GST update /2026-27/0048

Commissioner of Customs (P), Lucknow v. Sh. Md. Shahbaz Siddiqui & Ors.

Appeal No.:70520 of 2025 along with 70521/70522/70523/70524/70525.

Tribunal: CESTAT (Allahabad)

Case Title: Commissioner of Customs (P), Lucknow v. Sh. Md. Shahbaz Siddiqui & Ors.

Outcome:Appeals were dismissed

Judgement Date: 02.06.2026

BRIEF FACTS OF THE CASE:

Mr. Shahbaz Siddiqui, one of the five respondents was arrested by the officials of DRI, Lucknow Zonal Unit while travelling from Gorakhpur to Lucknow via train. The Respondent was in the possession of gold ornaments weighing 946 grams and cut pieces of primary gold weighing 921.7 grams, aggregating to 1,867.7 grams which was valued at Rs. 90,50,385/-. As per the Department, Shri Md. Shahbaz Siddiqui could not produce any documents relating to the purchase or import of the recovered gold. In his statement recorded under Section 108 of the Customs Act, 1962, he allegedly admitted that he had travelled to Gorakhpur to deliver jewellery made from smuggled foreign-origin gold, that he had received the recovered gold pieces from Lal Babu Varma and Kishan Verma for transporting them to Lucknow, and that the gold belonged to Suagat Jana and Ammar Husain. He further stated that the recovered gold had been smuggled into India from Nepal, based on what Kishan Verma and Rahul Verma had informed him. Relying upon these statements, searches were conducted at the premises of the other respondents; however, no incriminating evidence was recovered. However, call records revealed that the respondents who were subject parties to search were in constant touch with Mr. Shahbaz Siddiqui. Thereafter, Show cause notices, were issued to respondents, proposing the confiscation of gold and imposition of penalties. Relying upon the statements recorded, adjudicating authority passed an order and confiscated the jewellery and cut pieces of gold imposing penalty on the respondents.
However, while replying to the show cause notice, Shri Md. Shahbaz Siddiqui denied the allegations and submitted that he was a jewellery maker who had travelled to Gorakhpur to sell jewellery and to get certain gold processed through a job worker. He contended that the jewellery remained unsold, that he possessed valid purchase documents which were ignored by the DRI, and that his statement under Section 108 had been obtained under duress and coercion. The other respondents also denied any involvement in smuggling and explained their respective dealings with the gold. Relying upon the statements recorded, adjudicating authority passed an order and confiscated the jewellery and cut pieces of gold imposing penalty on the respondents.
Aggrieved by the Order-in-Original, the respondents preferred appeals before the Commissioner (Appeals), who held that the seizure was a town seizure, that the recovered gold did not bear any foreign markings, and that the Department had failed to produce cogent evidence establishing its foreign origin or smuggling into India. Accordingly, the confiscation of the gold and the penalties imposed upon the respondents were set aside. Aggrieved by such order, the Department preferred the present appeals before the Tribunal.

QUESTION BEFORE HON’BLE COURT:

Whether it is valid to initiate proceedings by the authorities relying solely on the statements of the taxpayer without cross-examining them?

BRIEF ARGUMENTS BY APPELLANT:
Appellant submitted following contentions: -

Department argued that the appellant was unable to produce documents related to the purchase/import of gold and gold ornaments seized at the time of seizure.
That the respondent while tendering his statements stated that he was travelling to Gorakhpur to deliver gold jewellery made from smuggled foreign gold and in return receive pieces of gold to be delivered to Lucknow.
Analysis of mobile call detail records clearly showed that the respondents had remained in regular telephonic contact during the relevant period
Respondent confirmed that the gold and ornaments were illegally smuggled into India from Nepal through an organised network involving the respondent and several other individuals.
That the Commissioner (Appeals) erred in treating the seizure as town seizure and the statements of the respondents recorded are material evidences.
That the DRI officials were not carrying any illicit document which is corroborated by the call detail record analysis.

Therefore, impugned order should be set aside.

BRIEF ARGUMENTS BY RESPONDENT:

Respondent contended that:

It was a case of 'Town Seizure'

The respondents submitted that the gold was seized at Railway Station, , while Shri Md. Shahbaz Siddiqui was travelling from Gorakhpur to Lucknow. Since the seizure did not take place at an international border, airport, customs station or any notified customs area, it was purely a town seizure. Therefore, no automatic presumption could be drawn that the seized gold was smuggled into India.

No Evidence to Establish Foreign Origin of Gold

It was argued that the recovered gold ornaments and gold pieces did not bear any foreign markings, inscriptions or identification marks indicating that they were of foreign origin. Further, the Department failed to produce any documentary or independent evidence showing that the gold had been illegally imported into India from Nepal or any other country.This contention is further substantiated by the fact that as the purity of gold is not as per the international standard of 99.99% purity which clearly depicts that the gold is not belonging to foreign origin.

Statement under Section 108 was Obtained under Duress and were not reliable

Shri Md. Shahbaz Siddiqui submitted contended that he was a jewellery maker and he makes jewellery as per the customers orders. The ornaments were taken by him for selling, however, jewelleries design were not found as per the market, hence, they remained unsold. After that while he was returning to Lucknow, he was apprehended by DRI. Further, he was holding valid documents related to the gold, however, the same were not taken on record by the DRI officials. Further, DRI officials took the statement of the respondent under pressure and threat and a typed copy of the statement was presented before him and he was pressurized to sign the same.
Reliance placed on call records not conclusive

The Call detail records only establish that phone calls were exchanged and do not disclose the contents or subject matter of the conversations. Therefore, the CDRs cannot be treated as evidence to prove that the respondents were involved in smuggling activities.

