 101 slabs of what appeared to be raw silver along with ornaments and India currency of Rs. 1,13,500/- were recovered from the secret cavities. The silver was got assessed for its weight and purity on the spot by assayers summoned by the officers. The assayers reported the total weight of the recovered silver as 187.475 Kgs. and valued the goods at Rs. 10,12,013/-. The purity of silver was reported to be 70%. Since the aforenamed occupants of the vehicle could not produce any document evidencing licit import, purchase or transportation of the goods, the officers seized the goods under Section 110 of the Customs Act on the reasonable belief that the goods were smuggled into India from Nepal and hence liable to confiscation under Section 11(d) of the Act. The vehicle and the currency were also seized. Statements of the three persons were recorded under Section 107 of the Customs Act on 24.12.99 and again under Section 108 of the Act on 25.12.99. Since it appeared to the department from such statements that the three persons were apparently involved in the act of smuggling of silver and hence punishable under Section 135 of the customs act, they were arrested under Section 104 of the Act on 25.12.99 itself and produced before the Special Chief Judicial Magistrate (CJM), Lucknow, who then remanded them to judicial custody. The department, on its part, framed a case for confiscating the vehicle and the goods along with the currency and imposing penalties on the aforenamed person for alleged smuggling, into India from Nepal, of the silver slabs and articles in contravention of Section 11 of the Customs Act read with Section 3 the Foreign Trade (Development and Regulation) Act. Accordingly, a show-cause notice [SCN] was issued to all the three persons. The allegations in the SCN were denied by the notices. The dispute adjudicated by the Commissioner as per order dated 23.8.2000 absolutely confiscating the raw silver under Section 111(d) of the Act, confiscating the vehicle with option for redemption on payment of a fine of Rs. 20,000/- and imposing penalties of Rs. 25,000/- each on Shambu nath and Lal Bahadur. The seized Indian currency was, however, released. Shambu Nath and Lal Bahadur are in appeal against the confiscation and penalties.
4. Ld. advocate, Sh. Naveen Mullick for the appellants submitted that the silver slabs were of 47-64% purity only and could not be considered "silver bullion" so as to attract the provisions of Section 123 of the Customs Act. He, further, submitted that there was not evidence on record to show that the seized silver slabs had any foreign markings on them or that the goods were smuggled into India from Nepal. In the absence of evidence to show foreign original of the goods it was not open to the department to invoke the provisions of section 123 of the Customs Act against the appellants. It was without any knowledge about the origin of the goods in question that he officers of Customs maintained a belief that the goods were of foreign origin and hence liable to confiscation. it was the department's burden to show, at the outset, that the seized goods had originated from a foreign country.
Since they could not discharge the burden, there was not cause of action under Section 123 of the Customs Act against the appellants. In support of this argument, ld. advocate relied on the Tribunal's decision in the case of Shrenik J. Kothari & Jayanand J. Kothari Vs.
Collector of Customs, Madras [1962 (40) ECR 461].
5. Without prejudice to the above arguments ld. advocate submitted that the entire case of the department, framed in the show-cause notice, was based on the statements taken from the appellants under Section 107 and 108 of the Customs Act, that the said statements were retracted by them in their bail applications filed before the CJM and that the retraction was not taken into account by the Commissioner. Counsel submitted that the appellants had produced documentary evidence of purchase of the raw silver slabs to the officers but they ignored the documents. Ld.
advocate prayed for setting aside the impugned order and allowing the appeals.
6. Ld. JDR, Sh. S. Kumar submitted that the purity of the silver which was reported to be 70% by the assayers, was not challenged by the appellants while replying to the SCN. Silver slabs of 70% purity were covered by the term "silver bullion" in the Notification issued under Section 123(2) of the Customs Act. The goods being so specified under Section 123, the burden was on the appellants to show that the goods were not smuggled goods. This burden was not discharged by the appellants. ON the other hand, it was admitted by the appellants, in their statements given under Section 107 and 108 of the Act, that the goods were smuggled from Nepal into India. Those statements were not retracted before the Customs authorities within reasonable time. No documentary evidence of purchase of the silver slabs or jewellery had been made available to the adjudicating authority at the time of filing reply to the SCN. Those documents were produced at belated stage as an afterthought. The preponderance of evidence in the case was in favour of the department's view that the silver was of foreign origin and was smuggled into India from Nepal. Ld. DR, therefore, prayed for upholding the Commissioner's order confiscating the goods )(along with vehicle) and imposing penalty on the appellants.
7. I have carefully examined the submissions. I note that the appellants have admitted that the metal slabs seized from the vehicle were "kacchi chandi" meaning crude or raw silver. The purity of silver was estimated by assayer at 70% at the time of seizure. This estimate was not contested by the appellants while replying to the show-cause notice, nor did they ask for quantitative test of any sample in the department's chemical laboratory for determining the purity of silver.
Shambhu Nath's advocate, in his letter dated 7.7.2000 filed with the Commissioner in reply to the SCN, stayed, inter alia, that the purity of silver varied from 47.1 to 64%. But no valid proof of such a claim was brought on record. Thus, I find, the department's case of 70% purity of the seized raw silver stands unrebutted and hence proved. Raw silver slabs of 70% purity are "silver bullion" only. According to Collins English Dictionary, "bullion" means (i) gold or silver in mass and (ii) gold or silver in the form of bars and ingots, suitable for further processing. There being no dispute of the fact that "silver bullion" was, at the material time, an item notified under Section 123(2) of the Customs Act, the provisions of Sub-section (1) of Section 123 were applicable to the silver slabs in question. Ld. counsel's arguments to the contra cannot be accepted. But, then, counsel has argued that the initial burden was on the department , before invoking the provisions of Section 123(1) of the act, the establish that the goods were of foreign origin. Such burden was not successfully discharged by the Customs authorities. The only marks found on the silver slabs (vide Panchnama) were some numbers embossed on them, which did not indicate any foreign origin. There was also nothing in the statements recorded by the Customs officers to establish any foreign origin, with the department. Therefore, ld. advocate argued, the department failed to establish the foreign origin of the silver slabs before issuing the SCN. He has relied on the Tribunal's decision in the Kotharis' case (supra).
8. In Kotharis' case, diamonds and diamond-studded jewellery were recovered by Customs officers from S.J. Kothari who was intercepted at Madras airport. In the absence of evidence of licit origin of the goods, the Customs authorities believed that the goods were smuggled into India and, therefore, they seized the same. The Additional Collector who adjudicated the case held that, in respect of certain loose diamonds, the Kotharis failed to discharge the burden of proving that the goods were not of foreign origin as required under Section 123 of the Act. He therefore held the loose diamonds to be liable to confiscation under Section 111(d) of the Act. In the appeal of the Kotharis against the order of adjudication, a 2-Member Bench of this Tribunal set aside the confiscation of the goods, upon a finding that the Customs authorities had no knowledge as to whether the diamonds were of India origin or foreign origin and that there was nothing on record to suggest that the goods could have originated from a foreign country. The Bench held that the provisions of Section 123 could not have been invoked in the case. The view taken by the Bench was to the effect that the initial burden was on the department to establish foreign origin of the goods before Section 123 could be invoked against the owners thereof. The view appears to be a precedent, in the absence of citation of case law to the contrary from the side of the Departmental Representative.
9. With great respect, I may observe that the above view taken in the Kotharis' case appears to be contrary to the legislative intent behind Section 123 of the Customs Act. Sub-section (1) reads as under:- "Section 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 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, (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." It appears to me that a reasonable belief that the goods [referred to under Sub-section (2)] are smuggled goods is enough for seizure thereof under the act and, once such seizure is done, the burden falls forthwith on the person concerned [referred to under clauses (1) and (b) of Sub-section (1)] to prove that the goods are not smuggled goods.
The reasonable belief is the basis for seizure under Section 110 of the Act. It may not be correct to equate it to proof of the goods being smuggled goods of foreign origin. The belief can be drawn from circumstances. When Section 123(1) casts on the person concerned the burden of proving that the goods are not smuggled goods, it is upto his to show either that the goods are not of foreign origin and hence not smuggled goods or that the goods are of foreign origin but not smuggled goods having been lawfully acquired. An interpretation that tends to enable persons who deal with smuggled goods, to evade the above burden of proof and get away scot-free cannot be adopted. There appears to be nothing under section 123(1) to support a view that the Customs authorities should prove foreign origin of the goods before asking the person concerned to discharge the burden of proof under that provision of law. To mount on the authorities such an initial burden can possibly encourage smugglers to bring into India from across the borders goods without foreign markings so as to make it difficult for the authorities to "establish" the foreign origin of the goods.
10. For the reasons stated above, I am of the view that the correctness of the decision in the Kotharis' case should be reviewed by a Larger Bench to be constituted by the Hon'ble President. The Registry is, therefore, directed to place the matter before the Hon'ble President.