Cross-Examination was Wrongly Denied

Respondents requested several times the department for the cross examination of the witnesses, however, the same were denied by the adjudicating authority while passing the order-in-original. For this reliance was placed upon the decision of Madras High Court in the case of Vijayaraj Surana v. Commissioner of Customs, Chennai-III in which it was held that while adjudicating show cause notices, the petitioners should be given fair opportunity if the department wishes to rely on the statement and as in the instant case the SCNs were solely based upon the statements of the petitioners recorded. However, in case if the adjudicating authority does not wishes to rely upon the statements, then in such case, question of providing opportunity does not arise.

Penalty under Section 112(b) was not Sustainable

The respondents further argued that penalty under Section 112(b) of the Customs Act can be imposed only when the Department proves that the goods were improperly imported or were liable to confiscation. Since the Department failed to establish that the seized gold was smuggled into India, the very foundation for imposing penalty disappeared.

FINDINGS & JUDGEMENT:

Following are the findings of the Tribunal in the instant case:

Town Seizure Requires Stronger Evidence of Smuggling

It was held that the instant case of seizure is of town seizure as the gold was recovered from Shri Md. Shahbaz Siddiqui while he was travelling from Gorakhpur to Lucknow and not from any international border or notified customs area. Further, the seized gold did not bear any foreign markings indicating its foreign origin. Therefore, Department must first establish a reasonable belief, based on definite and credible material, that the goods were smuggled. Mere suspicion, absence of documents, or general information cannot constitute such reasonable belief. Reliance placed in case of case of Shanti Lal Mehta v. Union of India & Ors.

Burden of proof lies on the department

The Tribunal held that the burden under Section 123 does not arise automatically merely because gold is seized. The Customs authorities must first demonstrate that the seizure was based on objective material establishing a reasonable belief that the goods were smuggled. If this foundational requirement is not satisfied, the burden continues to remain upon the Department to prove the allegation of smuggling, and the statutory presumption under Section 123 cannot be invoked.
Statement of Shri Md. Shahbaz Siddiqui was Hearsay

His statement was not based on his own personal knowledge. He merely stated that Kishan Verma and Rahul Verma had informed him that the gold had been smuggled from Nepal. Therefore, his statement constituted hearsay evidence, which by itself could not establish that the seized gold was smuggled into India.

Denial of Cross-Examination Violated Section 138B and Principles of Natural Justice

The Tribunal found that Shri Md. Shahbaz Siddiqui had specifically requested cross-examination of the witnesses whose statements were relied upon in the show cause notice. However, the adjudicating authority rejected the request solely on the ground that the Department's case stood corroborated by the CDR analysis. The Tribunal held that this was not a valid ground for denying cross-examination. Since those statutory requirements under Section 138B were not complied with, the statements could not be relied upon as substantive evidence. Reliance placed on decisions in case of Flemingo (DFS) Pvt. Ltd. v. Commissioner of Customs and Basudev Garg v. Commissioner of Customs.

Statements taken under Distress

In continuation of above, it was observed that the while giving reply to SCN, Shahbaz Siddiqui submitted that the statement given on 30.12.2022 is true and subsequent statements given at the Lucknow DRI office were given under coercive pressure. Hence, it is impossible to decide as to consider which statements to be voluntary and to place reliance on them without any corroborative evidence. Hence, it was held that there is nothing available through which

No Independent Corroborative Evidence Produced

It was held that, Revenue is responsible to bring some other corroborative evidence like transport records, border surveillance material, recovery from any border area, or any other evidence was brought on record to establish that the seized gold had actually entered India illegally from Nepal to support the charge of smuggling. However, Revenue has not made further corroboration by leading any other evidence to show smuggled nature of the subject gold bars.
Call Detail Records (CDRs) do not Establish Smuggling

CDR cannot be held as corroborative evidence as they demonstrate only the fact that the Respondents talked with each other during the relevant period. However, just telephonic conversation with each other cannot be concluded that the subject gold is of foreign origin and was smuggled into India by the respondent. Reliance was placed upon the judgement given by Tribunal in the case of Shafeek P.K. v. Commissioner of Customs, Cochinin which it was held that merely on the basis of call records, it cannot be concluded that the appellant was in the leading position in the smuggling operation.
Accordingly, It was held that the Tribunal is not inclined to interfere with the order in appeal and hence, all the six appeals of the Revenue were dismissed.

Various Case laws referred in the instant GST Update:

Flemingo (DFS) Pvt. Ltd., Vs. Commissioner of Customs, Visakhapatnam [2018 (363) E.L.T. 450 (Tri Hyd.)]
Basudev Garg vs. Commissioner of Customs [2017 (48) S.T.R. 427 (Del)]
Shafeek P.K. vs. Commissioner of Customs, Cochin [2015 (325) E.L.T. 199 (Tri-Bang.)]

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GST update /2026-27/0048

BRIEF FACTS OF THE CASE:

QUESTION BEFORE HON’BLE COURT:

BRIEF ARGUMENTS BY RESPONDENT:

FINDINGS & JUDGEMENT:

Opinion

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